Buying Texas Land on a Contract for Deed: Your Rights
Short answer: A contract for deed (in the statute, an executory contract for conveyance) lets you buy land in payments while the seller keeps the deed until you finish paying. Texas Property Code Subchapter D protects buyers when the land is or will be the buyer's home, and a lot of one acre or less is presumed residential (Section 5.062). When it applies, the seller must record the contract within 30 days of signing (Section 5.076) and send you a yearly statement in January showing what you paid and what you still owe (Section 5.077). If you fall behind, the seller must give written notice and 30 days to cure before ending the contract (Sections 5.064 and 5.065), and once you have paid 40 percent or the equivalent of 48 monthly payments, or the contract is recorded, the seller cannot simply take the land back: a default notice with at least 60 days to cure and a trustee sale are required (Section 5.066). You can also convert the contract to a deed and a deed of trust at any time without a penalty (Section 5.081).
Some Texas land listings offer payments instead of a bank loan, and some of them use a contract for deed: you move onto the land and pay the seller each month, but the seller keeps the deed until the last payment. Texas law calls this an executory contract for conveyance, and it gives buyers real protections when the land is their home. This guide explains when those protections apply, what the seller has to do, what happens if you fall behind, and how to turn the contract into a regular deed.
How a contract for deed differs from a deed and deed of trust
In the most common owner-financed sale, the seller signs a deed to you at closing and you sign a promissory note and a deed of trust. You own the land from day one, and the deed of trust lets the seller foreclose if you stop paying. Under Property Code Section 51.002, a Texas foreclosure sale is a public auction at the county courthouse on the first Tuesday of a month, with notice at least 21 days before the sale, and on a home the debtor must first get at least 20 days to cure the default.
With a contract for deed, the seller keeps legal title until you finish paying. That is why the details matter more: until you hold the deed, your rights come from the contract and from the statute. Our seller-side guide on owner financing a Texas land sale compares the two from the other side of the table.
Step 1: check whether the buyer protections apply
Property Code Section 5.062 says the rules in Subchapter D apply to a contract for land that is used or to be used as the buyer's residence, or as the residence of a relative within the second degree. Two details matter for land buyers:
- One acre or less is presumed residential. For this subchapter, a lot of one acre or less is presumed to be residential property.
- Lease with an option to buy counts. A residential lease combined with an option to purchase is treated as an executory contract.
The subchapter does not apply when the contract requires the seller to deliver the deed within 180 days of signing, or to sales of state land or sales by the Veterans' Land Board or a political subdivision. If you are buying a larger tract you do not plan to live on, these protections may not apply, which is one more reason to have an attorney read the contract.
Step 2: make sure the contract is recorded
Section 5.076 says the seller shall record the contract, including the attached disclosure statement, on or before the 30th day after the contract is signed. If the contract ends for any reason, the seller must record the document that ends it.
Recording matters to you for two reasons. It puts the public on notice that you are buying the land, and, as the next sections explain, a recorded contract changes what the seller can do if you fall behind. Check the county clerk's records about a month after signing. Our guide on reading a title commitment shows how recorded documents show up later.
Step 3: expect a statement every January
Under Section 5.077, the seller must send you an annual statement in January of each year for the life of the contract; a mailed statement must be postmarked by January 31. It must show:
- the amount you have paid and the amount you still owe;
- the number of payments left;
- any amounts the seller collected from you and paid for property taxes or insurance;
- an accounting of insurance money if the property was damaged, and a copy of the current policy if the seller changed coverage.
Keep every statement with your own payment records. If the numbers do not match, raise it in writing right away.
Step 4: know what happens if you fall behind
This is where a contract for deed is most different from a regular mortgage, and where the statute protects buyers most.
- Notice and 30 days to cure. Under Section 5.064, the seller can end the contract and keep what you paid (rescission, or forfeiture and acceleration) only after notifying you of the intent to do so and of your right to cure within 30 days, and only if you do not cure. Section 5.065 says you cure by meeting the contract's terms by the 30th day after the notice.
