Regulatory Policy

The contract for deed prevalence project in Texas colonias and low income subdivisions

Report to the Texas Department of Housing and Community Affairs, August 2012.
pThe Contract for Deed Prevalence Research Project was commissioned by the Texas Department of Housing and Community Affairs in response to a 2010 recommendation from the Texas Sunset Advisory Commission. The Project was designed in three stages. In Phase One we conducted a hard count of the recorded CFDs (RCFDs) from 1989 through 2010 in targeted counties along the border and in several interior counties, also assessing their relative and current importance against the backdrop of all recorded land sales transactions in each county. In Phase Two we arrived at numbers of unrecorded CFDs (UCFDs) by conducting nearly 1,300 household surveys and title histories of the lots sampled. In Phase Three, which involved both the collection of some new data and follow-up phone interviews of households purposively selected from Phase Two, we sought to further research major trends and issues arising from current land acquisition processes in the communities studied./p pThe Residents: Demographics in Brief/p pv Low-Income Hispanic Owners. Of the heads of household surveyed in our study, 96% are Hispanic. Seventy-six percent are owners.nbsp; A majority live in deep poverty: 57% of the owners and 63% of the renters we surveyed make less than $1,600 a month./p pv Stable, Larger Families of Long-term Residents. Seventy-five percent of the heads of household we surveyed are formally married or in a common law union; only 7% have been divorced, and only 6% are single.nbsp; The average household size of our survey respondentsmdash;4.16mdash;is higher than the U.S. and Texas averages of 2.59 and 2.78 respectively. Three-fourths of residents who purchased their lots reported having lived on their lots for at least 10 years./p pThe Prevalence of Contracts for Deed: Key Findings/p pv RCFDs continue to be in use at significant rates in the border region and also in interior counties far from the border.nbsp; Generally speaking, usage peaked in 2000-2001, around the time that state legislative reforms were being implemented, and has since leveled out at around 450 contracts recorded per year in all 10 counties combined./p pv We estimate that 16,261 total CFDs were recorded between 1989 and 2010 in the 10 counties, and that 5,451 of these CFDs are still active. Most of the active RCFDs are in five counties: Bastrop, Travis, Webb, Maverick, and El Paso counties. The fewest outstanding contracts are in Starr, Guadalupe, and Val Verde counties./p pv Buyers of RCFDs appear to have a low success rate in eventually obtaining a deed.nbsp; Fewer than 20% of Maverick County buyers of RCFDs made the transition to a deed, and 37% still hold an active RCFD. For those buyers we surveyed with RCFDs who were successful in obtaining a deed, the conversion time was a relatively short 8 to 10./p pv UCFDs are still in active use in Texas in colonias and informal homestead subdivisions. Of the owners surveyed (in all eight counties) who had recently purchased their homesteads, approximately one of out of five had purchased with a UCFD. An estimated 6,597 homestead ownersmdash;13.8% of homestead ownersmdash;in colonias of six Texas border counties had a UCFD as of 2012.nbsp; UCFDs were found in the interior counties in roughly 8% to 11% of the households in which we interviewed owners./p pLand Acquisition in Informal Settlements: Key Trends/p pNew Communities in Which Developers Sell to Poorest Buyers Tend to Show High Turnovernbsp;/p pv As in past, the poorest buyers today are more likely to buy from developers than from other consumers. Properties purchased from consumers have higher combined land and house prices, down payments, and initial monthly payments than properties purchased from developers. All depend upon seller financing./p pv Today, developers are much more active in land sales in newer subdivisions developed legally with infrastructure under the statersquo;s model subdivision rules than they are in older colonias and informal homestead subdivisions. Fewer than 50% of homestead purchases in the older settlements we surveyed are by developers, in contrast to 89% of purchases in post-1996 settlements./p pv Developers selling land prior to 1995 in colonias relied largely on UCFDs as the primary means for financing land sales. Since then, they have turned to deeds and deeds of trust as the primary method of titling and financing land sales, although some still use contracts for deed, which are by and large recorded. However, we found that residents obtaining developer-financing today continue to face a number of exploitative practices through their participation in a market that still lacks regulatory oversight and contains limited consumer protections. Since the implementation of the statersquo;s model subdivision regulations in the 1990s, some developers are promoting subdivisions with full services, but at greater cost and with aggressive practices that are facilitating rapid repossession.nbsp; Paradoxically, even though the lots in these newer subdivisions come with infrastructure and may often be bought via deed and deed of trust, they contain some of the poorest housing conditions in the state./p pOn the Rise: UCFDs, Clouded Titles, Renting and Vacancy/p pv Homebuyers in colonias and informal homestead subdivisions confront a number of different title issues, including conflicting names in titling documents, and failure to obtain formal divorce decrees reallocating title to the property. In some cases, even simple legal descriptions cannot be located./p pv As consumer-to-consumer sales have grown in older colonias and informal homestead subdivisions, use of UCFDs in these communities is on the rise. Consumers on both sides of these transactions lack access to basic information about the buying process, how to comply with the law, and how to protect their interests. These transactions also typically do not involve title insurance or homeowners insurance, placing buyers in an especially vulnerable position./p pv In addition, many more property transfers will occur via intestacy law in the coming two decades, most likely leading to a dramatic increase in ldquo;cloudedrdquo; property titles.nbsp; Only 10% of the owners we surveyed have a will. Meanwhile, 68% of the owners we surveyed in colonias and IFHSs developed before 1989 are aged 61 and over. If left unresolved, these trends will produce serious problems with delivery of disaster recovery and other government rebuilding assistance, bar families from reselling their properties, and cause market under-performance and under-valuation, among other problems./p pv Renting is on the rise in colonias. One-fifth of lots we surveyed in all eight counties are being rented or loaned to kin or friends, frequently on an informal basismdash;70% of renters we surveyed do not have a rental contract. Vacant lots, non-occupancy, and lot/home abandonment are commonplace (up to 20% total) as well. We suspect that title impediments and the lack of formal financing contribute to these trends./p
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