A contract for deed in Texas can look deceptively simple: a buyer agrees to make payments directly to a seller, takes possession of the property, and receives the deed later. But Texas law does not necessarily treat this arrangement like an ordinary real estate sale.
Contracts for deed—often called executory contracts—can be subject to extensive requirements under Subchapter D of Chapter 5 of the Texas Property Code. Depending on the transaction, Texas law regulates disclosures, contract language, recording, annual accounting statements, default notices, cure periods, cancellation rights, and the eventual transfer of title.
For buyers, these protections can be extremely important because the seller may retain title while the buyer spends years paying for and maintaining the property. For sellers, failing to comply with Chapter 5 can turn an apparently straightforward owner-financed sale into a costly legal dispute.
What Is a Contract for Deed in Texas?
In a traditional financed real estate transaction, the seller generally conveys title to the buyer at closing. The buyer may then sign a promissory note and deed of trust securing repayment of the purchase money.
A contract for deed works differently.
Generally, the buyer takes possession and agrees to pay the purchase price over time, while the seller retains title until the buyer completes the contractual obligations. The seller therefore serves a financing role while continuing to hold legal title.
This distinction matters because the buyer may invest substantial money in the property before receiving a deed.
Texas Property Code Chapter 5 imposes special requirements on certain transactions of this kind.
Does Texas Property Code Chapter 5 Apply to Every Contract for Deed?
No.
This is an important limitation that is sometimes overlooked when discussing executory contracts.
Texas Property Code § 5.062 provides that Subchapter D generally applies to an executory contract involving real property used or to be used as the purchaser's residence or as the residence of certain relatives of the purchaser.
The statute also contains exceptions and special rules. For example, certain transactions involving close family members are excluded if statutory requirements are satisfied. Other provisions address options to purchase combined with residential leases.
Accordingly, simply calling an agreement a “contract for deed” does not answer every legal question. The property's intended use and the actual structure of the transaction matter.
Why Does Texas Regulate Contracts for Deed So Heavily?
The basic problem is the separation between possession and title.
Historically, a purchaser could occupy property for years, make substantial payments, pay taxes, maintain the premises, and make improvements while the seller continued holding title. A default late in the transaction could potentially place much of the purchaser's accumulated investment at risk.
Chapter 5 substantially regulates this relationship.
The result is that a Texas contract for deed should not be treated as merely an informal alternative to a mortgage. Both parties may have statutory obligations that exist regardless of what a homemade contract says.
What Must a Seller Disclose Before a Contract for Deed Is Signed?
Texas law requires significant disclosures in covered transactions.
For example, Texas Property Code § 5.069 addresses a seller's disclosure of information concerning the property. Depending on the circumstances, the purchaser may need to receive information regarding matters such as the availability of utilities, whether the property is located in a recorded subdivision, and known conditions affecting the property.
Additional provisions address tax and insurance information and the financial terms of the transaction.
These requirements serve an obvious purpose: a purchaser committing to years of payments should know both what property is being purchased and the financial obligations involved.
A seller should therefore be cautious about downloading an old contract-for-deed form and assuming that the document satisfies current Texas law.
Does a Texas Contract for Deed Have to Be in Writing?
Yes, for transactions governed by these provisions.
Texas Property Code § 5.072 states:
“An executory contract is not enforceable unless the contract is in writing and signed by the party to be bound or by that party's authorized representative.”
This makes informal promises particularly dangerous.
The written agreement should accurately describe the parties' obligations rather than leaving important terms to oral understandings concerning payments, repairs, taxes, insurance, improvements, or the eventual conveyance of title.
Does the Seller Have to Record a Contract for Deed?
Texas Property Code § 5.076 imposes recording requirements on sellers subject to the statute.
Recording is especially significant because the status of the contract can affect the remedies available following a purchaser's default.
For a buyer, an unrecorded agreement can also create obvious practical concerns. Real property records ordinarily provide public notice of interests affecting property. A buyer who is making long-term payments while the seller remains the record titleholder should understand exactly what has—or has not—been recorded.
Does the Buyer Receive an Annual Accounting Statement?
Texas Property Code § 5.077 requires a seller to provide an annual statement during the term of an executory contract.
The statute provides:
“The seller shall provide the purchaser with an annual statement in January of each year for the term of the executory contract.”
