Contracts for Deed & Executory Contracts -- New Texas Law Gives Real Teeth to Recording Requirement - HB 311

Trey Wilson San Antonio Texas Real Estate Attorney, Trey Wilson Real Estate Lawyer in San Antonio wrote:

Over the course of several years and multiple legislative sessions, Texas lawmakers have tinkered with Chapter 5, Subchapter D of the Texas Property Code related to "executory contracts" a/k/a "contracts for deed." In prior posts on this blog, I have outlined some of the issues, problems and requirements related to this category of transactions for selling real estate to buyers who cannot obtain conventional financing (mortgage loans). I have also pontificated on my experiences with these instruments, as a lawyer who routinely handles real estate transactions and real estate litigation. It's no secret that I have very mixed emotions about the need for and potential for abuse of Contracts for Deed.

Obviously, the Texas Legislature feels the same way, as they, again, "beefed-up" the requirements, and told us how serious they are about the requirement that contracts-for-deed be required. Enter HB 311...

This new law, which becomes effective on September 1, 2015, amends numerous statutes contained in Chapter 5 of the Property Code. According to the legislation's author/sponsor, the intent of the new law is pretty clear. He introduced the law as follows:

Executory contracts for the sale of residential property (sometimes referred to as “contracts for deed”) have long been disfavored because they encumber title without transferring title, cannot be sold in the real estate market, cannot be used to borrow money to make improvements, and are potentially abusive transactions under which legal title to homestead property may be withheld until many years after the buyer has built a home and made other expensive improvements. While the Texas Legislature has made changes to discourage the use of these instruments, serious problems persist from their use. Parties also contend that there remain significant misunderstandings among sellers, buyers, and even judges and attorneys about the nature of executory contracts and about the rights and obligations of the various parties to such instruments. H.B. 311 continues the progression to modernize residential real estate transactions, improve transparency, and improve the process of conversion of these relics of real estate. 

As eventually passed, HB 311 also enacts a new civil penalty for violations of state law related to executory contracts.  

Stay tuned, in a future post on this blog, I will cover the numerous changes to Chapter 5, on a section-by-section basis, and give a personal commentary on HB 311.