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									                           CONTRACTS FOR DEED: EXTINCTION LONG
                                        OVERDUE

I. INTRODUCTION........................................................................................................... 1
II. CONTRACTS FOR DEED IN TEXAS AND THEIR HISTORY..................................... 3
       A. What Is a Contract for Deed?........................................................................... 3
       B. History of Contracts for Deed in Texas⎯The "Colonias"................................. 3
III. TEXAS PROPERTY CODE PROTECTIONS ............................................................. 6
       A. The Purpose of Texas Property Code Protections........................................... 6
       B. The Early Protective Measures ........................................................................ 8
       C. The 2001 Amendments ................................................................................. 12
       D. The 2005 Proposed Amendments to Section 5.077 ...................................... 15
IV. THE EFFECTS OF THE CONTRACT FOR DEED REGULATIONS........................ 16
       A. A Comparison Between the Old and the New................................................ 16
       B. A Closer Look at Section 5.077...................................................................... 18
              1. Excessive Fines Clause of the Texas Constitution............................. 19
              2. Is Section 5.077 Unconstitutional? ..................................................... 20
V. RECOMMENDATIONS ............................................................................................. 22
       A. Expand Contract for Deed Conversion Programs.......................................... 22
       B. Expand Mortgage Financing Programs to Make Traditional
              Mortgage Vehicles More Readily Available ............................................. 24
       C. Apply Mortgage Law to Contract for Deed Transactions ............................... 25
VI. CONCLUSION.......................................................................................................... 27


                                                I. INTRODUCTION

        John Smith walked into his attorney's office one Monday morning concerned with
a letter he received from an attorney who represented a young couple who bought the
house that John and his wife lived in for thirty years. At the time he sold the home, John
agreed to sell the house under a contract for deed because the young couple could not
qualify for traditional financing. Over the course of the next four years, the couple never
missed a payment and seemed to be perfectly happy with their purchase. In fact, John
had not heard a word from them other than to receive their monthly payments. John was
unaware of any complaints and was surprised to receive a letter from the attorney who
represented the couple.

        John's attorney was equally surprised and concerned when he read the letter.
The letter stated that John owed the couple $273,750.00 in fines for breach of his
statutory duties under the Texas Property Code. 1 Furthermore, he would owe any
additional reasonable attorney's fees accrued while the attorney collects these fines for
his clients. 2

       John's attorney quickly found the correct volume of the Texas Property Code and
turned to section 5.077. 3 He read the section several times before he looked up at John
with concern over the harsh penalty the statute set forth. 4 Although the selling price

1
          See infra text accompanying notes 172-77.
2
          TEX. PROP. CODE ANN. § 5.077(c)(2) (Vernon 2004).
3
          See id. § 5.077.
4
          See infra text accompanying notes 172-77; discussion infra Part IV.A.


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under the contract for deed was only $50,000, the statute did not limit the amount of fine
that could be imposed. 5 Fines in excess of five times the value of the home had accrued
and would continue to accrue until the accounting statement was provided. 6 John stood
to lose everything he owned for failing to send out a simple letter once a year. 7

        Although there has not been widespread litigation over this statute or the other
provisions of the statutes regulating contract for deed transactions, the possibilities and
the potential harsh results are clear. 8 The 2001 amendments and the proposed 2005
amendments to the Texas Property Code pertaining to contract for deed transactions are
both good and bad in purpose and applicability. 9 The protectionary benefits of the
amendments can be found by a review of the history of contract for deed transactions in
Texas, especially the hardships faced by those persons owning property under contracts
for deed in the "Colonias" of Texas. 10 The need for protective measures is obvious. 11
But are the problems faced by those in the Colonias the same as the issues faced by
others across the state seeking to make a home purchase under a contract for deed? 12
If the answer to this question is no, then do the revisions to the property code that
impose a penalty on both purchasers and sellers in other regions go well beyond the
stated reasons for contract for deed regulation in Texas? 13

        This Article is designed to answer these questions through an analysis of the
Texas Property Code's handling of contract for deed purchases. 14 The purpose of this
Comment, however, is not to merely shed additional light on contract for deed
transactions. This Comment is intended to shed light on the drafting of legislation that is
facially designed to create legitimate safeguards, but that becomes overbroad or
excessively harsh when applied. 15

        This Comment will answer the questions posed by looking at the implications to
buyers and sellers of the 2001 amendments to the Texas Property Code enacted by
Senate Bill 198. 16 A comparison will be made between the pre-2001 provisions of the
property code, the revisions enacted in 2001, and the proposed 2005 revisions. 17 Then,
the original purposes of amending the property code to address residential contract for
deed transactions will be compared to the actual scope and reach of the current
provisions of the code. 18


5
        See infra text accompanying notes 172-77.
6
        See infra text accompanying notes 172-77.
7
        See infra text accompanying notes 172-77.
8
        See, e.g., Flores v. Millennium Interests, Ltd., 273 F. Supp. 2d 899, 901 (S.D. Tex. 2003)
        (addressing a challenge under section 5.077 of the Texas Property Code).
9
        See discussion infra Parts III, IV.
10
        See discussion infra Part II.
11
        See discussion infra Part II.B.
12
        See discussion infra Parts II, IV.
13
        See discussion infra Part IV.
14
        See discussion infra Part IV.
15
        See discussion infra Part IV.
16
        See discussion infra Part II.
17
        See discussion infra Part III.B-D.
18
        See discussion infra Part IV.


                                                2
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       Following an analysis of the provisions of the property code pertaining to contract
for deed transactions, this Comment will discuss the reasoning for eliminating the
problems surrounding contracts for deed altogether. 19

        First, however, one should look into the history of contracts for deed in Texas
and into those persons who made contracts for deed a popular financing tool for
residential purchases. 20 Some background information into the Colonias of Texas is
necessary to fully understand and appreciate the conclusion provided by this Comment
that contract for deed statutes should either be modified to be limited to their original
purposes, or that contracts for deed should effectively be eliminated as a real estate
financing tool in Texas. 21

             II. CONTRACTS FOR DEED IN TEXAS AND THEIR HISTORY

                               A. What Is a Contract for Deed?

        A contract for deed is an alternative financing method used to sell real property. 22
Under a contract for deed transaction, legal title is not transferred to the buyer until all
payments designated under the contract are made. 23 These contracts are executory
contracts that are often used when a purchaser is unable to obtain traditional financing
for real property. 24 Buyers, however, normally prefer the deed of trust because they
receive both legal title and possession of the property at closing. 25 Historically, lenders
preferred using the contracts for deed because at closing, the lender retained title to the
property. 26 In the event the buyer defaulted, the lender could rescind the contract, regain
possession of the property, and retain any payments the buyer already made on the
contract. 27

                B. History of Contracts for Deed in Texas⎯The "Colonias"

       The emergence of the South Texas Colonias led to a need for increased
consumer protection measures to protect against the unscrupulous practices of sellers
and the health hazards that emerged in these poverty stricken communities. 28 The plight
of the Texas Colonias is well documented, and a review of the history of these




19
        See discussion infra Part V.
20
        See discussion infra Part II.
21
        See discussion infra Part II.
22
        See Judon Fambrough, New Rules Governing Contracts for Deed, 9-1 JOURNAL OF THE REAL
        ESTATE          CENTER        AT       TEXAS        A&M       UNIVERSITY     (Jan.     2002),
        http://recenter.tamu.edu/tgrande/vol9-1/1547.html.
23
        Id.
24
        SEN. COMM. ON BUS. & INDUS., BILL ANALYSIS, Tex. S.B. 198, 77th Leg., R.S. (2001).
25
        Fambrough, supra note 22.
26
        Id.
27
        Id.
28
        TEX. SEC' Y OF STATE, COLONIAS FAQ's (FREQUENTLY ASKED QUESTIONS), at
        http://www.sos.state.tx.us/border/colonias/faqs.shtml (last visited May 16, 2005) [hereinafter
        COLONIAS FAQ'S].


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developments is important to understand the purposes behind the past decade of
legislative action. 29

        Colonia means neighborhood, but in Texas, it does not apply to an affluent area
as it does in Mexico. 30 Starting in the 1950s, the Texas Colonias began to develop in the
border regions where unscrupulous developers sought to transform valueless land into
unincorporated subdivisions. 31 The regulatory free zones outside the city limits of border
region municipalities were prime territory for the developing colonias. 32 As Texas
regulatory powers originate with the cities and state, areas outside of the cities are
essentially regulation free until a serious matter arises that must be addressed. 33 The
lack of regulations created the perfect setting for low-cost developments. 34

       Demand for the colonia subdivisions stems from the limited supply of affordable
housing along the Texas-Mexico border for people in very low income brackets. 35 To
accomplish their purpose, developers targeted the low income residents of the border
regions who had no other opportunity to become property owners. 36 The Colonias were
one of the few areas that provided poor people along the border the opportunity to
pursue the American dream of owning their own homes. 37 They could purchase the land
under a contract for deed and build their houses, often without utilities or adequate
plumbing, in stages as they could afford materials. 38

       The ability of low income persons to purchase homes led to rapid
developments. 39 This rapid development of the colonia subdivisions created many
problems and concerns. 40 Dishonest developers had no interest in providing adequate
water and sewer systems to support the growing neighborhoods. 41 The lack of adequate
systems led to sewage pooling on the ground in the Colonias, increasing the risk of
disease. 42 The inadequate sewage systems, disease, and other conditions created an




29
        See, e.g., Jane E. Larson, Free Markets Deep in the Heart of Texas, 84 GEO. L.J. 179 (1995);
        Joann Mattiesen, What Now for the Texas Colonias?, 27 N.M. L. REV. 1(1997); David L. Hanna,
        Comment, Third World Texas: NAFTA, State Law, and Environmental Problems Facing Texas
        Colonias, 27 ST. MARY'S L.J. 871 (1996); Roderick R. Williams, Note, Cardboard to Concrete:
        Reconstructing the Texas Colonias Threshold, 53 HASTINGS L.J. 705 (2002).
30
        Ray Thomas, The Plight of Texas Colonias, 62 TEX. B.J. 1045, 1045 (1999).
31
        Id.
32
        TEX. DEPT. OF HOUS. & CMTY. AFFAIRS, BACKGROUND ON THE COLONIAS, at
        http://www.tdhca.state.tx.us/oci/background.jsp (last visited May 16, 2005) [hereinafter
        BACKGROUND].
33
        Id.
34
        See id.
35
        COLONIAS FAQ's, supra note 28.
36
        Thomas, supra note 30, at 1045.
37
        Hanna, supra note 29, at 920.
38
        COLONIAS FAQ'S, supra note 28.
39
        See Thomas, supra note 30, at 1045.
40
        Id.
41
        Id.
42
        Id.


