I keep reading that Contrac For Deed In Texas is Illegal. Does this apply even if I own property free and clear of any liens and give all required notices to buyer?
Does Texas treat a Contract for ded as a Mortgage?
Howdy Art:
They are not illegal. Just using one and not going by the strict rules will put you in jeopardy of losing your property or being sued for mucho denero. Just the legal fees to defend the lawsuit will be expensive not to mention when you lose. Keep it simple with a note and deed of trust and a deed to the buyer. You could use a lease option agreement but with same but new problems.
If I understand the Texas legislation correctly, this bill converts ALL residential home leases containing a purchase option into “executory contracts”. An executory contract is considered a sale under IRS tax rules, whereas a lease with option is not. This will result in DRASTIC adverse tax consequences to investors who cannot take advantage of long term capital gains rules.
Second, the bill requires that any seller of a property under an executory contract own property FREE AND CLEAR of all liens. There are many cases where this would be impractical, since creative financing is often a solution to a property that is difficult to sell. Restricting the means of sale is going to result in more foreclosures in Texas. It will also limit the options of many low-income buyers who have no other means of buying a home than on an executory contract from a seller.
The only means of owner financing left in the state of TX will be:
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Sell subject to an existing loan and taking a wrap (aka “All Inclusive Trust Deed” or “AITD”)
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Let the buyer assume your note and take back a second.