Contract for Deed -- Penalties for Seller's Failure to Provide Annual Accounting

Buyers purchasing real property in Texas under a Contract for Deed are entitled to numerous statutory protections. Whether all of these protections are necessary to prevent Seller abuses is widely debated, and many of Property Code Chapter 5's provisions have been criticized for being designed to set Sellers up for failure.

Among the oft' criticized provisions is Texas Property Code Section 5.077, which requires a Seller under a Contract for Deed to provide the Buyer with an annual statement by January 31 of each year during the contract. The statute requires that the state include at least the following information:

(1)  the amount paid under the contract;

(2)  the remaining amount owed under the contract;

(3)  the number of payments remaining under the contract; 

(4)  the amounts paid to taxing authorities on the purchaser's behalf if collected by the seller;

(5)  the amounts paid to insure the property on the purchaser's behalf if collected by the seller;

(6)  if the property has been damaged and the seller has received insurance proceeds, an accounting of the proceeds applied to the property;  and

(7)  if the seller has changed insurance coverage, a legible copy of the current policy, binder, or other evidence that satisfies the requirements of Section 5.070(a)(2).

While few would debate that the statement is a good idea, the penalties for failure to furnish one can be harsh. Those penalties are largely dependent on the number of Contracts for Deed (also referred to as executory contracts) that a Seller enters in a given year.

A seller who conducts less than two transactions in a 12-month period who fails to timely furnish the annual accounting is liable to the purchaser for liquidated damages in the amount of $100 for each annual statement the seller fails to provide and reasonable attorney's fees.

 A seller who conducts two or more transactions in a 12-month period and fails to provide the annual accounting is liable to the purchaser for liquidated damages of $250 per day plus the buyer's reasonable attorneys' fees.