Executory Contracts in Real Estate Transactions under Texas Law

When purchasing real property in which financing is involved, the Buyer may seek financing from a third party or from the Seller. In many real estate transactions, title and possession of the real property are delivered from Seller to Buyer by a Closing date. However, n certain transactions, especially when financing is provided by the Seller, possession is delivered to Buyer but title is held by Seller until a date in the future. In many cases, the transfer of title is withheld until Seller has received the payment price in full from Buyer. These type of real estate transactions are commonly known as executory or “rent-to-own” contracts.

Because of past abuses regarding these types of contracts, the Texas legislature enacted several protections for Buyers engaged in these “rent-to-own” contracts. Some of these protections apply to property located in counties that are within 50 miles from the Texas-Mexico border, and some of them apply to counties in the whole state.

The protections enacted by the Texas legislature include: disclosures notices and warnings, annual accountings, Spanish versions of documents, special default procedures, special notices in the event of default, recording of these type of contracts, obligations to deliver copies of documents such as surveys, easements or restrictive covenants. The Texas legislature has also prohibited that these types of contracts contain certain clauses such as penalties for pre-payments and excessive late payment fees, among others.

Violations of these provisions may trigger remedies that range from criminal punishment (a Class A misdemeanor) and civil penalties, to actions under the Texas Deceptive Trade Practices-Consumer Protection Act, liquidated damages and payment of attorney fees.

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