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If you’re looking for a contract for deed in Texas, it’s essential to understand the risks involved. A contract for deed is not as solid as a mortgage or deed of trust, but there are ways to keep your risk low. In this blog post, we’ll look at some things you can do to protect yourself when entering into a contract for deed.
Why Contract For Deed is a Risky Arrangement
When looking for a new home, contract for deed homes near you can be tempting. After all, you get to take possession of the property immediately and don’t have to look at your financing options. There is no conventional loan to worry about, and you may not even need to pay closing costs!
However, home buyers beware! Seeing a “For Sale” sign and finding it’s “owner financed” doesn’t mean it’s a good deal for you! If you have bad credit and debt but see this as a panacea, you may find even more trouble down the road with a contract for deed.
Real estate investors often offer these types of deed financing to take advantage of those with bad credit and scant savings. If the seller offers owner financing, you’ll need a real estate attorney on your side to protect your legal rights!
These deals come at great risk. If something goes wrong, you could:
- Lose all the money you’ve put into your payments
- Lose any upgrades to the property
- Face eviction faster than a mortgage or deed of trust owner
By taking some simple precautions, you can minimize your risk and protect yourself when entering into a contract for deed. Do your research, work with a reputable contract for deed holder, and understand the contract before you sign.
Working with an experienced real estate attorney before signing anything can give you the legal protection you need!
Research The Property And Neighborhood
Before you enter into any contract for deed agreement, do your research. Looking into it all is especially crucial if you’re planning to purchase a fixer-upper. Look at the property value in the neighborhood, the cost of repairs, and the potential rental income.
You should also research the contract for deed holder. Look for negative reviews or complaints. Try to get in touch with previous contract for deed holders to see how their experience was. The more you know, the better you can feel about going into your contract for deed.
Work With A Reputable Contract For Deed Holder
There are many scammers out there looking to take advantage of contract for deed holders with high-interest rates and large balloon payments at the end of a contract.
To protect yourself, working with a reputable contract for deed holder is crucial. Working with a real estate attorney to ensure you get a fair deed financing arrangement and land contract just makes sense in this situation.
Also, get a home inspection to protect you from a disastrous situation!
Get everything in writing and ensure you understand the contract before signing anything. Working with an experienced real estate attorney should prevent losing money and your hopes and dreams to a scam.
How to Minimize Risk
Contract for deed can be a great way to get into a property, but you need to take steps to protect yourself. Here are some things you can do:
- Get everything in writing
- Make sure the contract is clear and complete
- Get an experienced real estate attorney to look over the contract
- Understand your rights and responsibilities
- Research the property thoroughly
- Be prepared to walk away from the deal if something doesn’t feel right
Look at your budget realistically and assess whether this arrangement makes sense for your future.
Talk with your real estate attorney about your options. Don’t let others take advantage of your situation now with high-interest rates and a balloon payment when you might be able to buy with a mortgage or deed of trust in a year or so.
Most Essential Way to Minimize Risk
The most important way to find legal protection is by filing your contract for deed in the county deeds office. If you live in Harris County, use this link.
Once recorded, legal authorities see your contract the same as a warranty deed with a vendor’s lien. After you file, if you get behind on payments, the seller must post, file, and serve notice of sale as a foreclosure before the sheriff’s office can remove you.
Recording your deed also protects the property against other claims. The seller’s possible claim to your property may not be the only one you face. There could be other liens or encumbrances on the property.
A contract for deed is a big decision. Make sure you understand all the risks before you sign on the dotted line. You can minimize your risk and protect yourself with some care and caution.
Why a Deed of Trust or Mortgage is Safer
You have legal protections as a homeowner with a deed of trust or mortgage that you may not possess with an owner-financed home.
With traditional home buying, you:
- Work with a title company to receive a warranty deed (a deed that guarantees a clear title to the buyer of real property) and vendor’s lien (a legal document that is the security for a real estate loan). (1)
- lien (a legal document that is the security for a real estate loan).
- Have the right to live in your home until you’ve paid off your mortgage or deed of trust
- Can’t be forced to sell your property if you stop making payments unless the lender goes through a legal foreclosure process
With a contract for deed, you don’t have these same protections. That’s why it’s essential to understand the contract and all the risks before you sign.
Final Thoughts
Entering into a contract for deed can be a risky proposition. You could lose the money you’ve put into the property, any upgrades you’ve made, and even your home if something goes wrong.
That’s why it’s crucial to be extra careful when considering a contract for deed. It’s a riskier proposition and not right for everyone.
However, you can minimize your risk by doing your research, working with a reputable contract for deed holder, and understanding the contract. Still, a deed of trust or mortgage is generally a safer option.
We Can Help
If you’re interested in learning more about contract for deeds or other real estate legal questions, we can help. Contact Jarrett Law and find out how we can help you work through contracts, assess risk, consider different ways to finance your home, and help you if you’re facing a foreclosure or eviction.
Get in touch today and see how we can help you!
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