Contract4Deed Wiki

Texas

18 min read

Texas — Contract for Deed / Executory Contract for Conveyance

Legal information, not legal advice. Verify against the cited primary sources before acting. Statutes in this area are frequently amended. Last verified: 2026-06-08.

Texas is the model jurisdiction for installment-land-contract consumer-protection reform. After abuses in the colonias along the border, the Legislature enacted a series of reforms — most consequentially the 2005 amendments effective September 1, 2005 — building out Property Code Chapter 5, Subchapter D (§§ 5.061–5.085) into the most detailed executory-contract regime in the country. The reform did three structural things every operator must internalize: (1) it layered mandatory pre-sale disclosures with deceptive-trade- practice and liquidated-damages penalties; (2) it barred forfeiture once the buyer builds 40% equity or 48 monthly payments (§ 5.066); and (3) since the 2005 recording reform, a recorded executory contract is statutorily equivalent to a deed with a vendor’s lien enforceable only by foreclosure (§ 5.079(a)). The net effect: in Texas a recorded or substantially-paid contract for deed behaves much more like a mortgage than like a classic forfeiture instrument.

0. Identity & Terminology

  • In-state name(s): “contract for deed,” “executory contract for conveyance,” “installment land contract.” The Property Code’s umbrella term is “executory contract” — a contract for the sale of real property under which the seller retains legal title and conveys it only after the purchaser performs (typically pays in full). Tex. Prop. Code § 5.062 (applicability). Lease-options and lease-purchases over a certain term are also pulled into Subchapter D. See § 5.062(a), https://texas.public.law/statutes/tex._prop._code_section_5.062.
  • Recognition: statutory and common law. The buyer’s equitable interest is a common-law doctrine; the consumer-protection overlay is statutory (Subchapter D).
  • Statutory home: Tex. Prop. Code, Title 2, Ch. 5, Subchapter D, §§ 5.061–5.085 — https://texas.public.law/statutes/tex._prop._code_section_5.061
  • Remedy regime: hybrid. Three tiers coexist: (a) for a buyer with <40% equity / <48 payments on an unrecorded contract, the seller may still pursue statutory rescission or forfeiture-and-acceleration, but only after a 30-day cure notice (§§ 5.064–5.065); (b) once the buyer reaches 40% / 48 payments, forfeiture/rescission is barred and the seller must sell through a trustee’s sale akin to a deed-of-trust foreclosure (§ 5.066); (c) if the contract is recorded, it is “the same as a deed with a vendor’s lien” enforceable only by foreclosure (§ 5.079(a)). See forfeiture-vs-foreclosure.

1. Formation & Mandatory Disclosures

  • Statute of frauds: Writing required. A contract for the sale of real estate is unenforceable absent a signed writing. Tex. Bus. & Com. Code § 26.01(b)(4); Subchapter D additionally prohibits oral executory agreements — Tex. Prop. Code § 5.072 (oral agreements prohibited), https://texas.public.law/statutes/tex._prop._code_section_5.072.
  • Mandatory disclosures: required — extensive. Before an executory contract is signed, § 5.069 requires the seller to provide, among other things: a survey (completed within the prior year) or current plat; legible copies of any document describing a lien, encumbrance, restrictive covenant, or easement affecting title; a property-condition notice; and statutory advice in all-caps to obtain a title abstract/commitment reviewed by an attorney and to purchase an owner’s title policy. § 5.070 additionally requires the seller to furnish, before signing, a tax certificate from each applicable taxing unit (Tax Code § 31.08 — which discloses any ad valorem tax delinquency) and a legible copy of any insurance policy/binder or other evidence of coverage. Citations: § 5.069, https://texas.public.law/statutes/tex._prop._code_section_5.069; § 5.070, https://texas.public.law/statutes/tex._prop._code_section_5.070.
    • Penalty for omission: A § 5.069 violation is a false, misleading, or deceptive act or practice actionable under the DTPA (Bus. & Com. Code § 17.46), and entitles the purchaser to cancel and rescind the contract and recover all payments. § 5.069(d). The cancel-and-rescind remedy is subject to mutual restitution — see morton-v-nguyen-2013 (§ 8).
  • Recording requirement: required — 30 days. The seller must record the executory contract (with the § 5.069 disclosure statement attached) on or before the 30th day after execution. Tex. Prop. Code § 5.076(a). A violating seller is liable as under § 5.079, capped at $500 per calendar year of noncompliance. § 5.076, https://texas.public.law/statutes/tex._prop._code_section_5.076.
  • Annual accounting statement: required — January. The seller must deliver an annual statement each January (postmarked by Jan. 31) stating amount paid, balance owed, number of remaining payments, taxes and insurance paid on the buyer’s behalf, and insurance information. § 5.077. Liquidated-damages penalty: a seller of fewer than two transactions/12 months owes 250/day after Jan. 31, capped at the property’s fair market value, plus fees. § 5.077, https://texas.public.law/statutes/tex._prop._code_section_5.077. The Texas Supreme Court held these are a statutory penalty requiring no proof of actual harm — flores-v-millennium-interests-2005 (§ 8).
  • Prepayment: The buyer may convert to recorded title at any time without penalty (§ 5.081, see § 5); Subchapter D imposes no prepayment penalty on early payoff in the conversion path. § 5.081, https://texas.public.law/statutes/tex._prop._code_section_5.081.
  • Usury / interest cap: General legal rate is 10%/yr; contracts exceeding it are usurious unless a higher ceiling applies. Tex. Fin. Code § 302.001, https://statutes.capitol.texas.gov/Docs/FI/htm/FI.302.htm. The Chapter 303 optional rate ceilings (commonly up to 18%) can apply by agreement. Applies to CFD as to the financed balance like any seller-financing.

