What Is One of the Biggest Mistakes a Seller of Real Estate Can Make? July 24, 2015
I am constantly amazed that I still see disputes relating to Lease to Own Contracts. In the old days, we called them Contracts for Deed. Apparently the more modern title is Lease to Own or Lease with an Option to Purchase or some similar title.
The Texas Legislature has made it clear years ago that any Lease of 180 days or more, coupled with an option to purchase the real estate, is deemed to be an Executory Contract for Conveyance (otherwise known as a Contract for Deed). There are some exceptions to this general rule but those exceptions never seem to be applicable to the cases I see. The applicability section is within the Texas Property Code §5.062.
Now, once you have a Contract for Deed, Lease to Own, etc. that falls under the Executory Contract for Conveyance Statute, this means you have a rodeo on your hands.
The laundry list of items that have to be complied with is far too long to put into this article. Some of the highlights are: you need certain disclosures in the contract; the contract must be recorded in the real property records, and there is a special seller’s disclosure notice that must be provided. Penalties under the statute can be up to $250.00 per day, and in some cases the purchaser can get every dollar they paid toward the contract back and have the contract cancelled.The failure to adhere to the requirements in the Property Code is also deemed to be a violation of the Texas Deceptive Trade Practices Act.
Furthermore, even if it was possible to develop an Executory Contract for Conveyance that met all of the requirements in the Property Code, there are Annual Reporting requirements that must be met, and the title to the Property must be kept free and clear of liens.
Finally, any purchaser has the right to convert the Executory Contract for Conveyance to “recorded legal title” which means the seller of real estate would have to execute a Deed, the Buyer would execute a Deed of Trust and a Real Estate Lien Note, which would then get recorded in the Real Property Records. Once the transaction is in this form, the annual reporting requirements are no longer applicable.
So next time you want to do a Lease to Own, just say No. Instead, do a Deed, Deed of Trust and a Real Estate Lien Note, and the Texas Property Code provisions regarding Executory Contracts for Conveyance will not be applicable.
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