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environment compared to that of Third World countries. 43 As such, "the [C]olonias
present one of the most critical housing needs in the State.” 44

        The Colonias consist of young, Hispanic persons in low to very low income
brackets. 45 In fact, family incomes in these areas average at or below $10,000 per
year. 46 This figure is supported by a June 2000 survey by the Texas Department of
Health, which found that incomes in many of the households were below $834 per
month. 47 The Colonia residents' lack of education further exacerbated the low income
problem. 48

        For the past fifty years, contracts for deed have been the most readily available
and heavily used financing tools in the Colonias. 49 The attraction of contract for deed
purchases stems from the lack of mortgage loan programs and the Colonia residents'
lack of available alternatives because of their minimal or nonexistent credit histories. 50
Thus, a developer could easily reclaim the property upon default by the purchaser. 51
Any equity that the buyer gained in the property, along with any improvements the buyer
made to the property, became the property of the developer upon default. 52 The
developers took advantage of the opportunity for abuse. 53

       Developers were eager to sell properties under a contract for deed to these low
income persons because the county clerk did not traditionally require them to record the
contract. 54 Their profits were greatly increased because they kept any down payments
and equity in the property, and they benefited from any increased value—although likely
to be minimal—from improvements made by the defaulting party. 55 The developer could
then resell the property under another contract for deed. 56

       Prior to 1995, the developer faced few hurdles in taking advantage of his position
as the seller under a contract for deed. 57 The developer seldom faced the hurdle of
dealing with another party who held a security interest in the property due to loans for

43
        BACKGROUND, supra note 32.
44
        Id.
45
        Id.
46
        Id.
47
        Id.
48
        Id.
49
        COLONIAS FAQ'S, supra note 28.
50
        Id.
51
        Id.
52
        Id.
53
        See id.; TYLA Tackles Land Title Project in Colonias, 64 TEX. B.J. 346 (2001) [hereinafter TYLA
        Tackles] (discussing the actions of the Texas Young Lawyers Association in assisting to clear title
        to properties obtained upon relinquishment of Colonia developments due to fines suffered by
        unscrupulous developers); Ariel Cisneros, The Border Economy: Texas Colonias Housing and
        Infrastructure       Issues,      FED.        RES.        BANK          OF     DALLAS,           at
        http://www.dallasfed.org/research/border/tbe_cisneros.html (June 2001).
54
        See COLONIAS FAQ'S, supra note 28.
55
        See id.
56
        Id.
57
        See generally id. (discussing the passage of the Colonias Fair Land Sales Act designed to protect
        those purchasing properties in the border regions under a contract for deed).


                                                    5
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improvements. 58 Lenders were reluctant to provide financing to build homes or make
home improvements because the borrower could not use the land as collateral to secure
the loan. 59 Thus, the Colonia property owners were left with few options to improve their
poor living conditions. 60

        The public and humanitarian outcry created by the proliferation of the Colonias
caused the Texas Legislature to assist with the plight of the Colonias. 61 In 1995, the
70th Legislature passed the first line of protectionary statutes aimed directly at contract
for deed purchases in the Colonias. 62 The revisions to the Texas Property Code aimed
at contracts for deed continued with the 77th Legislature in 2001. 63 The 2001 revisions
are the primary focus of this Comment due to the harsh results that can occur and their
deviation from the original purposes of contract for deed protections. 64 A discussion of
the history of contract for deed sheds light on this point. 65

                      III. TEXAS PROPERTY CODE PROTECTIONS

Beginning with the 70th Regular Session, the Texas Legislature began taking proactive
steps towards addressing the issues facing the border colonias. 66 As discussed, the
increasing Colonia population and unscrupulous practices of developers dictated a need
for contract for deed protection statutes. 67 The purposes of the early amendments to the
Texas Property Code were well defined and were carefully applied to the areas of the
state affected by the proliferation of the Colonias. 68 Prior to the 2001 amendments to
the Property Code, the reach of these measures did not appear to have been overbroad
or overly oppressive. 69 A review of the early statutory provisions relating to contract for
deed transactions and the stated purposes for these provisions will shed light on the
potentially misguided 2001 revisions. 70 The 2005 proposed amendments address a few
of the concerns surrounding the 2001 amendments, but fall short of completely
addressing the issues that arise when the legislature constantly must play defense in
addressing problems that arise when applying the contract for deed provisions. 71

                    A. The Purpose of Texas Property Code Protections


58
        Id.
59
        Id.
60
        See id.
61
        See discussion infra Part III.
62
        See Act of May 27, 1995, 74th Leg., R.S., ch. 994, §§ 1-3, 1995 Tex. Gen. Laws 4982, 4982-89,
        amended by Act of May 18, 2001, 77th Leg., R.S., ch. 693, § 1, 2001 Tex. Gen. Laws 1319, 1319-
        28.
63
        See Act of May 27, 1995, 74th Leg., R.S., ch. 994, § 2, 1995 Tex. Gen. Laws 4982, 4982-83
        (amended 2001).
64
        See discussion infra Part 111.B.
65
        See discussion infra Part III.
66
        TEX.      SEC'Y       OF       STATE,      COLONIA        LEGISLATION           IN    TEXAS, at
        http://wwvv.sos.state.tx.us/border/coloniasaegislation.shtml (last visited May 16, 2005).
67
        See discussion supra Part II.
68
        See discussion infra Part III.A.
69
        See discussion infra Parts III.A, IV.
70
        See discussion infra Part III.A-C.
71
        See discussion infra Part III.C-D.


                                                  6
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        The proliferation of the Colonias in Texas and the abuses that were becoming
apparent created a cry for protections of those persons living in the Colonias. 72 This
outcry, the debate surrounding it, and passage of the North American Free Trade
Agreement in the late 1980s resulted in heightened public awareness of the poverty
stricken border regions and shed light on the problems facing the Texas Colonias. 73

        Although the legislation was initially slow in reducing the growth of the Colonias,
the legislature's move towards modifying the Texas Property Code was at least in part
designed to prevent the growth of these areas. 74 As a result, both the prior changes and
the more recent changes to the Property Code made it much more difficult for
developers to profit from the Colonias by raising the costs of doing business and by
raising the penalties for breaching their duties as set forth by statute. 75 In fact, the harsh
results of failing to meet the obligations codified in the Property Code will likely make
sellers avoid the use of contracts for deed in real estate transactions. 76 This may very
well have been the legislature's intent in passing the measures. 77

        The legislature was very clear in passing amendments to the Property Code that
at least a portion of the revisions were directly related to protection of the Colonias. 78
The legislative intent that surrounded increasing the requirements of utilizing contracts
for deed as a financing tool was never more evident than when the 74th Legislature
passed Senate Bill 336: 79 In fact, the codification of the bill specifically stated the
reasoning for its passage. 80


72
        See discussion supra Part II.
73
        Joann Mattheisen, What Now for the Texas Colonias?, 27 N.M. L. REV. 1, 2 (1997).
74
        Roderick R. Williams, Note, Cardboard to Concrete: Reconstructing the Texas Colonias Threshold,
        53 HASTINGS L.J. 705, 716 (2002).
75
        Id.; see discussion supra Part II.A-B.
76
        Fambrough, supra note 22.
77
        See discussion infra Part IV.A.
78
        See Act of May 27, 1995, 74th Leg., R.S., ch. 994, §§ 1-3, 1995 Tex. Gen. Laws 4982, 4982-88
        (amended 2001).
79
        Id.
80
        Act of May 27, 1995, 74th Leg., R.S., ch. 994, § 1, 1995 Tex. Gen. Laws 4982, 4982 (amended
        2001). The relevant portions discussing the legislature's reasoning follow:
        The legislature finds that:
         (1) the proliferation of colonias and substandard housing developments that lack adequate
               infrastructure creates serious and unacceptable health risks for the residents in these areas;
        (2)    many residents building homes in these areas do not have access to traditional financing
               and the assistance of a professional builder, which promotes expansion of substandard
               housing;
        (3)    the contract-for-deed arrangement allows low-income persons to purchase property and
               build homes on the property;
        (4)    statutory law in this state does not ensure that:
               (A)     information about the property, including whether utility service is available,
                       whether the property is located in a floodplain, or whether the title to the property
                       is encumbered by a lien, is disclosed to the purchaser;
               (B)     the contract is recorded to notify subsequent creditors of the purchaser's interest
                       in the property;
               (C)     legal title to the property is transferred to the purchaser by the seller when the
                       purchaser has paid all amounts due under the contract; or


                                                     7
MHDocs 1863315_1 990000.1
         A review of the early revisions to the Texas Property Code demonstrate that the
legislature had a well-defined purpose for these protective measures. 81 The economic
hardships, health hazards, and unscrupulous practices of developers in the Colonias
give legitimacy to the legislature's actions. 82 The 2001 amendments, however, made the
application of the protections under the Property Code applicable statewide. 83 This
statewide application now reaches areas and persons that did not fall into the groups
requiring protections. 84 This result shows the overbreadth of the legislature's reach and
the need to be careful in drafting legislation to avoid harming those that were never
intended to fall within the purpose of the legislation. 85 Here, the legislature should cut to
the chase and eliminate contract for deed residential transactions by applying mortgage
law. 86 If the legislature chooses not to apply mortgage law, additional modifications are
required. 87

