Dear Readers:
Right now there are many 'creative' devices by which buyers are encouraged to purchase. Some are motivated by the recent credit 'crunch'. Others are inspired by greed and dishonest exploitation of unsophisticated first time buyers. One of the most nefarious is that of Contract for Deed.
If you are representing an unsophisticated buyer, do not advise that buyer to use Contract for Deed unless both you as the buyer's agent and the buyer truly understand just how few rights the buyer has when using this contract device and the unique process, restrictions, and disclosures required by the Texas Property Code (specifically Sections 5.061-5.085).
Do you know what Contract for Deed does? Do you know how to explain it to your buyer? Even if you think you do, your authors suggest that this is among the most undesirable means by which any buyer can purchase real estate. Historically, Contract for Deed has been one of the ways by which unscrupulous developers sell small tracts of land. Typically, the rate of interest when properly calculated is higher than what the buyer was led to believe, the ability of the buyer to cure a default in payment is very restricted and most significantly, even if the documents describe fairly what a Contract for Deed does, the unsophisticated buyer probably received a sales pitch, which you the agent don't know about, by the seller or owner that does not resemble what is actually in the documents.
And the number of documents and processes required to properly disclose a Contract for Deed transaction has significantly increased because of additional requirements added to the Texas Property Code in 1995 and 2001. For example, several disclosures must be made in writing by the seller prior to the time the buyer signs the Contract for Deed, including a disclosure of property condition (Section 5.069), a disclosure of tax payments and insurance coverage (Section 5.070), a disclosure of financing terms (Section 5.071), a disclosure of no oral agreements (Section 5.072), a disclosure of a right to cancel (Section 5.074), and a purchase money loan disclosure (Section 5.085). In addition, a copy of all documents related to the transaction must be provided in the language in which negotiations were conducted if the language was other than English (Section 5.068). Please CLICK HERE to read the cited sections.
Sometimes the person receiving the funds as a seller's agent is completely unaware of what the Texas Property Code requires in the way of escrowed funds. Sometimes use of a title company is discouraged by the seller, which enables the seller to misappropriate the funds that are required to be escrowed. While stealing the buyer's funds is a criminal offense, the agent of the seller is not necessarily going to create liability for the seller. The agent of the seller may not even be a licensed sales associate or broker. Do you know?
Then there is the fact that because the seller is in some respects the lender, the scrutiny of the transaction in the way of assessment of value is also lacking. Small, undeveloped tracts of land in areas in transition are particularly difficult to assess. The same buyer who does not want to pay for a title policy is not going to be interested in paying for an inspection or survey or determination of the status of the infrastructure that supports the real estate. But when things don't work out, that buyer is going to turn to the agent and accuse the agent of failing to disclose.
When your client presents you with a Contract for Deed proposal, either as listing agent or as buyer's representative, make sure you counsel with your team leader first.
In your every professional adventure in 2008, we wish you the very best.
This information is provided by Laura S. Fowler JD and Jack W. Cunningam JD/MBA, Attorneys at Law with The Fowler Law Firm PC. It is not intended as a substitute for careful review by legal counsel of your choosing. We would be most honored to assist you in your every real legal need.
Contact Laura Fowler at lfowler@thefowlerlawfirm.com
or call (512) 441-1411.
Contact Jack W. Cunningham at jcunningham@thefowlerlawfirm.com
or call (512) 441-1411.
As with any legal issues, please consult your attorney with questions.