The statement contains important financial information, including amounts paid and amounts remaining under the agreement, along with other information required by the statute.
This requirement is easy for an individual seller to overlook. A seller may think of the arrangement as a private sale rather than a regulated financing transaction. Chapter 5 nevertheless imposes continuing obligations after the contract is signed.
What Happens If a Buyer Misses a Payment on a Texas Contract for Deed?
A missed payment does not necessarily mean that a seller can immediately cancel the contract and remove the buyer.
Texas Property Code §§ 5.063 through 5.066 establish procedures governing default and remedies.
The seller generally must provide the purchaser with proper written notice identifying the default and explaining what the purchaser must do to cure it. The applicable procedure depends on circumstances including how much the purchaser has paid, how many monthly payments have been made, and whether the contract has been recorded.
This is one of the most important differences between a regulated executory contract and an ordinary landlord-tenant relationship.
How Long Does a Buyer Have to Cure a Default?
Depending on the circumstances, Texas law can provide a 30-day or 60-day cure period.
The longer protections become particularly important when the purchaser has:
- paid 40% or more of the amount due;
- made the equivalent of 48 monthly payments; or
- obtained the protection associated with a recorded executory contract.
When the statutory conditions are satisfied, the seller's remedies can become substantially more restrictive.
A seller should therefore determine the purchaser's exact payment history and the status of the contract before attempting forfeiture, eviction, foreclosure, or another remedy.
What Is the Texas “40% or 48 Payments” Rule?
The 40%/48-payment rule is one of the most important concepts involving Texas contracts for deed.
Once a purchaser reaches certain statutory thresholds, the seller generally cannot treat the transaction as though the buyer had merely occupied the property temporarily and forfeited everything upon default.
Texas Property Code § 5.066 provides enhanced protections when the purchaser has paid 40% or more of the amount due or the equivalent of 48 monthly payments. Recording of the executory contract can also materially affect the available remedies.
At that point, statutory procedures governing sale or foreclosure may apply rather than simple forfeiture.
For both parties, this means that the history of the transaction matters. Two apparently identical contracts can produce very different remedies depending on how long payments have been made and whether the contract was properly recorded.
Can a Seller Evict a Contract-for-Deed Buyer in Texas?
Sometimes—but not in every default situation.
Whether eviction is an available remedy depends on the purchaser's statutory protections and the circumstances of the default.
A seller who assumes, “I still hold the deed, so the buyer is basically a tenant,” may make a serious mistake. Chapter 5 can require procedures substantially different from an ordinary residential eviction, particularly after statutory payment thresholds have been reached or the contract has been recorded.
Before attempting to remove a purchaser, the seller should determine what remedies Texas law actually permits.
Can a Buyer Cancel a Contract for Deed?
Texas law provides purchasers with significant cancellation rights in certain circumstances.
Among other protections, Texas Property Code § 5.074 provides a statutory period during which a purchaser may cancel a covered executory contract after execution.
Other cancellation remedies can arise from particular statutory violations or property problems.
Because the available remedy depends heavily on the facts, a purchaser considering cancellation should review the contract, payment history, disclosures, property records, and applicable statutory provisions before taking action.
What Happens When the Buyer Makes the Final Payment?
Completing the payment obligation does not leave the seller free to retain title indefinitely.
Chapter 5 imposes requirements concerning the conveyance of the property after the purchaser completes the contractual obligations. Texas Property Code §§ 5.079 and 5.081 address circumstances involving conversion and transfer of title.
The ultimate purpose of the transaction is the conveyance of ownership—not perpetual possession under a payment contract.
A seller's failure to deliver the required deed after the purchaser has performed can expose the seller to substantial consequences.
Why Sellers Should Be Careful With Old Contract-for-Deed Forms
A recurring problem in owner-financed real estate transactions is the reuse of documents prepared years earlier—or forms found online that were never designed for Texas law.
Potential seller mistakes include:
- Failing to provide required disclosures before execution;
- Using contract language inconsistent with Chapter 5;
- Failing to record the executory contract;
- Failing to provide annual accounting statements;
- Giving an improper default notice;
- Miscalculating the purchaser's statutory cure period;
- Attempting forfeiture or eviction when foreclosure or another procedure is required; and
- Failing to timely convey title after the purchaser completes the agreement.