                              B. The Early Protective Measures

         In 1995, the Texas Legislature directly addressed real property contract for deed
transactions. 88 To cure the problems outlined in Senate Bill 336, the legislature amended
Subchapter D, Chapter 5, of the Texas Property Code to create general protective
measures for contract for deed transactions. 89 Additionally, the legislature created more
restrictive measures under Subchapter E aimed directly at specific areas of Texas where
the Colonias concerns existed. 90

         One of the problems surrounding contract for deed transactions was the lack of
protection upon default provided to a buyer under a contract for deed. 91 To limit a seller's
ability to foreclose on a property under contract for deed or to accelerate, the legislature
created special notice requirements. 92 The Texas Property Code conditioned the timing

              (D)    the purchaser's equity in the property is protected; and
        (5)   a purchaser under a contract-for-deed arrangement is faced with significant problems
              requiring statutory protection because of:
              (A)    the inadequacy of infrastructure in areas where this arrangement is commonly
                     used; and
              (B)    the unregulated status of the contract-for-deed arrangement.
Id
81
        See id.
82
        See discussion supra Part II.
83
        Tex. PROP. Coon ANN. § 5.062 (Vernon 2004).
84
        See discussion supra Part II; discussion infra Part Ill.B.
85
        See discussion infra Part IV.
86
        See discussion infra Parts IV-V.
87
        See discussion infra Parts IV-V. As mentioned, the 2005 proposed amendments address part of
        these concerns, but fall short in remedying the entire problem. See infra notes 181-86 and
        accompanying text.
88
        See Act of May 27, 1995, 74th Leg., R.S., ch. 994, §§ 1-3, 1995 Tex. Gen. Laws 4982, 4982-88
        (amended 2001).
89
        Id.
90
        Act of May 27, 1995, 74th Leg., R.S ch. 994, § 3, 1995 Tex. Gen. Laws 4982, 4983-84 (amended
        2001).
91
        See discussion supra Part II.A.
92
        See Act of May 27, 1995, 74th Leg., R.S., ch. 994, § 2, 1995 Tex. Gen. Laws 4982, 4982-83
        (amended 2001).


                                                 8
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of notice in relation to acceleration and foreclosure on the amount of the purchase price
the buyer had tendered at the time of notice. 93 The sliding scale surrounding the timing
of acceleration or foreclosure effectively provided greater protections to those
purchasers who held a greater interest in the property. 94 Furthermore, to provide
assurances that the notice requirements were being met and received, additional
measures were included. 95 Section 5.062 of the 1995 version of Subchapter D required
either personal delivery or delivery by registered or certified mail. 96 Very specific
language had to be used and printed in a specific, well-defined format. 97 These
requirements prevented sellers from burying or hiding the notification and effectively
denying a buyer the opportunity to correct the default. 98

       Another problem surrounding a buyer's default pertained to lack of protection of
the buyer's equity in the property. 99 The equitable interest a buyer accrued under the
contract for deed was further protected by allowing for a right to cure any default. 100
Default was specifically defined to include failure to make timely payments or failure to
comply with the terms of the contract. 101 As previously discussed, the time period for
curing default was subject to a sliding scale that increased based on a percentage of the
contract price paid by the buyer. 102

        The legislature also addressed the problem of a seller foreclosing on a property
while retaining all payments made under the contract for deed. 103 The 1995
amendments took away a seller's ability to enforce the remedy of rescission or forfeiture
if a purchaser paid forty percent or more of the amount due or a sum equivalent to forty-
eight monthly payments. 104 If these conditions were met, the property had to be sold
through a trustee and any equity above the expenses incurred by the seller in
foreclosure proceedings was required to be returned to the purchaser: 105

        The addition of Subchapter E to Chapter 5 of the Texas Property Code, and its
specific and narrow application to certain areas, was designed to address the problems
previously discussed in the Colonias. 106 The addition of this Subchapter is further
evidence of the intent of the legislature when enacting protectionary measures aimed at

93
        Id. For example, if the purchaser had tendered less than ten percent of the purchase price, then the
        waiting period before a seller could proceed after notification was only fifteen days. Id. If the
        purchaser had tendered more than twenty percent of the purchase price, then the waiting period
        extended to sixty days. Id.
94
        See id.
95
        See id.
96
        Id.
97
        Id.
98
        Id.
99
        See discussion supra Part II.B.
100
        See Act of May 27, 1995, 74th Leg., R.S., ch. 994, § 2, 1995 Tex. Gen. Laws 4982, 4982-83
        (amended 2001).
101
        Id.
102
        Id.
103
        Act of May 27, 1995, 74th Leg., R.S ch. 994, § 3, 1995 Tex. Gen. Laws 4982, 4987-88 (amended
        2001).
104
        Id.
105
        Id.
106
        Id. at 4983-84; see discussion supra Part II.


                                                    9
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contract for deed transactions to specifically address the Colonia areas. 107 The deviation
from this clear purpose and stated intentions of the statutory provisions in Subchapter E
by the 2001 amendments is evidence of the concerns surrounding the current
application of contract for deed protections. 108

         Subchapter E was specifically limited to areas that were affected by the
proliferation of the Colonias. 109 Section 5.091 limited the geographic application to areas
that fit two criteria: (1) an area with per capita income that averaged below twenty-five
percent of the state average and with an unemployment rate twenty-five percent above
the state average; and (2) that is located within 200 miles of the Mexican border. 110
Additionally, section 5.091 defined the affected type of contract for deed transaction as
property used as the purchaser's residence or property less than one acre. 111 This
limitation further narrowed the scope of the provisions to address problems associated
with the Colonia areas. 112

        Section 5.092 also evidenced the legislature's intent to apply these provisions
only to the Colonia areas. 113 This section directed the Texas Department of Housing and
Community Affairs to annually determine which counties would be affected by
Subchapter E. 114 This section required the county clerk in each of these counties to post
a copy of the notice required to be published in the Texas Register on three separate
occasions on a bulletin board in a place in the county courthouse that would be
convenient to the public. 115

       A Spanish-language requirement was added that required sellers to provide
documents in Spanish where the negotiations pertaining to the transaction were
conducted primarily in Spanish in order to assure that the buyer understood the
requirements and obligations under a contract for deed. 116 These documents included
the contract, disclosure notices, and annual accounting statements. 117

        Sections 5.094 and 5.095 required that the seller make specific disclosures
regarding the property condition and financing terms. 118 The disclosure of property
condition requirement required adherence to a form substantially similar to that outlined

107
        See Act of May 27, 1995, 74th Leg., R.S., ch. 994, § 3, 1995 Tex. Gen. Laws 4982, 4983
        (amended 2001).
108
        See discussion infra Part III.C.
109
        See Act of May 27, 1995, 74th Leg., R.S., ch. 994, § 3, 1995 Tex. Gen. Laws 4982, 4983-84
        (amended 2001).
110
        Id.
111
        Id. (outlining the requirements under the new section 5.091).
112
        Id.
113
        See id. at 4984.
114
        Id.
115
        Id. This public notification requirement is not within the 2001 amendments affecting contract for
        deed purchases which evidences some of the problems that are created with the most current
        version of the property code protections. See discussion infra Parts III.C, IV.
116
        Act of May 27, 1995, 74th Leg., R.S., ch. 994, § 3, 1995 Tex. Gen. Laws 4982, 4984 (amended
        2001) (outlining the requirements under section 5.094 of the Texas Property Code as of the 1995
        amendments).
117
        Id.
118
        Id. at 4984-86 (outlining the 1995 requirements regarding disclosure to buyers).


                                                  10
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in the statute. 119 These requirements included notice as to whether the property has
water, sewer, or electric service and whether the property is subject to any
encumbrances, title exceptions, or covenants. 120 Additional protections under section
5.094 provided for legal action in public or private suits for failure to provide information
required under the section. 121 Section 5.095 provided for the disclosure of the financing
terms under the contract for deed. 122 Section 5.095 required detailed information to be
disclosed to the purchaser pertaining to the purchase price of the property, the interest
rate, total interest payments, late fees, and any prepayment penalties. 123

         In addition to other rights provided by law, purchasers were also given the ability
to rescind the contract for deed. 124 The legislature required the purchaser to spell out the
notice of a purchaser's ability to rescind the contract in a conspicuous manner in the
executory contract. 125 Similar to the notice requirements in section 5.094, courts require
the notice of a purchaser's ability to be in boldface, uppercase letter, and read
substantially similar to the language provided in the statute. 126 Thus, sellers were limited
in their abilities to manipulate notices in their favor. 127

        The revisions to the property code also addressed a purchaser's ability to utilize
and protect any equity in the property. 128 The legislature provided purchasers under
contracts entered into prior to the effective date of the law the ability to utilize the equity
they accrued under these contracts to make improvements to the property. 129 These
revisions also limited the purchaser's ability to use the equity for structural improvements
and improvements relating to water and sewage services. 130

        The 1995 amendments also contained an annual accounting statement
requirement that provided for a reduction in each monthly payment during the time
period that the purchaser did not provide the accounting statement. 131 The legislature
required this statement to be sent out no later than January 31 of each year and include
the following information: (1) amount paid under the contract to date; (2) remaining


119
        Id.
120
        Id. The 1995 version of the statute also contained an example notice that was required to be
        substantially followed. Id. Other required notices included whether the property was located in a
        recorded subdivision and requirements for advertising. Id.
121
        Id. (stating that failure to provide the required information is a false or misleading practice that falls
        under section 17.46 of the Business and Commerce Code).
122
        Id.
123
        Id. Section 5.096 of the 1995 statute provided further restrictions on contract terms that could not
        be included. Id. This section was especially important in restricting terms regarding late payments
        under the contract. Id.
124
        Id. at 4986 (providing a fourteen-day window for a purchaser to rescind the contract for any reason
        provided that the purchaser send notice of rescission by telegram, certified mail, or registered mail).
125
        Id.
126
        Id.
127
        See id.
128
        Id. at 4987-88.
129
        Id. at 4987.
130
        Id. The legislature appears to direct the limited uses of a purchaser's equity at improving many of
        the conditions creating concerns with the proliferation of the Colonies. See discussion supra Part II.
131
        Act of May 27, 1995, 74th Leg., R.S., ch. 994, § 3, 1995 Tex. Gen. Laws 4982, 4987 (amended
        2001).