2. Buyer’s Equitable Interest

  • Equitable title: Under Texas common law, the executory-contract buyer acquires equitable title (a beneficial interest supporting trespass-to-try-title and specific performance) once the purchase price is paid and obligations performed; prior to full performance the buyer holds an equitable right that ripens into equitable title. Johnson v. Wood, 138 Tex. 106, 157 S.W.2d 146, 148 (1941). See equitable-conversion and johnson-v-wood-1941 (§ 8). Disputes over a CFD are treated as title disputes, not landlord-tenant matters — which forecloses the eviction shortcut (§ 3b).
  • Recordability/insurability: The buyer’s interest is recordable; indeed § 5.076 requires the contract to be recorded, putting the buyer’s interest in the real property records. Title insurance is available on the seller’s underlying title and the buyer is statutorily advised to obtain an owner’s policy (§ 5.069).
  • Risk of loss / improvements: Contract-governed in practice; § 5.077 and § 5.085 presuppose the buyer carries/benefits from insurance and makes improvements, and § 5.085(c) on violation lets the buyer recover for taxes paid and improvements made. § 5.085, https://texas.public.law/statutes/tex._prop._code_section_5.085.

3. Default & Remedies → see forfeiture-vs-foreclosure

  • “Default” defined: failure to make a timely payment or to comply with a term of the contract. Tex. Prop. Code § 5.061, https://texas.public.law/statutes/tex._prop._code_section_5.061.
  • Primary remedy: election, gated by equity and recording.
    • Forfeiture/rescission available — but conditioned. Under § 5.064, a seller may enforce rescission or forfeiture-and-acceleration only if it gives the buyer notice of the right to cure within the 30-day period of § 5.065, the buyer fails to cure in 30 days, § 5.066 does not apply, and the contract has not been recorded. § 5.064, https://texas.public.law/statutes/tex._prop._code_section_5.064.
    • Right to cure — 30 days from notice. “Notwithstanding an agreement to the contrary,” a defaulting buyer may avoid the § 5.064 remedy by complying with the contract on or before the 30th day after the date notice is given. § 5.065, https://texas.public.law/statutes/tex._prop._code_section_5.065.
    • Notice form prescribed. The default/cure notice must be in writing, delivered by registered or certified mail, return receipt requested, and the cure language must be conspicuous (14-point boldface / 14-point uppercase). §§ 5.063–5.064; § 5.063, https://texas.public.law/statutes/tex._prop._code_section_5.063.
  • Substantial-equity bar — the heart of the regime (§ 5.066). If the buyer defaults after having paid 40% or more of the amount due, or the equivalent of 48 monthly payments, or the contract has been recorded, the seller may not enforce forfeiture/rescission. Instead the seller is granted the power to sell the property through a trustee under deed-of-trust-style procedures, and must give at least 60 days’ notice to cure before the sale. § 5.066, https://texas.public.law/statutes/tex._prop._code_section_5.066. This is Texas’s statutory codification of the Skendzel anti-forfeiture principle (skendzel-v-marshall-1973).
  • Recorded contract = vendor’s-lien deed (judicial path). “A recorded executory contract shall be the same as a deed with a vendor’s lien… [enforceable] by foreclosure sale under § 5.066 or by judicial foreclosure.” § 5.079(a), https://texas.public.law/statutes/tex._prop._code_section_5.079.
  • Judicial foreclosure required when: the contract is recorded (or § 5.066’s equity threshold is met) and the seller elects/needs a judicial path; the trustee’s power-of-sale route under § 5.066 is the non-judicial alternative.
  • Acceleration: enforceable as part of the § 5.064 forfeiture-and-acceleration remedy, but only after the 30-day cure notice and only where § 5.066 does not bar forfeiture. § 5.064.
  • Restitution offset on cancellation: required — mutual restitution. See morton-v-nguyen-2013 (§ 8): on statutory cancel-and-rescind, the buyer recovers payments but must restore to the seller the benefits received (e.g., reasonable rental value), so the refund is net.
  • Seller’s other remedies: specific performance / suit on the debt, judicial foreclosure of the vendor’s lien (§ 5.079), trustee’s sale (§ 5.066), damages.

