Executory Contract

Legal information, not legal advice. Verify against the cited primary sources before acting. The phrase “executory contract” carries two distinct legal meanings in contract-for-deed practice; conflating them is a common and costly error. Last verified: 2026-06-08.

• What it is: “Executory contract” is a label for a contract-for-deed (CFD / installment land contract) that means two different things depending on the body of law you are in, and the two meanings do not track each other:

  1. The property-law / Texas Chapter 5 sense (a type of instrument). A CFD is “executory” because the seller’s central promise — to deliver the deed — remains to be performed in the future: the seller keeps legal title and conveys it only after the buyer completes performance (typically pays in full). This is the ordinary conveyancing meaning embedded in many state recording statutes (“every executory contract for the sale of land”) and is the defined statutory term of art in Texas Property Code Chapter 5, Subchapter D, where “executory contract” triggers an entire mandatory consumer-protection regime — disclosures, recording, cure, and the forfeiture bar. See texas.
  2. The bankruptcy / 11 U.S.C. § 365 sense (a characterization for treatment in bankruptcy). Under § 365 the trustee may assume or reject “any executory contract.” But the Code does not define the term, and courts apply the Countryman test: a contract is executory only if material performance remains on both sides such that either party’s failure to finish would be a material breach. The competing characterization is that a CFD is not executory at all but a disguised security device / secured debt — a completed sale in which the seller holds bare legal title only as collateral, like a mortgagee. Whether a given CFD is “executory” in this sense decides whether the buyer-debtor can cure-and-keep through a plan or loses the deal to rejection. See in-re-mccune-2024.

  The trap: a contract can be “executory” in sense (1) — and squarely inside the Texas Subchapter D regime — while a bankruptcy court holds it is not executory in sense (2) because the sale is complete and only money (a one-sided obligation) remains owing.

• Why it matters for contract-for-deed:

  • Disclosures & remedies hinge on sense (1). Whether a state’s CFD statute applies, what the seller must disclose pre-sale, whether the contract must be recorded, and whether the seller may forfeit or must foreclose are all keyed to the instrument being an “executory contract for conveyance.” In Texas, crossing out of the “executory” category (by recording, which converts the instrument into a deed with a vendor’s lien, or by the buyer’s payoff) changes the available remedy from forfeiture to foreclosure. Tex. Prop. Code §§ 5.062, 5.079(a). See forfeiture-vs-foreclosure.
  • The buyer’s fate in bankruptcy hinges on sense (2). If the CFD is an executory contract under § 365, the trustee can assume or reject it, and rejection is a breach (§ 365(g)) that can cost the buyer the property; in a Chapter 7, failure to assume a residential contract within 60 days is automatic rejection (§ 365(d)(1)). If instead the CFD is a secured debt, the buyer-debtor is an owner who can cure arrears and pay the balance through a Chapter 13 plan (11 U.S.C. §§ 1322, 1325) and keep the home. The split is unresolved nationally — see in-re-mccune-2024.

• The two senses, side by side:

  	(1) Property-law / TX Ch. 5 sense	(2) Bankruptcy § 365 sense
  Question asked	Is this kind of instrument a CFD where the deed is still owed?	For § 365 treatment, is material performance still owed on both sides?
  Test	Seller retains legal title pending the buyer’s full performance	Countryman: both sides’ duties so unperformed that either’s failure is a material breach
  Typical answer	Yes — deed delivery is the unperformed future act	Often no — once the buyer takes possession and only owes money, the seller’s title-retention is recharacterized as security, not an unperformed executory duty
  Consequence	Triggers disclosure/recording/cure/forfeiture statutes (e.g., TX §§ 5.061–5.085)	Decides assume/reject (cost the buyer the deal) vs. secured-debt cure-and-keep
  Authority	Tex. Prop. Code § 5.062; state recording statutes	11 U.S.C. § 365; In re Shaw vs. the security-device line (in-re-mccune-2024)

• Sense (1): the Texas Chapter 5 statutory term of art. Texas is the model jurisdiction. “Executory contract” is the umbrella statutory term for any contract to convey residential real property where the seller retains title and conveys only on performance, plus lease-options/lease-purchases executed with a residential lease. Tex. Prop. Code § 5.062(a). The regime applies to residential contracts but not where the deed is delivered within 180 days of execution, nor to certain government and intra-family sales. § 5.062. Once an instrument is an “executory contract,” Subchapter D imposes: pre-sale disclosures (§§ 5.069–5.070) whose omission is a DTPA violation letting the buyer cancel and rescind (§ 5.069(d)); a 30-day recording duty (§ 5.076); annual accounting (§ 5.077); a 30-day cure right and prescribed notice (§§ 5.063–5.065); and the 40%/48-payment forfeiture bar (§ 5.066). Critically, recording the contract takes it out of the pure-executory remedy posture: a recorded executory contract “shall be the same as a deed with a vendor’s lien,” enforceable only by foreclosure (§ 5.079(a)). See texas.