                                                      11
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amounts owed; (3) payments remaining; and (4) the amount of tax paid. 132 This
information kept the purchaser up-to-date and prevented the purchaser from being
penalized for a lack of knowledge as to his position under the contract and monetary
obligations regarding the property. 133 Failure to provide this notice could result in
statutory penalties being imposed on the seller. 134 The legislature could impose this
penalty if the purchaser provided notice to the seller that he had not received the annual
accounting statement. 135 The notice would further notify the seller that the purchaser
would deduct fifteen percent of each monthly statement until the purchaser received the
statement. 136 The legislature did not require the purchaser to reimburse any deductions
to the seller. 137

        The most severe and penalizing addition under the 1995 amendments pertained
to a seller's failure to make a timely transfer of title after the buyer tendered all of the
payments required under the contract. 138 The legislature required the seller to transfer
recorded, legal title to the property under a contract for deed within thirty days after the
seller received the final payment under the contract. 139 Failure to meet this requirement
subjected the seller to a penalty of $250 per day starting on the thirty-first day after final
payment, which increased to $500 per day after the ninetieth day. 140 The section that
created these penalties also specifically defined "seller" to include parties other than the
original seller who had "stepped into his shoes," such as assignees and executors. 141

       The legislature made other requirements and revisions by the 1995 amendments
to the property code. 142 But, those discussed previously, especially those pertaining to
equity protections, title transfer, recording, and accounting statements, appear to have
been extremely important in addressing the Colonias' concerns. 143

                                     C. The 2001 Amendments

        In 2001, the Texas Legislature further modified the Texas Property Code
regulating contract for deed transactions. 144 These modifications further restricted the
132
        Id.
133
        Id.
134
        Id. The statutory penalty created by section 5.100 of the 1995 version of the property code is
        substantially different from the version adopted under section 5.077 of the 2001 version of the
        property code. See TEX. PROP. CODE ANN. § 5.077 (Vernon 2004). This Comment discusses, in
        detail, the differences between the two versions pertaining to annual accounting statements, as the
        new version serves as a prime example of where the legislature went wrong with the 2001
        amendments. See discussion infra Part IVA-B.
135
        Act of May 27, 1995, 74th Leg., R.S., ch. 994, § 3, 1995 Tex. Gen. Laws 4982, 4987 (amended
        2001).
136
        Id.
137
        Id.
138
        See id. at 4988; discussion infra Part IV.A.
139
        Act of May 27, 1995, 74th Leg., R.S., ch. 994, §§ 1-3, 1995 Tex. Gen. Laws 4982, 4988 (amended
        2001).
140
        Id.
141
        Id.
142
        Id. at 4983-87. The legislature created additional duties for the community affairs division under the
        government code and established effective dates by other revisions to the property code. See id.
143
        See discussion infra Part II.B.
144
        See TEX. PROP. CODE ANN. §§ 5.063-.080 (Vernon 2004).


                                                    12
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use of contracts for deed as a financing tool by placing greater burdens on sellers. 145
These increased restrictions are the basis for the argument against continuing to utilize
contracts for deed as a financing tool in Texas. 146

         One of the most formidable changes to the property code was the revision of the
scope of applicability of contract for deed regulations. 147 The 2001 amendments created
a new section 5.062 to the property code, which broadened the applicability of contract
for deed regulation by making it apply statewide. 148 But, this section contained a
provision allowing persons related to the seller by the second degree of consanguinity or
affinity to waive the applicability of this section in writing. 149

          The notice requirements under the 2001 revisions remained substantially the
same as its predecessors. 150 Like the 1995 revision, the legislature requires notice to be
conspicuous and printed in 14-point boldface type or 14-point uppercase typewritten
letters. 151 Additionally, the notice must separately include a statement reading "YOU
ARE NOT COMPLYING WITH THE PERMS OF THE CONTRACT TO BUY YOUR
PROPERTY, UNLESS YOU TAKE THE ACTION SPECIFIED IN THIS NOTICE BY
(date) THE SELLER HAS THE RIGHT TO TAKE POSSESSION OF YOUR
PROPERTY.” 152 The mandatory and specific notice requirements assure that all parties
are aware of any problems or possible default proceedings under the contract for
deed. 153

       Purchasers continue to have a right to cure any default under the new versions of
the property code. 154 Additionally, purchaser's equity is protected so long as the
purchaser at default "has paid 40 percent or more of the amount due or the equivalent of
48 monthly payments.” 155 Like the 1995 version of the law, if the above criteria are met,
the property will be sold by a trustee with the remaining equity, after expenses, being
returned to the purchaser in default. 156 A purchaser who has not met these criteria is
145
        See id.
146
        See discussion supra Part III.B.
147
        See TEX. PROP. CODE ANN. § 5.062.
148
        Compare id. § 5.062 (stating "[t]his subchapter applies only to a transaction involving an executory
        contract for conveyance of real property" without providing a geographical limitation), with Act of
        May 27, 1995, 74th Leg., R.S., ch. 994, § 2, 1995 Tex. Gen. Laws 4982, 4982-83 (amended 2001)
        (creating section 5.091 dealing with applicability that stated "[thins subchapter applies only to an
        executory contract that covers real property located in a county that, as determined by the Texas
        Department of Housing and Community Affairs ... is within 200 miles of an international border.")
        (emphasis omitted).
149
        See TEX. PROP. CODE ANN. § 5.062(d).
150
        Id. § 5.062.
151
        Id.
152
        Id. § 5.063(a). An interesting note is a review of the language under the former 1993 amendment,
        which read "YOU ARE LATE IN MAKING YOUR PAYMENT UNDER THE CONTRACT TO BUY
        YOUR HOME. UNLESS YOU MAKE THE PAYMENT BY (date) THE SELLER HAS THE RIGHT
        TO TAKE POSSESSION OF YOUR HOME AND TO KEEP ALL PAYMENTS YOU HAVE MADE
        TO DATE." Act of May 24, 1993, 73d Leg., RS., ch. 444, § 1, 1993 Tex. Gen. Laws 1796, 1796-97
        repealed by Act of May 27, 1995, 74th Leg., R.S., ch. 994, § 2, 1995 Tex. Gen. Laws 4982, 4983
        (amended 2001).
153
        TEX. PROP. CODE ANN. § 5.062.
154
        See id. §§ 5.064-.065.
155
        Id. § 5.066(a).
156
        Id. § 5.066(b)-(e).


                                                   13
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subject to the seller "enforc[ing] the remedy of rescission or of forfeiture and acceleration
of the indebtness." 157

        An interesting deviation from the 1995 version of the property code is related to
the Spanish-language requirement. 158 As discussed, the previous version of the code
specifically limited the requirement to transactions with Spanish-speaking persons. 159
The new version revised this language to include all persons who enter into a contract
for deed where the negotiations occur in a language other than English. 160 As with the
earlier version, this requirement extends to all correspondence relating to the transaction
including notices and statements. 161

        The 2001 amendments also increased a seller's duty to disclose financing terms
and other potential financial requirements under the sale of the property. 162 A seller's
requirement to disclose financing terms under the contract remained virtually the same
with the exception of adding language to include any similar fees. 163 The inclusion of the
new section 5.070, however, increased the burden placed on sellers. 164 Under the 2001
version of the code, before the contract is signed, a seller is required to provide the
purchaser with information regarding the taxes associated with the property and with
information regarding the insurance coverages associated with the property. 165 Failure to
provide this information could result in a deceptive trade practices action and result in
the seller forfeiting all payments received under the contract upon purchaser's rescission
of the contract. 166

        Another new section of the code that created a statutory breach of duty is section
5.072. 167 This section created a statute of frauds provision that directly deals with
contract for deed transactions. 168 Like the writing requirement for other real property
transactions, transactions under a contract for deed must be in writing to be
enforceable. 169 Additionally, this section created a greater burden by placing the
requirement on the seller to provide an additional document in the contract that states




157
        Id. § 5.066(g).
158
        Compare Act of May 27, 1995, 74th Leg., R.S., ch. 994, § 3, 1995 Tex. Gen. Laws 4982, 4984
        (amended 2001) (limiting the requirement to negotiations performed primarily in Spanish), with
        TEX. PROP. CODE ANN. § 5.068 (expanding the requirement to include all other languages).
159
        See supra text accompanying notes 101-02.
160
        TEX. PROP. CODE ANN. § 5.068.
161
        Id.
162
        See id. §§ 5.070-.071.
163
        Id. § 5.071.
164
        See id. § 5.070.
165
        Id.
166
        Id. False, misleading, or deceptive acts that might result in a deceptive trade practices action
        include, inter alia, failing to disclose information that, if known, might have dissuaded the purchaser
        from entering into the contract. TEX. Bus. & COM. CODE ANN. § 17.46 (Vernon Supp. 2004).
167
        See TEX. PROP. CODE ANN. § 5.072.
168
        Id. § 5.072.
169
        Id. § 5.072(a).