A transaction that initially saved a few hundred dollars in documentation costs can consequently produce thousands of dollars in litigation expense.
Are a Contract for Deed and Traditional Seller Financing the Same Thing?
No.
With traditional seller financing, the seller can convey title to the purchaser at closing while retaining a secured interest through documents such as a promissory note and deed of trust.
Under a classic contract-for-deed arrangement, the seller instead retains title until the purchaser fulfills the contract.
That difference is legally significant.
Because Texas imposes extensive requirements on executory contracts, parties considering owner financing should determine whether a traditional deed-and-deed-of-trust transaction would better accomplish their objectives.
What Should a Buyer Review Before Signing a Texas Contract for Deed?
Before entering a long-term executory contract, a purchaser should understand at least:
- Who actually owns the property;
- Whether liens or other encumbrances affect it;
- Whether taxes are current;
- Whether utilities are available;
- The total purchase price and interest obligations;
- Who must pay taxes, insurance, and repair expenses;
- What constitutes default;
- What cure rights apply;
- Whether and when the agreement will be recorded; and
- Exactly when and how the purchaser will receive title.
The fact that a buyer is dealing directly with the property owner does not make these questions less important. In many respects, it makes them more important.
What Should a Seller Review Before Offering a Contract for Deed?
A seller should determine whether the proposed transaction falls within Chapter 5 before signing anything.
If it does, compliance should be planned from the beginning. That includes required disclosures, proper drafting, recording, annual statements, default procedures, and eventual conveyance of title.
The seller should also consider whether a conventional seller-financed closing would provide a simpler structure.
Trying to determine the applicable statutory procedure after the buyer has already defaulted is considerably more difficult than structuring the transaction correctly at the outset.
Frequently Asked Questions About Texas Contracts for Deed
Is a contract for deed legal in Texas?
Yes. Texas does not simply prohibit contracts for deed, but covered transactions are heavily regulated by Chapter 5 of the Texas Property Code.
Does the buyer own the property under a contract for deed?
Typically, the seller retains title during the payment period, while the purchaser possesses the property and acquires contractual and statutory rights.
Can a seller immediately evict a buyer who misses one payment?
Not necessarily. Texas law imposes notice and cure requirements, and the remedies available to the seller depend on factors such as the purchaser's payment history and whether the contract was recorded.
What happens after 48 payments on a Texas contract for deed?
The purchaser may receive enhanced statutory protections that substantially affect the seller's remedies following default. Similar protections can arise when the purchaser has paid at least 40% of the amount due or the contract has been recorded.
Does a contract for deed have to be recorded in Texas?
Chapter 5 imposes recording requirements on sellers in covered executory-contract transactions. Recording can also have important consequences for the purchaser's rights if a default later occurs.
Does the seller have to give the buyer a deed after the final payment?
Yes. The purpose of the arrangement is ultimately to transfer title, and Chapter 5 contains requirements governing conveyance after the purchaser completes the required performance.
Conclusion
A Texas contract for deed is not merely a handshake agreement with monthly payments. For covered residential transactions, Chapter 5 of the Texas Property Code creates a detailed statutory framework governing the relationship between buyer and seller.
Those rules can affect disclosures before signing, the language of the agreement, recording, annual accounting statements, default notices, cure periods, foreclosure or forfeiture remedies, and delivery of the deed.
For buyers, these protections can prevent the loss of years of payments and investment without legally required procedures. For sellers, understanding the statute is equally important because an improperly documented or administered contract for deed can create substantial liability.
Anyone considering a contract for deed—or dealing with a default under an existing agreement—should determine exactly which provisions of Chapter 5 apply before taking action.
Disclaimer: This article is for educational and informational purposes only and does not constitute legal advice. The application of Texas law depends on the facts of each transaction. Consult a qualified Texas attorney regarding your specific situation.
At David C. Barsalou, Attorney at Law, PLLC, we help clients navigate business, family, tax, estate planning, and real estate matters ranging from document drafting to litigation with clarity and confidence. If you’d like guidance on your situation, schedule a consultation today. Call us at (713) 397-4678, email barsalou.law@gmail.com, or reach us through our Contact Page. We’re here to help you take the next step.
