Contracts for Deed Alive and Well in Texas, New Study Shows

AUSTIN, Texas — As many as 1 in 5 families who recently bought land on which to build their homes may have bought using an unrecorded "contract for deed"-- one that does not confer formal title to their properties, according to a major report on the titling practices in Texas colonias and other informal settlements released today by researchers at The University of Texas School of Law and Lyndon B. Johnson School of Public Affairs.

Researchers visited more than 1,300 households on the border and in Central Texas counties to examine whether and how low-income buyers in Texas’ poorest communities are obtaining title to their land, with a specific focus on the use of contract for deed.

Commissioned in August 2011 by the Texas Department of Housing and Community Affairs at the request of the Texas Sunset Commission, the report will be discussed at a presentation Oct. 19, 2012, from 11 a.m. to 1 p.m. at the University of Texas School of Law, room TNH 3.127.

Concerned with the rampant use of contracts for deed in land sales to low-income homebuyers in colonias, Texas lawmakers intervened in the mid-1990s to afford buyers greater protections. This report is one of the first major studies to chronicle land transaction practices in colonias since the passage of the legislation, and highlights the need for further study. The report also examines land transaction practices in similar settlements located in Central Texas counties.

Among the report’s key findings:

  • Since the passage of the legislative reforms of contracts for deed, most developers have steered away from using such contracts. However, in some newer low-income subdivisions and informal housing developments, developers and investors are quickly repossessing land from buyers with foreclosure rates that far surpass national rates. Buyers in these newer developments are also living in some of the poorest housing conditions in the state.
  • Contracts for deed continue to be used frequently in land sales by former residents. These sales are very informal and continue to place the buyers in a vulnerable position.
  •  Texas is likely to see a rise in title problems in colonias and informal settlements caused by families inheriting property outside of the probate system. Nine out of 10 households in the study area do not have a will.

The study was directed by Peter M. Ward, C.B. Smith Sr. Centennial Chair in U.S.-Mexico Relations at the LBJ School; Heather Way, director of the Law School’s Community Development Clinic; and Lucille Wood, 2011-2012 Research Fellow at the William Wayne Justice Center for Public Interest Law.

Details of the full report are available online at the Texas Housing Studies website.

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