                                                     14
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the contract is the final agreement and there are no oral agreements between the
parties. 170 In other words, the contract is all inclusive? 171

        One of the more restrictive and potentially penalizing revisions created by the
2001 amendments deal with the annual accounting statement requirement. 172 Section
5.077 enhanced the statutory penalty imposed on a seller for failing to provide the
annual accounting statement by January 31 of each year. 173 Instead of a mere
deduction in the monthly payment owed, the new version of the code created a $250 per
day fine for each day after January 31 that the statement is not provided. 174 In addition,
a purchaser could receive the value of reasonable attorney's fees associated with
enforcing the statutory provision. 175 Another notable distinction is the elimination of the
notice requirements imposed on the purchaser. 176 The penalizing nature of this provision
is enhanced because the penalties apply to all violations occurring after the effective
date of the revision regardless of when the contract was formed. 177

        The legislature added an additional section in 2001 that pertained to the
disposition of insurance proceeds relating to the property sold under the contract for
deed. 178 The language under this section appears to be equitable because both
purchasers and sellers could be subjected to a deceptive trade practices violation for
failing to follow the requirements. 179 Section 5.078 requires the insurance company
providing coverage to be promptly notified after the contract is executed so that any
disposition of insurance proceeds may be made jointly to both the seller and
purchaser. 180

                    D. The 2005 Proposed Amendments to Section 5.077

        The 79th Legislature is proposing to amend section 5.077 of the property
code. 181 The proposed amendments axe centered on revising the amount and method of
applying the statutory penalties for a seller's failure to provide an annual accounting

170
        Id. § 5.072(d). Like other notices, specific requirements are set forth under this section regarding
        the print and wording required. Id.
171
        See id. § 5.072.
172
        Id. § 5.077. The revisions to section 5.077 will be discussed in greater detail later in this Comment
        as these revisions serve as excellent examples of issues that arise when the statutes pertaining to
        contracts for deed are applied. See discussion infra Part IV.B.
173
        TEX. PROP. CODE ANN. § 5.077(c)(1)-(2).
174
        Id. § 5.077(c)(1).
175
        Id. § 5.077(c)(2).
176
        See id. § 5.077.
177
        See TEX. PROP. CODE ANN. 5.077. The proposed 2005 amendments to section 5.077 may not
        override the language of the 2001 version for violations that occur prior to September 1, 2005. See
        discussion infra Part 111.D.
178
        See TEX. PROP. CODE ANN. § 5.078.
179
        Id. § 5.078(d).
180
        Id. § 5.078(a)-(b).
181
        Art. 1, § 1, Tex. H.B. 2205, 79th Leg., R.S. (2005) (as filed) (proposing amendment to section 5.077
        replacing the $250 per day penalty with the lessor of $20 per day or $1000); Art. 1, § 1, Tex. H.B.
        1715, 79th Leg., R.S (2005) (as filed) (proposing a continuation of the $250 per day penalty subject
        to notice of the sellers failure to provide the annual accounting statement); Art. I, § 1, Tex. S.B. 145,
        79th Leg., A.S. (2005) (as filed) (proposing a $250 per year penalty for failing to provide the annual
        accounting statement).


                                                      15
MHDocs 1863315_1 990000.1
statement to buyers. 182 The proposed changes range from setting the limit to a fixed
amount per year, to reducing the penalty to $20 per day with a $1000 maximum, or to
maintaining the $250 per day penalty subject to the buyer meeting certain notice
requirements. 183

         The language of the proposed amendments indicates that the legislature wants
to limit the provisions to violations that occur after September 1, 2005. 184 For example,
the March 7, 2005 proposed amendment states "[t]he change in law made by this Act
applies only to a violation that occurs on or after September 1, 2005. A violation that
occurs before September 1, 2005, is governed by the law in effect when the violation
occurs, and the former law is continued in effect for that purpose." 185

          IV. THE EFFECTS OF THE CONTRACT FOR DEED REGULATIONS

       The Texas Legislature appears to be sending a strong message to sellers and
buyers of residential properties to think twice before using a contract for deed to finance
the property. The additional burdens imposed on contract for deed transactions go well
beyond assuring that those in the Colonias are protected, which was a clear reason for
many of the additional burdens originally introduced in the 1995 revisions to the law. 186

        Although contract for deed transactions occur throughout the state, the
proliferation of the Colonias was the driving force behind increased restrictions on these
transactions. 187 In 2001, the legislature took a big step away from this purpose by
extending the protective measures statewide, instead of being regionally limited like the
2001 bill's predecessor. 188 The following comments analyze this change, among
others. 189

                        A. A Comparison Between the Old and the New

        The contract for deed regulations now affect persons utilizing contracts for deed
throughout the state. 190 The expansion of the regulations appears to be a good change
because now sellers statewide are prevented from reproducing the unscrupulous
practices of the sellers in the Colonias. 191 This expansion, however, is cause for concern
because sellers and purchasers outside of the Colonia regions may be unaware or less

182
        See sources cited supra note 181.
183
        See sources cited supra note 181.
184
        See, e.g., Art. I, § 1, Tex. H.B. 2205, 79th Leg., R.S. (2005) (as filed) (specifically addressing the
        scope of the revisions applicability).
185
        Id.
186
        See discussion supra Part III.A.
187
        See discussion supra Part III.A.
188
        Compare TEX. PROP. CODE ANN. § 5.062 (stating that "[t]his subchapter applies only to a
        transaction involving an executory contract for conveyance of real property" without providing a
        geographical limitation), with Act of May 27, 1995, 74th Leg., R.S., ch. 994, § 3, 1995 Tex. Gen.
        Laws 4982, 4983-84 (amended 2001) (creating section 5.091 dealing with applicability that stated
        "[t]his subchapter applies only to an executory contract that covers real property located in a county
        that, as determined by the Texas Department of Housing and Community Affairs . . . is within 200
        miles of an international border.") (emphasis omitted).
189
        See discussion infra Part IV.A-B.
190
        See supra text accompanying notes 144-46.
191
        See discussion supra Part III.A.


                                                    16
MHDocs 1863315_1 990000.1
educated on the potential effects of the legislation. 192 Under the 1995 version of the law,
there were at least some restrictive measures to assure that contract for deed sellers
and purchasers would be aware of their respective responsibilities. 193 Unfortunately,
buyers and sellers in today's marketplace, especially those in noncolonia areas, may be
unaware or have limited education on these responsibilities. 194 Articles, notices, and the
attention given to the Colonias may have educated buyers and sellers in the colonia
regions, but people in other parts of Texas are less likely to have notice of the added
statutory responsibilities. 195 A lack of knowledge by those who are now affected by the
statutes may lead to breaches of their statutory duties and to potentially devastating
results. 196

        The modification of the language requirement provides another example of how
the legislature moved away from the original purpose behind passing the measures. 197
The expansion of the language requirement to include languages other than Spanish
may appear to be a good revision on its face. 198 The Colonias are primarily composed of
Spanish-speaking persons and are situated exclusively along the Mexican border. 199
Persons doing business in these areas are more likely to be either bilingual or better
equipped to address the requirement of providing all documents in Spanish. 200 In
comparison, the current law requires sellers and attorneys to potentially be
knowledgeable of, and have resources providing documentation in, multiple languages
when negotiating any contract for deed transaction primarily in a language other than
English. 201 Consequently, this requirement is an added burden that could deter persons
from utilizing contracts for deed and could be especially "formidable for some sellers and
brokers. 202 For example, the deterrence factor is supported because "precontractual
notices, the contracts and all post- contractual notices, et cetera may need to be drafted
in Spanish, Vietnamese, Chinese, Hindi, Arabic, Korean or other languages.” 203

       The added burdens placed on sellers to disclose all financing terms, insurance
coverages, and related taxes is another addition that on its face seems to be logical and
well drafted. 204 The additional disclosure requirements, when added to the equity


192
        See supra text accompanying notes 79, 144 46.
193
        See supra text accompanying notes 109-12.
194
        See supra text accompanying notes 144-46. When the scope of the regulations were limited, the
        note requirement was the same for every county in the state. See supra text accompanying notes
        109-12.
195
        See Fambrough, supra note 22; Colonias FAQ's, supra note 28; BACKGROUND, supra note 32.
196
        See TEX. PROP. CODE ANN. § 5.077 (Vernon 2004). Fines under section 5.077 can quickly
        devour the entire value of a small residential property. See discussion infra Part WA.
197
        See TEX. PROP. CODE ANN. § 5.068.
198
        See Act of May 27, 1995, 74th Leg., R.S., ch. 994, § 2, 1995 Tex. Gen. Laws 4982, 4982-83
        (amended 2001); TEX. PROP. CODE ANN. § 5.068.
199
        See discussion supra Part II.B.
200
        See discussion supra Part II.B (establishing that the Colonias have a heavily Spanish-speaking
        population, meaning persons conducting business in those areas would logically have resources
        available to deal with such a language barrier).
201
        See § 5.068.
202
        Fambrough, supra note 22.
203
        Id.
204
        See supra text accompanying notes 162-66.


                                                 17
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protection sections, mirror traditional mortgage law. 205 The legislature's attempts to
make contract for deed transactions more like mortgage law and its attempts to deter
buyers and sellers from utilizing contracts for deed as a financing method are good
reasons to eliminate their use altogether and simply apply mortgage law. 206

        The concerns surrounding the regulatory measures discussed above are dwarfed
by the problems created by the legislature's revisions to the annual accounting
statement requirement. 207 The following section takes a close look at how the 2001
version of section 5.077 casts a shadow over the good intentions of the legislature and
bolsters the argument that contracts for deed should become a thing of the past. 208

                                 B. A Closer Look at Section 5.077

        Judon Fambrough of the Real Estate Center at Texas A&M University
summarized the argument that the 2001 regulations may be designed to eliminate
contract for deed transactions when he stated in regards to the annual accounting
statement requirements, "this requirement . . . may cause sellers and lenders to avoid
the use of contracts for deed." 209 Why would sellers and lenders be deterred by this
requirement? Once sellers understand the downside created by the regulations, they
will probably see that the risks outweigh the benefits of utilizing contracts for deed. 210

         As mentioned, the 2001 version of section 5.077 does not place a limit on the
amount of statutory penalties that can accrue when a violation occurs. 211 As a result,
the fictional story illustrated in the introduction to this Comment is not unrealistic and will
likely become a reality for some sellers across the state when buyers realize the windfall
that awaits. 212 Surely the legislature did not anticipate this result or actually hope to
create such a devastating penalty on sellers who are not purposefully pursuing the
unscrupulous practices of some sellers in the Colonias. 213

        The 2005 proposed amendments do address the unlimited nature of the fines
under section 5.077. 214 The legislature appears to be aware of the potential problems of
the unlimited fines because the multiple proposed amendments appear to be attempts to
address this concern. 215 The lack of a notice requirement under the 2001 amendments
seems to be of concern if the $250 per day penalty should be allowed. 216 Otherwise, the
proposed revisions attempt to limit the fines to either a fixed amount or substantially


205
        See discussion infra Part V.C.
206
        See discussion infra Part V.C.
207
        See supra text accompanying notes 172-77.
208
        See discussion infra Part IV.B
209
        Fambrough, supra note 22.
210
        See id.
211
        See TEX. PROP. CODE ANN. § 5.077 (Vernon 2004).
212
        See discussion supra Part I. Like the situation confronting Mr. and Mrs. Smith, a buyer who learns
        of the potential fines that he can collect is in a strong position to force the seller to simply transfer
        title to the property to avoid paying the fines.
213
        See discussion supra Parts I-II.
214
        See discussion supra Part III.D.
215
        See discussion supra Part III.D.
216
        See discussion supra Part III.D.


