This paper explores ideas about lawmaking, compliance, and informality. Specifically we examine the law’s impact in the context of property titling in low income colonias and informal subdivisions in Texas, focusing upon contracts for deeds.  Sometimes called a “poor man’s mortgage,” the contract for deed (CFD) is a risky, informal mechanism for purchasing a home, whereby a buyer obtains title to the property only after completing a series of payments directly to the seller, and it has been a major vehicle for financing and conveyancing property to low-income home-buyers in colonias and other poor communities across the United States.  In the 1990s, in response to reports of widespread abuses by developers using CFDs, the Texas Legislature set out to regulate the use of CFDs and to make CFDs less attractive to developers. A series of sweeping legal reforms containing numerous protections for buyers were adopted during this period, including a recording requirement, extensive notice requirements, and harsh penalties for sellers failing to abide by the new legal requirements.

This paper closely analyzes the nature and extent to which different land sellers continued to use recorded and unrecorded CFDs in low-income subdivisions post-reform.  Our data show that developers did respond to the new laws and stepped up their propensity to record CFDs (1995-2001). Thereafter, however, developers in the border have switched their property development portfolios in two ways.  First, they have moved from CFDs to giving buyers deeds up front.  A second and more negative (and largely unanticipated) outcome has been that developers are now shifting their investments into new model subdivisions and utilizing legal workarounds that are leaving low income buyers increasingly vulnerable to rapid repossession by the developer.  

 A second major finding presented in this paper is that unrecorded CFDs are still common in property transactions between resident owners and new buyers and may be growing given the increased prevalence of consumer-to-consumer sales in older colonias. To the extent that CFDs continue to be important, legislation and incentives need to focus on ensuring that those transactions are recorded and that sellers can easily switch over to using a deed and deed of trust.  Our paper demonstrates that laws and policies designed to regulate activities may be ineffectual if certain sectors or actors are ill-informed, or if they are wittingly or unwittingly non-compliant and cannot readily be brought into compliance. Similarly, others, instead of complying, will find formal or informal workarounds.  In short, taking the case of contract for deed regulation in Texas, we have argued that policymakers are more likely to be successful where they seek to better understand the rationale that underpins non-compliance among low-income populations. Policymakers need to also anticipate the likely workarounds that will occur and well as the unintended consequences of their actions to formalize informality.