• Sense (2): the bankruptcy § 365 characterization, and the national split. Section 365(a) lets the trustee “assume or reject any executory contract … of the debtor,” but “executory contract” is undefined in the Code; the Senate Report says only that it “generally includes contracts on which performance remains due to some extent on both sides,” and courts adopted Countryman’s material-breach-on-both-sides test. Applying it to CFDs splits the courts:

  • Executory line: some courts hold a CFD/real-estate contract is executory and within § 365 — e.g., Shaw v. Dawson (In re Shaw), 48 B.R. 857, 860 (D.N.M. 1985) (treating a New Mexico real-estate contract as executory), discussed in in-re-mccune-2024.
  • Security-device line: other courts hold a CFD is not executory but a financing arrangement — “Contracts for Deeds are merely a financing arrangement for a sale which has already occurred. The vendor retains legal title only as security for the price.” Quoted and canvassed in in-re-mccune-2024 (Bankr. D.N.M. 2024). On this view the buyer is the owner and the seller a secured creditor; the buyer cures and pays through a plan rather than facing rejection.
  • In re McCune itself declined to resolve the split, holding that either way the buyer’s equitable interest survived and the property stayed in the estate — a meaningful buyer protection regardless of label.

• Leading authority: 11 U.S.C. § 365 · Tex. Prop. Code §§ 5.062, 5.079 · in-re-mccune-2024 · related state-side anchors skendzel-v-marshall-1973, sebastian-v-floyd-1979

▸ For Sellers / Operators — Keep the two meanings in separate boxes. Sense (1) governs your day-to-day compliance: ask “is this instrument an executory contract for conveyance under my state’s CFD statute?” In Texas the answer drives the entire Subchapter D packet, and note the counter-intuitive flip — recording (mandatory under § 5.076) converts the instrument into a vendor’s-lien deed you can only foreclose, not forfeit (§ 5.079(a)). Sense (2) governs only when your buyer files bankruptcy: do not assume a defaulted CFD is a rejectable executory contract that hands you the property back. Many courts treat a substantially-performed CFD as a secured debt — the buyer is an owner who can cure arrears and keep the home through a Chapter 13 plan, and you are a secured creditor bound by the automatic stay. The states that treat the CFD as a mortgage outright (FL, KY, OK) are squarely on the secured-debt side; the equitable-title states (most of the rest) are split. Confirm your state’s characterization before you move for relief or file a rejection motion.

▸ For Buyers — In bankruptcy, the “secured-debt” characterization is your friend: it makes you the owner with the right to cure and pay through a plan, rather than a party whose contract can be rejected out from under you. Even where a court treats the CFD as executory, in-re-mccune-2024 shows the equitable interest is not automatically extinguished by rejection.

Jurisdiction map

Two distinct splits below. Split A = whether the state’s CFD law uses “executory contract” as a defined statutory term triggering a disclosure/remedy regime (sense 1). Split B = how the state’s law pushes the federal § 365 characterization (sense 2) — toward secured-debt (buyer = owner, cure-and-keep) or contested/executory. § 365 is federal; the state characterization of title is what tips the bankruptcy court. Positions are stated only where a retrieved primary source supports them; unlisted jurisdictions are not yet classified — see needs_verification.