                                                      18
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lower daily fees. 217 Regardless of which amendment is actually adopted—if any—the
legislature is aware of a grave point of concern.

         The 2005 proposed amendments, however, do not provide shelter from all of the
ill effects of the 2001 version of section 5.077. 218 The proposals state that violations that
occur prior to September 1, 2005 may still fall under the older, harsher law. 219 Sellers,
like our hypothetical seller, may still be faced with fines in excess of the property value,
which leaves them with only one of three choices: participate in prolonged litigation,
which may result in the imposition of higher attorney's fees; pay the entire amount of the
fine; or release the buyer from his obligation remaining under the contract and deed the
property to him in exchange for payment of the fines. 220

        If the seller chooses to pursue litigation, the next question to pose is whether, if
the legislature anticipated the devastating effects on sellers of the statutory fine imposed
under section 5.077, will section 5.077 withstand a constitutional challenge as an
excessive fine. 221

                    1. Excessive Fines Clause of the Texas Constitution

        Administering the potentially unlimited fines under the annual accounting
statement provision likely violates the excessive fines clause of the Texas
Constitution. 222 At the very least, statutory penalties that do not place reasonable limits
on the amount of fines that can be imposed create serious questions as to the
constitutionality and the general fairness of the statute. 223 The 2001 version of section
5.077, which does not place a limit on the fine that can be imposed, is the perfect
example of this type of statute because failure to adhere to section 5,077 may result in
fines that can quickly exceed the value of the property associated with a contract for
deed transaction. 224

        One can argue that section 5.077 creates an unconstitutional, excessive fine in
violation of Article I, section 13 of the Texas Constitution. 225 Article I, section 13 provides
that, [e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel or
unusual punishment inflicted." 226 Although the excessive fines clause primarily pertains
to criminal matters, the Texas Supreme Court stated in Pennington v. Singleton that civil
penalties are "fines" for purposes of evaluating the constitutionality of civil penalties. 227
The Pennington court stated that the legislature is given wide latitude in establishing civil
penalties to protect persons from unscrupulous practices. 228 According to the court in

217
        See discussion supra Part III.D.
218
        See discussion supra Part III.D.
219
        See discussion supra Part III.D.
220
        See TEX. PROP. CODE ANN. § 5.077 (Vernon 2004).
221
        See discussion infra Part IV.B.1-2.
222
        See TEX. CONST. art I, § 13; § 5.077.
223
        See, e.g., § 5.077.
224
        See id.
225
        TEX. CONST. art. I, § 13.
226
        Id.
227
        Pennington v. Singleton, 606 S.W.2d 682, 690 (Tex. 1980).
228
        See id.


                                                  19
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State v. Laredo Ice, civil penalties will be held constitutional "except in extraordinary
cases, where it becomes so manifestly violative of constitutional inhibition as to shock
the sense of mankind." 229 The civil penalties, however, must be fixed and sufficiently
related to the task that they are designed to accomplish. 230

         The reasoning in Pennington and State v. Laredo Ice are similar to the United
States Supreme Court's handling of similar issues. 231 The Eighth Amendment to the
United States Constitution also provides protections against the imposition of excessive
fines. 232 In support of the Texas Supreme Court's stance on statutorily imposed fines,
the United States Supreme Court held that states possess wide latitude of discretion in
the matter of imposing fines. 233 A statutorily-imposed fine is only violative when it is so
severe and oppressive as to be wholly disproportioned to the offense and completely
unreasonable. 234 Like the Texas Supreme Court, the United States Supreme Court
stated an analysis of the constitutionality of a statutory fine will be centered on whether
the fine is consistent with the objective that it is designed to accomplish. 235

                            2. Is Section 5.077 Unconstitutional?

       The Texas Legislature, in passing Senate Bill 198, created civil penalties to
address problems that were arising due to the popular use of contracts for deed by lower
income persons to purchase homes. 236 For example, the yearly accounting statement
requirement of section 5.077 is designed to keep a purchaser informed of where his
payments are being distributed so that he can be on notice of whether, inter alia, taxes
are being paid on the property and how much principle is remaining on the contract. 237
The strict application of section 5.077, even to contracts for deed created prior to 2001,
serves to assure purchasers under contracts for deed that the title to their property does
not become encumbered by lien based on unpaid taxes without giving the purchaser the
opportunity to cure any unpaid balances. 238 Additionally, the yearly accounting
statement gives some additional notice to purchasers as to whether a portion of their
monthly installments are going towards taxes and insurance, or whether they are
responsible for payment of these items as a separate transaction. 239 Thus, the
importance of section 5.077 is clear because it is designed to protect a consumer's
investment in the contract for deed purchase by providing measures that might prevent a




229
        State v. Laredo Ice Co., 73 S.W. 951, 953 (Tex. 1903).
230
        Anguino v. Jim Walter Homes, Inc., 561 S.W.2d 249, 254-55 (Tex. Civ. App.-San Antonio 1978,
        writ ref'd n.r.e.).
231
        See infra notes 232-35 and accompanying text.
232
        U.S. CONST. amend. VIII.
233
        St. Louis, Iron Mountain & S. Ry. v. Williams, 251 U.S. 63, 66-67 (1919).
234
        Id.
235
        Id.
236
        See David S. Jones, Beware of Predators Bearing Contracts for Deed, REAL ESTATE CENTER
        AT TEXAS A&M UNIVERSITY NEWS RELEASE NO. 4 (Sept. 15, 2004), at
        http://recenter.tamu.edu/news/40904.html.
237
        TEX. PROP. CODE ANN. § 5.077 (Vernon 2004).
238
        See id.
239
        See id.


                                               20
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buyer from being further burdened with charges that were not clear in the contract, or
were unknown. 240

          The concept that the annual accounting statement requirement is designed to
protect the buyer is supported by the 1995 version of the property code. Clearly, as
outlined in the 1995 version, by including the annual accounting statement requirement
and imposition of a penalty for failing to adhere to the provision, the legislature protected
the Colonia residents who held property under a contract for deed. 241 Requiring the
residents to receive the annual accounting statement assured that each property owner
was aware of his obligations-at least as they related to taxes and insurance-and that
those obligations were being met by the property owner or the seller of the property. 242
The 1995 version of the annual accounting statement requirement met this goal and
served the purpose for which it was created. 243 Like the 2001 version, the previous
version required each property seller to provide the notice on a timely basis each
year. 244 The primary difference, however, lies in the reasonableness of the fine imposed
for failing to adhere to the statutory requirement. The 1995 version called for a reduction
in the monthly amount due until the seller sent the accounting statement. 245 This
provided both a fair fine for somewhat minor infractions and sufficient notice to the seller
who had not met certain obligations under the property code. 246 Deference could easily
be given to the legislature if a party raised a challenge to the 1995 version of the annual
accounting statement requirement because, although a significant fine could accrue, all
parties involved had responsibilities which could alleviate any problems that occurred by
failing to send out the letter. 247 Additionally, the seller would likely not accrue fines that
could exceed the property value before learning of his infraction. 248

        Unlike its predecessor, the 2001 version of section 5.077 is not fair and goes far
beyond meeting the purpose for which the annual accounting statement requirement
was created. 249 The possibility of incurring a fine that can exceed the value of the
property sold for simply failing to send out an annual accounting statement certainly
shocks the senses of mankind. 250 One can argue that the imposition of a $250 per day
fine accomplishes the goals of protecting the Colonia buyer and assures the buyer is
well informed. 251 A seller under a contract for deed that is aware of the fine will be
careful to mail the letter on a timely basis. 252 A seller, however, who fails to send the
statement by mistake or is completely unaware of the requirement is subjected to a fine


240
        Fambrough, supra note 22.
241
        See Act of May 27, 1995, 74th Leg., R.S., ch. 994, 3, 1995 Tex. Gen. Laws 4982, 4983-88
        (amended 2001).
242
        See supra text accompanying notes 131-37.
243
        See supra text accompanying notes 131-37.
244
        See supra text accompanying notes 131-37, 172-77.
245
        See supra text accompanying notes 131-37.
246
        See supra text accompanying notes 131-37.
247
        See supra text accompanying notes 131-37.
248
        See discussion supra Part I.
249
        See discussion supra Part III.A.
250
        See State v. Laredo Ice Co., 73 S.W. 951, 953 (Tex. 1903).
251
        See Act of May 18, 2001, 77th Leg., R.S., ch. 693, 1, 2001 Tex. Gen. Laws 1319, 1327.
252
        See Laredo Ice Co., 73 S.W. at 953.


                                              21
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that is neither fixed nor fair. 253 Consequently, the overly penal nature of the fine goes far
beyond accomplishing the purpose for its creation and is likely unconstitutional. 254

         Comparing the Texas statute to federal statutes, fines that result in the forfeiture
of real estate based on federal statutes are punitive in nature and fall under the
Excessive Fines Clause. 255 The Court in Austin v. United States stated that to determine
if a fine is excessive, one must compare the proportionality of a proposed forfeiture to
the property and to the offense. 256 The Austin Court's statement brings the point of this
argument directly into focus. 257 Is a fine that either results in a payment in excess of the
value of the property or results in the property's forfeiture to the party enforcing section
5.077 proportional to the offense of failing to send out a simple letter?

