A land contract in Texas is a seller-financed home purchase where you take possession and start making payments right away, but the seller keeps the deed in their name until you pay the balance in full. The same arrangement is also called a contract for deed or an executory contract, and all three names describe the same thing. Texas Property Code Chapter 5, Subchapter D governs these deals and gives buyers some of the strongest statutory protections in the country, including required disclosures, a recording deadline, a right to convert the contract into a recorded deed, and strict limits on how a seller can respond to a missed payment.
How Title Splits Between You and the Seller
Every Texas land contract divides ownership into two pieces. You get equitable title, which is the right to live in the property and eventually own it outright. The seller keeps legal title, which means the seller’s name stays on the deed at the county clerk’s office until you make the final payment.
That split is what separates a land contract from a traditional mortgage. In a mortgage, the deed transfers to you at closing and the lender holds a lien as security. In a land contract, the deed itself is the security, and the seller does not hand it over until the last dollar clears. The structure gives the seller significant leverage, which is why the Texas statute layers so much protection onto the buyer’s side.
What the Seller Must Give You Before You Sign
Before you sign, the seller has to deliver several documents at the seller’s own expense. If the seller skips any of them, you can cancel the contract and get your money back.1State of Texas. Texas Property Code PROP 5.070 – Sellers Disclosure of Tax Payments and Insurance Coverage
- A tax certificate from each local taxing authority showing no delinquent property taxes are owed.1State of Texas. Texas Property Code PROP 5.070 – Sellers Disclosure of Tax Payments and Insurance Coverage
- A copy of the current insurance policy identifying the insurer, the property, and the insured amount.1State of Texas. Texas Property Code PROP 5.070 – Sellers Disclosure of Tax Payments and Insurance Coverage
- A written property condition disclosure describing the physical state of the home.
- A current survey of the land boundaries.
- A notice of financing terms setting out the interest rate, late fees, and the total amount you will pay across the life of the contract.
A seller who skips any of these is committing a deceptive trade practice under Texas law, which gives you grounds to cancel the contract and sue under the state’s consumer protection statute.1State of Texas. Texas Property Code PROP 5.070 – Sellers Disclosure of Tax Payments and Insurance Coverage You also have a separate right to cancel the contract for any reason within an initial window after signing, which exists on top of the disclosure-failure remedy.
Recording the Contract and the Annual Statement
After you both sign, the seller has 30 days to record the executory contract and the required disclosure statement with the county clerk where the property sits.2State of Texas. Texas Property Code 5.076 – Recording Requirements Recording puts the public on notice that you hold an equitable interest, and it triggers stronger legal protections if you ever fall behind.
Every January, the seller also owes you an annual accounting statement, postmarked no later than January 31. It has to show the total you have paid under the contract, the remaining balance, how many installments are left, any amounts the seller paid to taxing authorities or insurers on your behalf, and a copy of any new insurance policy if coverage changed.3State of Texas. Texas Property Code 5.077 – Annual Accounting Statement
A seller who handles two or more executory contracts in a 12-month period and misses the January 31 deadline faces liquidated damages of $250 per day the statement is late, capped at the fair market value of the property, plus your attorney’s fees.3State of Texas. Texas Property Code 5.077 – Annual Accounting Statement A one-time private seller still owes the statement but may not hit that penalty threshold.
Existing Liens Are the Biggest Risk
The scenario buyers lose homes over is simple. The seller still has a mortgage on the property, pockets your payments, stops paying the lender, and the lender forecloses. You are current on your land contract and still lose the house.
The Property Code addresses this directly by prohibiting executory contracts on properties with existing liens unless specific conditions are met, including that the lienholder agrees to verify loan status at your request and to accept payments from you if the seller defaults. The existing lender has to be informed and must consent before the land contract is valid.
There is a second problem. Most institutional mortgages contain a due-on-sale clause that lets the lender call the entire balance due if the borrower transfers any interest in the property, and the standard language specifically reaches contracts for deed. Entering into a land contract on a mortgaged property without the lender’s written consent can trigger acceleration of the seller’s loan. Before you sign, ask the seller directly whether any mortgage or lien exists and get written proof of lender consent.
Your Right to Convert the Contract to a Deed
At any point during the contract you can convert the arrangement into a recorded deed in your name secured by a deed of trust, without penalties or extra fees.4State of Texas. Texas Property Code 5.081 – Right to Convert Contract This is one of the most powerful protections in the statute and most buyers have never heard of it.