▸ For Sellers / Operators — Texas is the strictest, most form-driven CFD regime in the country, and the deal-defining facts live in §§ 5.064–5.066 and 5.076–5.079. Three traps end most claims: (1) Record the contract within 30 days (§ 5.076) — but understand that recording converts your instrument into a vendor’s-lien deed you can only foreclose, not forfeit (§ 5.079(a)). (2) Once the buyer hits 40% equity or 48 payments, forfeiture is dead — you must run a trustee’s sale with 60 days’ cure (§ 5.066). (3) Even early-default forfeiture requires the exact 30-day, 14-point, certified-mail cure notice (§§ 5.063–5.065). Layer on the § 5.069/5.070 pre-sale disclosures (DTPA + rescission exposure) and the § 5.077 annual-statement penalty ($250/day for volume sellers). Build a compliant closing packet or sell on a note-and-deed-of-trust instead — many Texas operators have abandoned CFDs post-2005 for exactly this reason.

▸ For Buyers — Your strongest protections are the 40%/48-payment forfeiture bar (§ 5.066), the 30-day cure right (§ 5.065), the right to convert to recorded title at any time without penalty (§ 5.081), and the disclosure- violation rescission (§ 5.069(d)). You hold equitable title (§ 2); you are an owner, not a tenant, so you cannot simply be evicted.

3b. Remedies — Advanced

  • Election of remedies: The statute itself channels the election — forfeiture only on unrecorded, low-equity contracts; foreclosure/trustee-sale otherwise (§§ 5.064, 5.066, 5.079). A seller who records (mandatory under § 5.076) has effectively elected the foreclosure track.
  • Deficiency: Subchapter D does not authorize a post-forfeiture deficiency; forfeiture is a property-recovery remedy, not a money judgment. A judicial foreclosure of the § 5.079 vendor’s lien follows ordinary deficiency rules. (Exact deficiency-availability authority flagged in needs_verification.)
  • Equitable relief from forfeiture: Texas equity courts historically relieved against forfeiture where it would be unconscionable; § 5.066 now codifies the substantial-equity protection so that the question is largely statutory.
  • Ejectment vs. eviction path: A defaulting CFD buyer is an owner holding equitable title, not a tenant — disputes are title disputes (johnson-v-wood-1941), so the seller generally cannot use the forcible-detainer/eviction shortcut to recover possession after a contested default; the statutory cancellation, trustee’s sale, or judicial foreclosure path controls.
  • Quiet title after cancellation: Termination instruments must be recorded (§ 5.076(c)); a quiet-title or trespass-to-try-title action may be needed to clear the buyer’s recorded equitable interest. (Court/timeline specifics flagged in needs_verification.)
  • Forfeited payments: § 5.077’s “liquidated damages” are a penalty the buyer recovers, not seller-retained sums (Flores, § 8); on cancel-and-rescind the buyer is made whole net of benefits received (Morton, § 8).
  • Intervening seller-lien risk to buyer: Because the seller retains legal title, liens against the seller can attach; § 5.085 (fee-simple / underlying-lien rules) and the recording requirement are the buyer’s principal protections.