        Further, inferences that may be drawn by applying section 5.077 may show that
there were ulterior motives that led to the imposition of these fines that do not relate to
their stated purposes. 258 The Texas Supreme Court and the United States Supreme
Court both require that a law, to conform with the excessive fines clauses, be sufficiently
related to the end which it is designed to achieve. 259 Because the harsh results go far
beyond the end for which the legislature says the law was designed to meet, one could
infer that the legislature had something more in mind—the end of contracts for deed as a
financing method.

        Texas courts may attempt to alleviate some concerns by interpreting section
5.077 leniently. 260 Although no Texas appellate court has ruled on the issue, a Texas
District Court in Flores v. Millennium Interest, Ltd. held that an annual accounting
statement that does not meet every requirement of section 5.077 does not necessarily
violate the statute if the buyers can reasonably calculate how their contractual payments
are being utilized. 261 Flores illustrates that the courts may believe the legislature
intended to provide the necessary information to buyers while providing some leniency in
how a seller accomplishes this goal. 262

                                    V. RECOMMENDATIONS

                     A. Expand Contract for Deed Conversion Programs



253
        See TEX. PROP. CODE ANN. § 5.077 (Vernon 2004).
254
        See Anguino v. Jim Walter Homes, Inc., 561 S.W.2d 249, 254-55 (Tex. Civ. App.—San Antonio
        1978, writ red n.r.e.).
255
        Austin v. United States, 509 U.S. 602, 604 (1993).
256
        Id.; see also Alexander v. United States, 509 U.S. 544 (1993) (stating that an inquiry must be made
        into the relationship between the property and the offense when analyzing an excessive fines
        issue).
257
        See Austin, 509 U.S. at 610-11.
258
        See discussion supra Part III.A.
259
        See discussion supra Part III.5-C.
260
        See Flores v. Millennium Interests, Ltd., 273 F. Supp. 2d 899, 901 (S.D. Tex. 2003).
261
        Id. In Flores, the annual accounting statement in question did not specify the number of payments
        remaining, but did specify the amount of taxes paid, the amount of interest paid during the year,
        and the remaining principle owed under the contract. Id. A person could reasonably calculate the
        number of payments remaining based on this information. Id.
262
        See id.


                                                   22
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        In 1995, following the imposition of $21 million in penalties, Blas Chapa and Elias
Lopez ceded Colonia land to the state in order to avoid paying the penalties. 263 The
penalties and subsequent cession of the lands followed the developer's failure to adhere
to land subdivision laws including providing basic services like water and sewage
services. 264 This action left the state with sixteen colonias in Starr County with residents
in need of legal actions to clear and secure free title to the properties that they
possessed under contracts for deed. 265

        In February 2002, the Texas Young Lawyers Association joined forces with the
nonprofit Community Resource Group, Inc. to sort through the land title issues for the
residents of Starr County. 266 These groups' efforts primarily focused on obtaining clear
title and converting the existing contracts for deed to conventional mortgages or special
warranty deeds. 267

        The 78th Texas Legislature accomplished the goal of converting many of the
existing contracts for deed to conventional mortgages when the legislature passed
Appropriations Rider 10, directing more than four million dollars in conversions of
contracts for deed into traditional notes. 268 The legislature made these funds available
for persons "that reside in a colonia and earn 60 percent or less of the Applicable Area
Median Family Income (AMFI)." 269 This mandate also required that no less than four
hundred property owners have their contracts for deed converted into more traditional
mortgages and deeds of trust by August 31, 2005. 270

        The purpose of this program is to allow Colonia residents to realize the benefits
of property ownership. 271 By converting the contracts for deed to traditional loans, the
property owners then become eligible to receive additional loans to fund new
construction or home improvement. 272 The ability of the residents to improve the
conditions of their homes would have a ripple effect in improving the overall conditions of
the Colonias. 273 Thus, some of the aims of the contract for deed regulations would be
met by simply converting the contracts for deed to mortgages. 274



263
        TYLA Tackles, supra note 53, at 346.
264
        Id.
265
        Id.
266
        Id.
267
        Id.
268
        TEX. DEP’T OF HOUS. & CMTY. AFFAIRS, CONTRACT FOR DEED CONVERSION PROGRAM:
        ANNOUNCEMENTS, http://www.tdhca.state.tx.us/oci/cfdc.jsp (last visited May 16, 2005)
        [hereinafter CONTRACT FOR DEED CONVERSION PROGRAM).
269
        Id. The requirements to qualify under the legislative directive include: (1) participants must be U.S.
        citizens or permanent residents; (2) must not earn in excess of sixty percent of the AMFI; and (3)
        properties must be located in an identified colonia. Id. During the fiscal year 2004, the AMFI
        applicable was $31,260. Id
270
        Id.
271
        Id. Treating all contract for deed transactions as suggested by the Restatement of Property would
        also provide the opportunity for parties holding property under a contract for deed to enjoy the
        benefits of property ownership to a greater extent. See discussion infra Part V.C.
272
        CONTRACT FOR DEED CONVERSION PROGRAM, supra note 268.
273
        See discussion supra Part II.
274
        See supra text accompanying note 72.


                                                    23
MHDocs 1863315_1 990000.1
        Initiatives such as the HOME Program (the nickname for the contract for deed
conversion program) are positive steps toward curing many of the ills that have plagued
persons holding property under contracts for deed in the Colonias. 275 Additional funding
of the HOME Program will continue to provide greater opportunity and better health
conditions for those living in the Colonias. 276 As funds become available under traditional
loans and other programs, the quality of infrastructure will improve, the quality of home
construction will improve, and, thus, health conditions will improve. 277

        An understanding of the benefits discussed in this section and the purpose
behind continued legislative measures designed to protect the Texas Colonias lends
further credence to the lack of need for passing measures under the Texas Property
Code that impose harsh penalties on those entering into real estate transactions outside
of the Colonia areas. 278

         B. Expand Mortgage Financing Programs to Make Traditional Mortgage
                          Vehicles More Readily Available

       In 2001, the 77th Texas Legislature passed Senate Bill 322, a legislative directive
extending the Owner-Builder Loan Program. 279 The legislature enacted this bill to enable
low income individuals and families to purchase real estate or construct new homes. 280
Under the 2001 modifications, the legislature improved the program to increase the
maximum loan amount to $30,000, with a limit of $60,000 on all loans received from the
Texas Department of Housing and Community Affairs (TDHCA) and other entities. 281

         This program requires that three million dollars be made available for mortgage
loans to qualifying persons. 282 This program, however, does not come without a price to
the borrower. 283 The borrower is required to provide "sweat equity" by contributing at
least sixty percent of the labor required to build their home. 284 As compared to the
limitations and negative side effects of the limited opportunities available to the original
Colonia residents, sweat equity is a small price to pay for assistance in realizing the
American dream of home ownership. 285 Sweat equity does have its standards as the
program requires that all applicable building codes be met in order to prevent
substandard construction. 286



275
        See supra notes 263-70 and accompanying text; discussion supra Part II.B.
276
        See supra notes 263-70 and accompanying text; discussion supra Part II.B.
277
        See supra text accompanying notes 211-22; discussion supra Part II.B.
278
        See discussion infra Part VI.
279
        TEX. DEM OF HOUSING AND CMTY. AFFAIRS, TEXAS BOOTSTRAP LOAN PROGRAM:
        ANNOUNCEMENTS, http://www.tdhca.state.tx.us/oci/bootstrap.jsp (last visited May 16, 2005)
        [hereinafter TEXAS BOOTSTRAP LOAN PROGRAM].
280
        Id.
281
        Id.
282
        Id. Like the HOME Program, qualifying families cannot have an income in excess of sixty percent of
        the Area Median Family Income. Id.; see supra text accompanying note 143.
283
        See TEXAS BOOTSTRAP LOAN PROGRAM, supra note 279.
284
        Id.
285
        See id.; discussion supra Part II.B.
286
        TEXAS BOOTSTRAP LOAN PROGRAM, supra note 279.


                                                   24
MHDocs 1863315_1 990000.1
        The Texas Bootstrap Loan Program is another good example of the type of
programs that, if expanded upon, will virtually eliminate the need for contract for deed
transactions in the Colonia regions. 287 Additionally, this program further serves as an
indicator of the legislature's dislike for contracts for deed. 288 If the legislature viewed
contracts for deed in a good light, then there would be no need to create programs that
allow people to convert their current contracts for deed to a superior method of financing
like a mortgage. 289

                   C. Apply Mortgage Law to Contract for Deed Transactions

       Texas should follow Oklahoma and other states' lead in applying mortgage law to
contract for deed transactions. 290 These states have taken the viewpoint of the
Restatement (Third) of Property: Mortgages, which states specifically that "[a) contract
for deed creates a mortgage." 291 Oklahoma eliminated all confusion as to how contract
for deed transactions are construed under the law by statutorily stating that they are
mortgages. 292

         In Texas, a deed of trust is a common method used in place of a mortgage to
secure a debt associated with the sale of real property. 293 Essentially, a deed of trust is a
conveyance in trust to a third party to hold the property as security for payment of the
debt. 294 The third-party trustee may then sell the property nonjudicially upon default. 295
Mortgages typically require judicial foreclosure, but may be foreclosed nonjudicially if it
contains a properly drafted power of sale. 296 Thus, deeds of trust and mortgages with
the power of sale are essentially the same. 297

        Texas is a "lien theory" state regarding deeds of trust and mortgages where the
creditor is not regarded as the owner of the property. 298 Legal title remains with the
purchaser of the property, with the creditor only receiving a lien on the property. 299 Thus,




287
          See id.
288
          See discussion supra Part V.A.
289
          See TEXAS BOOTSTRAP LOAN PROGRAM, supra note 279; CONTRACT FOR DEED
          CONVERSION PROGRAM, supra note 268.
290
          OKLA. STAT. ANN. fit. 16, § I IA (West 2004) (stating [a]ll contracts for deed for purchase and sale
          of real property ... shall to that extent be deemed and held mortgages"); see also Sebastian v.
          Floyd, 585 S.W.2d 381, 383 (Ky. 1979) (stating "Where is no practical distinction between the land
          sale contract and a purchase money mortgage"); Skendzel v. Marshall, 301 N.E.2d 641 (Ind. 1973)
          (stating that a conditional land sale contract or contract for deed creates a vendor's lien and should
          only be enforced through normal foreclosure proceedings because the vendor is an equitable
          mortgagee).
291
          RESTATEMENT (THIRD) OF PROP.: MORTGAGES § 3.4(b) (2004).
292
          OKLA. STAT. ANN. tit. 16, § 11A.
293
          Owens v. Grimes, 539 S.W.2d 387, 389 (Tex. Civ. App.-Tyler 1976, writ ref d n.r.e.).
294
          Robinson v. State, 63 Tex. Crim. 212, 213, 139 S.W. 978, 979 (1911).
295
          See id.
296
          See id.
297
          See Johnson v. Snell, 504 S.W.2d 397, 399 (Tex. 1973).
298
      `   Taylor v. Brennan, 621 S.W.2d 592, 593 (Tex. 1981).
299
          First Baptist Church of Fort Worth v. Bible Baptist Seminary, 347 S.W.2d 587,590 (Tex. 1961).