You have two paths. If you can pay the entire balance at once, the seller has to transfer legal title immediately. The more realistic option: deliver a promissory note to the seller for the remaining balance, keeping the same interest rate, payment dates, and late fees as the original contract. In exchange, the seller signs a deed transferring the property to you, and you sign a deed of trust that gives a trustee power to sell the property if you default on the note.4State of Texas. Texas Property Code 5.081 – Right to Convert Contract
Once you deliver the promissory note, the seller has 10 days to schedule a closing or provide a written legal explanation for refusing. A seller who refuses without justification faces the same penalties as a seller who fails to transfer the deed after the final payment.4State of Texas. Texas Property Code 5.081 – Right to Convert Contract Converting gets your name on the deed years before you finish paying, removes the risk that the seller will encumber or lose the property, and puts you under the same foreclosure protections conventional homeowners have.
What Happens if You Fall Behind
Texas sets up two different tracks for a buyer default, and which track applies depends on how far along you are.
Standard Default and the 30-Day Cure
If you have not paid 40 percent of the total price, have not made 48 monthly payments, and the contract has not been recorded, the seller can pursue rescission and take the property back. Not by changing the locks. The seller must first send you a written notice by certified or registered mail that identifies what you owe, breaks the delinquency into principal and interest, and lists any late fees or other charges.5State of Texas. Texas Property Code PROP 5.063 – Notice
You then have 30 days from receiving the notice to catch up on everything owed.6State of Texas. Texas Property Code PROP 5.065 Pay inside that window and the contract continues as if nothing happened. The seller cannot refuse your cure or accelerate the contract during those 30 days.7State of Texas. Texas Property Code 5.064 – Sellers Remedies on Default
Equity Protection, 60-Day Cure, and Required Foreclosure
Stronger protections kick in once any one of three conditions is met: you have paid 40 percent or more of the total price, you have made the equivalent of 48 monthly payments, or the contract has been recorded.8State of Texas. Texas Property Code 5.066 – Equity Protection; Sale of Property That last trigger is important. Because the seller is already required to record the contract within 30 days of signing, every properly executed land contract should fall under equity protection almost immediately.
Under equity protection, the seller cannot rescind or forfeit the contract. Instead, you get at least 60 days to cure. If you do not cure, the seller’s only remedy is to sell your interest through a formal foreclosure conducted by a trustee, following the same notice and sale procedures as a deed-of-trust foreclosure, and any surplus from the sale goes to you.8State of Texas. Texas Property Code 5.066 – Equity Protection; Sale of Property This structure keeps a seller from pocketing years of your payments and walking away with the property.
Getting the Deed After the Final Payment
Once you make the last payment, the seller has 30 days to execute and record a deed transferring full legal title to you.9State of Texas. Texas Property Code 5.079 – Title Transfer At that point the split between legal and equitable title ends and you become the owner of record.
Sellers who delay or refuse are subject to lawsuits and financial penalties under the Property Code. This is not a hypothetical risk, especially with sellers who have let liens pile up or who have money troubles of their own. Keep proof of every payment across the life of the contract, and keep hard proof of the last one in particular. A cancelled check, a wire confirmation, or a signed receipt is what you take to court to force the transfer if you have to.
Tax Deductions and Federal Rules
You can potentially deduct the interest portion of your payments on your federal return, but only if your contract qualifies as a secured debt under IRS rules. The IRS defines home mortgage interest as interest on a loan secured by your main home or second home.10Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Because Texas requires recording and treats the property as collateral for your obligation, most Texas land contracts should meet that threshold, but check with a tax professional about your specific contract.
When you eventually sell, the federal capital gains exclusion may apply. A taxpayer who has owned and used a home as their principal residence for at least two of the five years before the sale can exclude up to $250,000 of gain, or $500,000 for a married couple filing jointly.11Office of the Law Revision Counsel. 26 U.S. Code 121 – Exclusion of Gain From Sale of Principal Residence The use requirement is easy to meet if you lived in the home from day one, but whether equitable title satisfies the ownership clock is worth asking a tax advisor about.
On the seller side, the Consumer Financial Protection Bureau issued an advisory opinion in 2024 confirming that contracts for deed are credit transactions under the Truth in Lending Act, so sellers who regularly finance home sales this way count as creditors and have to disclose the annual percentage rate and total finance charge.12Federal Register. Truth in Lending Regulation Z Consumer Protections for Home Sales Financed Under Contracts for Deed If your seller runs multiple land contracts, they are likely subject to this and to Regulation Z’s loan originator rules unless they fit a narrow exemption for very low volume financing.13eCFR. 12 CFR 1026.36 – Prohibited Acts or Practices and Certain Requirements for Credit Secured by a Dwelling A seller who should be giving you federal disclosures and is not is another reason to consider converting your contract into a recorded deed.