Position	Jurisdiction	Authority (primary source)
Sense 1 — “executory contract” is a defined statutory term triggering a full CFD consumer-protection regime	texas	Tex. Prop. Code §§ 5.061–5.085; § 5.062 (defines/applies “executory contract”); § 5.079(a) (recorded = deed with vendor’s lien)
Sense 1 — recording statute uses “executory contract for the sale of land,” but no dedicated CFD regime	michigan, missouri, nebraska, new-york, south-dakota, wyoming	State recording statutes phrased as “every executory contract for the sale or purchase of lands” (e.g., N.Y. Real Prop. Law § 294) — confirm exact section per state page
Sense 2 — secured-debt side (CFD deemed a mortgage; not executory under § 365 — buyer cures & keeps)	florida, kentucky, oklahoma	Fla. Stat. § 697.01 (instrument to secure = mortgage); Sebastian v. Floyd, 585 S.W.2d 381 (Ky. 1979) sebastian-v-floyd-1979; Okla. Stat. tit. 16, § 11A
Sense 2 — secured-debt side via equitable-conversion / substantial-equity (treat-as-mortgage)	indiana	Skendzel v. Marshall, 301 N.E.2d 641 (Ind. 1973) skendzel-v-marshall-1973
Sense 2 — § 365 characterization contested / fact-dependent in-circuit (executory vs. security device unresolved)	new-mexico, michigan, ohio, minnesota	In re Shaw, 48 B.R. 857 (D.N.M. 1985) (executory) vs. security-device line, both canvassed in in-re-mccune-2024; 11 U.S.C. § 365

How the two senses interact

• Federal supremacy on sense (2). § 365 and the executory-vs-secured question are federal bankruptcy law; a state cannot decree the § 365 result. But the bankruptcy court looks to state property law to decide what the parties own — so a state that treats the CFD buyer as equitable owner and the seller’s title as security (the dominant view) pushes toward the secured-debt characterization, while a state that treats the seller as a true title-holder owing future conveyance pushes toward executory. 11 U.S.C. § 365; state equitable-conversion law (see equitable-conversion). Sources: 11 U.S.C. § 365(a), (d)(1), (g) — https://www.law.cornell.edu/uscode/text/11/365.

• The Countryman fault line for CFDs. Under Countryman a contract is executory only if both sides have material performance left. In a CFD, by the time of a bankruptcy filing the buyer is usually in possession and owes only money (a one-sided duty), and the seller’s sole remaining act is to deliver a deed at payoff — which many courts treat as a security/title-retention function, not an unperformed executory duty. That is why the security-device characterization has gained ground for substantially-performed CFDs. Source: Countryman test as applied in in-re-mccune-2024; § 365 undefined-term background — Senate Report quoted at https://www.law.cornell.edu/uscode/text/11/365.

• Texas’s instructive overlap. A Texas CFD can be “executory” in sense (1) (inside Subchapter D) yet, once recorded, be statutorily a deed with a vendor’s lien (§ 5.079(a)) — i.e., a secured debt — which lines it up with the secured-debt side of sense (2) in bankruptcy. The same instrument thus sits in both boxes at once, by design. Source: Tex. Prop. Code §§ 5.062, 5.079 — https://texas.public.law/statutes/tex._prop._code_section_5.079.

• Disclosure consequence of sense (1). Being an “executory contract” is the jurisdictional hook for mandatory disclosures: in Texas, an instrument that qualifies under § 5.062 carries the §§ 5.069–5.070 disclosure duties whose breach lets the buyer cancel, rescind, and recover payments (§ 5.069(d)). Fall outside “executory” (e.g., deed delivered within 180 days) and the regime — and its penalties — do not attach. Source: Tex. Prop. Code § 5.062 — https://texas.public.law/statutes/tex._prop._code_section_5.062.

Primary sources (retrieved 2026-06-08)