                                                      25
MHDocs 1863315_1 990000.1
a mortgage or deed of trust does not provide an ownership interest in the property to the
creditor; instead it amounts to merely a security interest in the property. 300

        Several rationales exist for Texas to adopt the Restatement approach treating
contracts for deed as mortgages. 301 First, although there are provisions providing for
heightened protections as a purchaser's interest in the property increases, application of
the contract for deed provisions in the property code can lead to unpredictable results,
as a court may have to determine whether the statutory provisions apply in each
individual case. 302 By creating a benchmark, such as forty percent of the purchase price,
a state is forced to "maintain two separate and distinct bodies of law governing security
interests in real estate.” 303 The application of mortgage law to all contract for deed
transactions would eliminate the disparity in treatment of persons who have, for
example, only reached the thirty-eight percent benchmark and those that have met the
statutory limit of forty percent. 304 Common sense dictates that with varying property
values and amounts due under the contract, a person holding a property of greater value
under a contract for deed may have much more equity at thirty percent than another
holding a property of lesser value with equity at the forty-percent benchmark. 305 One
person's interests are protected under the current property code provisions while the one
with more at stake—monetarily speaking—is afforded less protection. 306 Mortgage law
would provide protections of greater equality. 307

         Second, mortgage law provides for sufficient means of reasonably and efficiently
handling purchaser defaults under contracts for deed. 308 An argument can be that
mortgages are too cumbersome for real-world application to property transactions
involving low-value property and low income persons. 309 The cost of judicial foreclosures
would increase the costs of these transactions to a point that puts property purchases
out of reach for those who primarily utilize contracts for deed to finance their property. 310
But the inclusion of "power of sale" clauses allows for nonjudicial foreclosure of
mortgages. 311 Power of sale provisions give trustees under mortgage law the right to sell
property nonjudicially in the event the debtor is in default and the debt is accelerated and
is considered a valid foreclosure method. 312 Because some would consider nonjudicial
foreclosure a harsh method of collecting debts, mortgage law requires the trustee to
strictly follow the terms of the instrument, applicable provisions of law, and any
prescriptions as to the manner of sale. 313 The ability to utilize nonjudicial foreclosure

300
        See Humble Oil & Refining Co. v. Atwood, 244 S.W.2d 637, 640 (Tex. 1951).
301
        RESTATEMENT (THIRD) OF PROP.: MORTGAGES § 3.4 cmt. d (2004).
302
        Id.
303
        Id.
304
        See TEX. PROP. CODE ANN. § 5.066 (Vernon 2004).
305
        See id.
306
        See id.
307
        See discussion supra Part V.C.
308
        RESTATEMENT (THIRD) OF PROP.: MORTGAGES § 3.4 cmt. d (2004).
309
        Id.
310
        Id.
311
        Id.
312
        Taylor v. San Antonio Joint Stock Land Bank, 101 S.W.2d 868, 872 (Tex. Civ. App.—San Antonio
        1936), rev'd, 105 S.W.2d 650 (Tex. 1937).




                                                26
MHDocs 1863315_1 990000.1
methods is a strong counter to any argument that mortgage law becomes too
cumbersome when dealing with a default under the contract. 314 Additionally, the party in
default is afforded sufficient protections by enforcing strict compliance with laws
pertaining to extrajudicial foreclosure. 315

        Furthermore, mortgage law provides purchasers in default reasonable
opportunity to remedy their breach prior to foreclosure on the property. 316 For example, a
creditor may exercise its right to accelerate a debt if the debtor is in default, but must
give the debtor sufficient notice of its intention to accelerate and notice of actual
acceleration. 317 The debtor must be given an opportunity to cure the default before
foreclosure occurs, and only upon failure to cure the default may the creditor begin
foreclosure proceedings or accelerate the debt. 318 Proper notice that the debt has been
accelerated terminates the debtor's right to cure the default, but termination of the
debtor's right to cure the default does not occur until notice is received. 319 Additionally,
notice of acceleration is insufficient unless preceded by notice of intent to accelerate,
which allows the debtor opportunity to cure the default. 320 But unlike the contract for
deed protections, no specific format for the notice requirement is prescribed under
mortgage law; specific requirements can, however, be set forth in the deed of trust. 321
Careful drafting of the deed of trust can address any concerns regarding special
requirements for receipt and content of notices. 322 Thus, the property code provisions
dealing with a purchaser's right to cure a default under a contract for deed are not
necessary because mortgage law also provides similar protections. 323

                                           VI. CONCLUSION

        As there appears to be intent to create a strong deterrence towards persons
entering into contracts for deed to purchase residential properties, it would be logical for
the legislature to follow the path of Oklahoma and other states that apply mortgage law
to contract for deed purchases. 324 The implied purpose of the legislature already
appears to mirror the Restatement's purpose of eliminating "the use of the contract for

313
        Bonilla v. Roberson, 918 S.W.2d 17, 21 (Tex. App.—Corpus Christi 1996, no writ) (holding that
        because power of sale is a harsh collection method, there must be strict compliance with the terms
        of the note or deed of trust); see also Swoboda v. Wilshire Credit Corp., 975 S.W.2d 770
        (Tex.App.—Corpus Christi 1998, pet. denied) (holding that the bank abandoned its ability to
        accelerate when, after sending notice, it failed to take additional necessary actions like filing notice
        with the county clerk).
314
        RESTATEMENT (THIRD) OF PROP.: MORTGAGES § 3.4 cmt. d (2004).
315
        See Bonilla, 918 S.W.2d at 21.
316
        TEX. PROP, CODE ANN. § 51.002(d) (Vernon 2004); Ogden v. Gibraltar Say. Ass'n, 640 S.W.2d
        232, 233-34 (Tex. 1982).
317
        TEX. PROP. CODE ANN, § 51.002(d); Ogden, 640 S.W.2d at 233-34.
318
        TEX. PROP. CODE ANN. § 51.002(b), (d); Stanley v. Citifinancial Mortgage. Co 121 S.W.3d 811,
        818 (Tex. App.— Beaumont 2003, pet. denied).
319
        Stanley, 121 S.W.3d at 818.
320
        See Ogden, 640 S.W.2d at 233.
321
        Stanley, 121 S.W.3d at 818.
322
        See id.
323
        Compare TEX PROP. CODE ANN. § 5.065 (Vernon 2004) (providing a thirty-day window to cure
        default after notice of default is received), with Ogden, 640 S.W.2d at 234 (holding notice of
        acceleration must be clear and unequivocal).
324
        See discussion supra Parts II-IV.


                                                     27
MHDocs 1863315_1 990000.1
deed as a land financing device." 325 The adoption of the Restatement view would
eliminate the necessity to maintain two separate bodies of law and would eliminate the
harsh effects that result when the current contract for deed provisions are imposed on
unsuspecting and otherwise innocent parties. 326 Constant revisions to the property code
in an attempt to defensively address all of the problems surrounding contract for deed
transactions would be eliminated.

        If the Texas Legislature is not inclined to eliminate contract for deed residential
transactions, then, once again, the Texas Property Code should be revised. 327 The
revisions should eliminate the constitutional issues raised by its application and keep the
benefits to buyers in tact in those areas where widespread problems are not in
existence. 328 Limited application of the contract for deed provisions would focus on the
problems that created the need for the provisions in the first place. 329 In other words, if
the contract for deed is going to live in Texas, the legislature should restore its use to a
point where the beneficial points can be preserved while minimizing the negatives. 330
The current property code provisions do not accomplish this goal. 331

        A look at the history of contract for deed concerns in Texas reveals a very
specific focus—the Colonia areas. 332 The bulk of the Texas Legislature's actions have
centered on providing greater consumer protections to those persons in the Colonia
regions whose lack of financial standing does not allow self-protection against the
predatory actions of unscrupulous sellers. 333 Virtually the entire focus and justification for
the protective measures codified under the various Texas statutory codes discuss the
need to protect the Colonia areas. 334 Thus, it is clear that expansion of the property-code
protections statewide encompasses many transactions that have never reached the
level of systematic unscrupulous dealings that would require the extreme protective
measures set forth. 335

        The legislation dealt with in this Comment serves as an example of good
intentions gone too far. 336 When good intentions go too far, the negative results that the
measures are meant to prevent are simply passed on to innocent parties. 337 The time
has come to realize good intentions have gone too far in the arena of contracts for deed
and send them to their extinction.

                                                                                      by Mike Lee

325
        Grant S. Nelson, The Contract for Deed as a Mortgage: The Case for the Restatement Approach,
        1998 BYU L. REV. 1111, 1142 (1998).
326
        See discussion supra Part III.
327
        See discussion supra Part IV.
328
        See discussion supra Part IV.
329
        See discussion supra Part II.
330
        See discussion supra Part III.
331
        See discussion supra Part III.
332
        See discussion supra Part II.B.
333
        See discussion supra Parts II-III.
334
        See discussion supra Part III.
335
        See, e.g., TEX. PROP. CODE ANN. § 5.077 (Vernon 2004).
336
        See discussion supra Part III.C.
337
        See discussion supra Part I.


                                                28
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