- No forfeiture once the contract is recorded. Section 5.064 also requires that the contract has not been recorded. Once it is recorded, Section 5.066 says the seller may not use forfeiture.
- Equity protection after 40 percent or 48 payments. Under Section 5.066, once you have paid 40 percent or more of the amount due, or the equivalent of 48 monthly payments, the seller must give a notice of default with at least 60 days to cure. If the default is not cured, the seller may sell your interest through a trustee, much like a foreclosure, instead of simply taking the land back.
If you get a default notice, read the date and the deadline first, and call a Texas attorney or legal aid office the same week.
Step 5: you can convert to a regular deed
Section 5.081 gives the buyer the right, at any time and without penalties or charges, to convert the contract into recorded legal title, even if the seller never recorded the contract. There are two ways:
- Pay it off. Pay the full remaining balance, and the seller must transfer recorded legal title to you.
- Switch to a note and deed of trust. Deliver a promissory note for the remaining balance with the same interest rate, due dates and late fees as the contract. The seller must deliver a deed, and you sign a deed of trust at the same time. Within 10 days of receiving a note that substantially complies, the seller must either give a written legal reason for refusing or set a time to sign.
Once those papers are signed, the contract is done, and you are in the same position as a buyer who got a deed and deed of trust at closing. Our guide on warranty deeds vs. quitclaim deeds explains what kind of deed to ask for.
A buyer's checklist before you sign
- Ask whether the deal is a contract for deed or a deed with a deed of trust. Get the answer in writing.
- Ask whether you, or a close relative, will live on the land, and whether the lot is one acre or less.
- Get a title search before you pay, so you know about liens and back taxes on the seller's title.
- Confirm who pays property taxes and insurance, and how you will see proof.
- Agree that the contract will be recorded, and check the county records about 30 days after signing.
- Keep your own record of every payment, and compare it with the January statement.
- Have a Texas real estate attorney read the contract before you sign.
Our guides on buying land for sale by owner and earnest money cover the rest of a by-owner purchase.
Looking for land with payments?
Our land marketplace lists Texas land for sale, and you can filter for listings that offer owner financing. Each listing states its terms, and you can ask about any of them before you decide.
Common questions
- Is a contract for deed legal in Texas?
- Yes. Texas regulates it in Property Code Chapter 5, Subchapter D, which calls it an executory contract for conveyance. The buyer protections apply when the property is used or will be used as the buyer's residence or a close relative's, and a lot of one acre or less is presumed residential under Section 5.062.
- Does the seller have to record a contract for deed in Texas?
- When Subchapter D applies, yes. Section 5.076 says the seller shall record the contract, with its disclosure statement, on or before the 30th day after it is signed. If the contract ends for any reason, the seller must record the document that ends it.
- What happens if I miss a payment on a contract for deed?
- Under Sections 5.064 and 5.065, the seller can end the contract and keep what you paid only after written notice of the default and of your right to cure it within 30 days, and only if the contract is unrecorded and the equity protection in Section 5.066 does not apply.
- What is the 40 percent rule in a Texas contract for deed?
- Section 5.066 says that once the buyer has paid 40 percent or more of the amount due, or the equivalent of 48 monthly payments, the seller cannot simply take the property back. The seller must give notice and at least 60 days to cure, and then may sell the buyer's interest through a trustee. The same applies once the contract is recorded.
- Can I turn a contract for deed into a regular deed?
- Yes. Section 5.081 lets the buyer convert at any time without penalties: pay the remaining balance and get the deed, or sign a promissory note for the balance on the same terms plus a deed of trust, and the seller must deliver the deed.
Sources
- Texas Property Code Section 5.062 (when the rules apply)
- Texas Property Code Section 5.064 (seller's remedies on default)
- Texas Property Code Section 5.065 (right to cure)
- Texas Property Code Section 5.066 (equity protection)
- Texas Property Code Section 5.076 (recording)
- Texas Property Code Section 5.077 (annual statement)
- Texas Property Code Section 5.081 (right to convert)
- Texas Property Code Section 51.002 (foreclosure sales)
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