4. Federal Overlay (as applied in-state) → see dodd-frank-seller-financing, safe-act-mlo

  • Dodd-Frank exposure: A Texas residential CFD is “credit”/“seller financing” under the Truth in Lending Act / Loan-Originator Rule. The ≤1-property (no balloon, no ATR underwriting) and ≤3-property (with ATR) seller-financer exclusions from the loan-originator definition apply the same in Texas as nationally. See dodd-frank-seller-financing for the 12 C.F.R. § 1026.36(a) thresholds. Operators doing volume (multiple owner-financed homes/12 months) lose the exclusion and must use a licensed loan originator and meet ATR.
  • SAFE Act / MLO licensing: Texas administers residential-mortgage-loan-originator licensing through the Texas Department of Savings and Mortgage Lending (SML) and the Office of Consumer Credit Commissioner (OCCC); seller-financers above the federal/state de-minimis thresholds may require an RMLO. See safe-act-mlo. (Exact Texas Finance Code SAFE-Act section flagged in needs_verification.)
  • State consumer-protection overlay: Subchapter D itself is the overlay, reinforced by the Texas DTPA (Bus. & Com. Code § 17.46) via § 5.069(d). This is the most aggressive state CFD-protection statute in the U.S.
  • CFPB enforcement notes: Texas-style abuses (e.g., Harbour Portfolio) drove the 2016+ CFPB/state-AG scrutiny of CFDs; Subchapter D is the model other states cite.

5. Title, Recording & Wraps → see garn-st-germain-due-on-sale

  • Memorandum recording: Texas requires recording of the full executory contract (with disclosures) within 30 days (§ 5.076), not merely a memorandum; recording transforms the instrument into a vendor’s-lien deed (§ 5.079(a)). § 5.076, https://texas.public.law/statutes/tex._prop._code_section_5.076.
  • Underlying mortgage / wraps — heavily restricted (§ 5.085). A seller may not execute an executory contract unless it owns the property in fee simple, free of liens/encumbrances, except that an underlying lien is permitted only if stringent conditions are met: disclosure of the lienholder, loan number, balance, and terms at least 3 days before execution with a 14-point foreclosure warning; lienholder consent to the CFD and to accept the buyer’s direct payments on seller default; the lien may not exceed the buyer’s remaining contract balance; and the contract must let the buyer cure the seller’s default and deduct 150% of amounts paid. Violation is a DTPA act letting the buyer cancel and recover payments, taxes, and improvements. § 5.085, https://texas.public.law/statutes/tex._prop._code_section_5.085. In practice this makes a classic wrap-around CFD over an existing mortgage very hard to do compliantly in Texas.
  • Garn-St. Germain due-on-sale: A CFD/wrap is a “transfer” that can trigger the lender’s due-on-sale clause under 12 U.S.C. § 1701j-3. The Garn-St. Germain residential exemptions (e.g., transfers into an inter vivos trust where the borrower remains beneficiary) generally do not cover a sale-on-terms to a third-party CFD buyer, so the wrap carries acceleration risk. See garn-st-germain-due-on-sale.
  • Right to convert / deed delivery: The buyer may convert to recorded legal title at any time without penalty by paying the balance or delivering a conforming note (then executing a deed of trust); the seller must act within 10 days or face § 5.079-style liability. § 5.081, https://texas.public.law/statutes/tex._prop._code_section_5.081. On final payment, the seller must transfer recorded legal title within 30 days or owe 500/day plus fees (§ 5.079(b)).
  • Title insurance: Available; the buyer is statutorily advised to obtain an owner’s policy (§ 5.069).
  • Seller death/bankruptcy effect: Seller’s estate/trustee takes subject to the buyer’s recorded equitable interest; the recording requirement and § 5.085 protect the buyer against intervening seller creditors.

6. Tax Treatment

  • IRC § 453 installment reporting: A Texas CFD is an installment sale; the seller reports gain ratably as principal is received, subject to the dealer exception (§ 453(b)(2), (l)) for dealers in property. See irc-453-installment-sale.
  • Property tax: Buyer pays in practice (contract-governed). § 5.077 requires the seller to account for any taxes the seller paid on the buyer’s behalf — the default expectation is the buyer carries ad valorem taxes, and § 5.070 requires pre-sale disclosure of tax-delinquency status.
  • Homestead exemption for equitable owner: A contract-for-deed purchaser who occupies the property as a principal residence on Jan. 1 generally qualifies as an “owner” for the residence-homestead exemption under Tex. Tax Code § 11.13; Texas recognizes equitable/beneficial ownership for homestead purposes. (Exact § 11.13 definitional subsection flagged in needs_verification — primary text not retrieved this run.)
  • Transfer / documentary-stamp tax: Texas has no real-estate transfer or documentary-stamp tax and no mortgage-registration tax; only nominal county recording fees apply on the recorded contract and the eventual deed.