• 11 U.S.C. § 365 (Executory contracts and unexpired leases) — (a) trustee may “assume or reject any executory contract … of the debtor” subject to court approval; (d)(1) in Chapter 7, a residential/personal-property executory contract not assumed within 60 days after the order for relief is deemed rejected; (g) rejection “constitutes a breach” of the contract. The term “executory contract” is undefined in the Code (Senate Report: performance “remains due to some extent on both sides”). https://www.law.cornell.edu/uscode/text/11/365
• Tex. Prop. Code § 5.062 (Applicability) — defines/scopes “executory contract for conveyance” of residential real property; pulls in option-plus-lease arrangements; excludes contracts delivering a deed within 180 days, plus government and certain intra-family sales. https://texas.public.law/statutes/tex._prop._code_section_5.062
• Tex. Prop. Code § 5.079(a) — “A recorded executory contract shall be the same as a deed with a vendor’s lien,” securing the unpaid price and enforceable by foreclosure under § 5.066 or judicial foreclosure (i.e., recording moves the instrument from the forfeiture track to the secured-lien/foreclosure track). https://texas.public.law/statutes/tex._prop._code_section_5.079
• In re McCune, No. 20-12326-j7 (Bankr. D.N.M. Apr. 5, 2024) — canvasses the § 365 executory-vs.-security split for real-estate contracts, quoting Shaw v. Dawson (In re Shaw), 48 B.R. 857, 860 (D.N.M. 1985) (executory) against the “merely a financing arrangement … vendor retains legal title only as security” line; declines to resolve it because the buyer’s equitable interest survived either way. Verified opinion — in-re-mccune-2024. https://www.nmb.uscourts.gov/sites/default/files/opinions/McCune-Memorandum-Opinion-Doc-332.pdf
• Sebastian v. Floyd, 585 S.W.2d 381 (Ky. 1979) — installment land contract is in substance a purchase-money mortgage (secured-debt side). sebastian-v-floyd-1979 https://www.courtlistener.com/opinion/2391388/sebastian-v-floyd/
• Skendzel v. Marshall, 261 Ind. 226, 301 N.E.2d 641 (Ind. 1973) — vendor/vendee viewed as mortgagee/mortgagor (security characterization). skendzel-v-marshall-1973 https://www.courtlistener.com/opinion/2210689/skendzel-v-marshall/
• Okla. Stat. tit. 16, § 11A — contract for deed “deemed and held [a] mortgage[].” https://law.justia.com/codes/oklahoma/title-16/section-16-11a/

Meta

• needs_verification:
  • The Countryman definition is corroborated here from the ABI journal and the DOJ Civil Resource Manual (secondary/orienting); the primary anchor is the line of bankruptcy opinions (e.g., In re Shaw; In re McCune). Pull a controlling circuit opinion stating the test verbatim before quoting it as a holding.
  • Exact recording-statute section for each “executory contract for the sale of land” state (MI, MO, NE, NY § 294, SD, WY) — confirm verbatim on each state page; only N.Y. Real Prop. Law § 294 is named here.
  • Florida § 697.01 verbatim text (instrument intended to secure deemed a mortgage) — relied on via the florida page this run; confirm the section number against flsenate.gov before quoting.
  • Controlling bankruptcy authority per state on the § 365-vs-secured-debt characterization (a Sixth Circuit holding for MI/OH; a Minnesota holding) — flagged on those state pages; not asserted here as resolved.
  • Direct verbatim retrieval of the official statutes.capitol.texas.gov text for §§ 5.062 and 5.079 (this run used the public.law mirror of the same code).
  • Whether In re Shaw and Sebastian v. Floyd remain good law without intervening statutory modification — flagged for the case pages.
• open_questions:
  • For a CFD that is “executory” in sense (1) but where the buyer owes only money, does the seller’s bare duty to deliver a deed at payoff supply the second side of material performance Countryman requires — or is it merely a security release? (This is the doctrinal hinge of the entire § 365 split.)
  • Does recording (and thus § 5.079 vendor’s-lien conversion) moot the § 365 question in Texas by making the CFD a secured debt as a matter of state law?
  • In the “contested” states, does the buyer’s percentage of equity at filing drive the executory-vs-secured outcome the way it drives forfeiture-vs- foreclosure?
• cross_links: texas · florida · kentucky · oklahoma · indiana · new-mexico · michigan · ohio · minnesota · new-york · missouri · nebraska · south-dakota · wyoming · in-re-mccune-2024 · sebastian-v-floyd-1979 · skendzel-v-marshall-1973 · forfeiture-vs-foreclosure · equitable-conversion
• changelog:
  • 2026-06-08 — Page created. Separated the two meanings of “executory contract” (property-law / Texas Ch. 5 sense vs. bankruptcy § 365 sense); built the dual jurisdiction map (Split A statutory-term usage; Split B § 365 characterization) from retrieved 11 U.S.C. § 365, Tex. Prop. Code §§ 5.062 & 5.079, and the verified In re McCune opinion; flagged the Countryman verbatim anchor and the remaining per-state recording-statute and bankruptcy citations under needs_verification.

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Disclaimer. This page is legal information, not legal advice, and may be out of date. “Executory contract” means different things in property law and in bankruptcy, and the § 365 characterization of a contract for deed is unsettled and fact-specific. Confirm the current statute and that any cited case is still good law before drafting, enforcing, signing, or litigating an installment land contract, and consult a licensed attorney in the relevant jurisdiction.