7. Bankruptcy & Death / Divorce

  • Buyer bankruptcy: Treatment turns on characterization. Because a recorded Texas CFD is statutorily a deed with a vendor’s lien (§ 5.079(a)) — i.e., a secured debt — it is most naturally treated as a secured claim the buyer can cure/pay through a plan rather than an executory contract subject to § 365 assumption/rejection; an unrecorded low-equity CFD is more contestable. National treatment splits — see forfeiture-vs-foreclosure and the federal pages. (Texas-specific bankruptcy holding flagged in needs_verification.)
  • Seller bankruptcy: Buyer’s recorded equitable interest and § 5.085 protections generally survive; trustee takes subject to the recorded contract.
  • Assignability by buyer: Generally permitted subject to contract terms; anti-assignment clauses are common. (Enforceability authority flagged in needs_verification.)
  • Survivorship / divorce: The equitable interest is community/separate property characterized like other realty and passes by the buyer’s estate plan or community- property rules.

8. Case Law (real, verified)

CaseYearTopicHolding (plain English)Source
morton-v-nguyen-20132013disclosures / cancel-and-rescind remedyThe Subchapter D cancel-and-rescind remedy for disclosure violations requires mutual restitution — the buyer recovers payments but must restore the benefits received, so the refund is net.https://cases.justia.com/texas/supreme-court/12-0539-0.pdf
flores-v-millennium-interests-20052005annual-statement penalty (§ 5.077)The § 5.077 “liquidated damages” are a statutory penalty; the buyer need not prove actual harm to recover.https://caselaw.findlaw.com/court/tx-supreme-court/1159489.html
johnson-v-wood-19411941equitable titleA CFD buyer’s equitable right ripens into equitable title on full performance, supporting trespass-to-try-title; the buyer is an owner, not a tenant.https://scholar.smu.edu/cgi/viewcontent.cgi?article=4436&context=smulr
  • Morton v. Nguyen, 412 S.W.3d 506 (Tex. 2013) (No. 12-0539). Texas Supreme Court. Good law. Citation appears consistently across Justia, the Court’s docket, and reporters; holding confirmed from the opinion text.
  • Flores v. Millennium Interests, Ltd., 185 S.W.3d 427 (Tex. 2005). Texas Supreme Court (certified question from the 5th Cir.). Good law.
  • Johnson v. Wood, 138 Tex. 106, 157 S.W.2d 146 (1941). Texas Supreme Court. Good law; the foundational equitable-title statement.

9. Edge Cases (state-specific notes)

  • garn-st-germain-due-on-sale — A Texas wrap/CFD over an existing mortgage risks due-on-sale acceleration; § 5.085 separately bars most underlying-lien CFDs absent lienholder consent and strict disclosure.
  • Wrap-around / underlying lien — § 5.085 effectively prohibits a non-consensual wrap CFD; compliant wraps require lienholder consent, 3-day disclosure, and a 14-pt warning.
  • Recording converts the instrument — the single most counter-intuitive Texas rule: complying with the § 5.076 recording mandate strips the seller of forfeiture and leaves only foreclosure (§ 5.079(a)).
  • 40% / 48-payment cliff — operators must track cumulative equity; crossing it flips the remedy from forfeiture to a 60-day-cure trustee’s sale (§ 5.066).
  • Eviction not available — a CFD default is a title dispute, not a forcible detainer (johnson-v-wood-1941).

10. Operations

  • Where records live: County Clerk real-property records (each of 254 counties); recording of the executory contract and any termination is mandatory (§§ 5.076).
  • Public access: County clerk online record portals; statutes.capitol.texas.gov for the Property Code; Texas Department of Housing & Community Affairs (TDHCA) maintains a Contract-for-Deed Conversion forms library.
  • Who may draft (UPL): Texas restricts non-lawyer drafting of conveyancing instruments; § 5.069’s disclosure packet and the conversion deed/deed-of-trust (§ 5.081) are typically attorney- or title-company-prepared. Filling blanks in a promulgated form is generally permitted; drafting tailored terms risks UPL.
  • Costs/timelines: Nominal county recording fees; the 30-day recording and 30-day cure clocks (and the 60-day § 5.066 cure) are the controlling deadlines.
  • Key agencies: County Clerks; TDHCA; OCCC and SML (originator licensing); the Texas Attorney General (consumer protection / DTPA).

11. Meta

Disclaimer. This page is legal information, not legal advice, and may be out of date. Contract-for-deed statutes are frequently amended and remedies turn on facts. Consult a licensed attorney in this jurisdiction before drafting, enforcing, or signing an installment land contract.

Graph View

Backlinks