Contract for Deed
A seller-financed sale in which the buyer takes possession and pays in installments while the seller keeps legal title until the price is paid. Texas statutes call it an executory contract for conveyance and, for residential property, regulate it closely in Property Code Chapter 5, Subchapter D.
In a Texas contract for deed the seller keeps legal title, and the buyer gets a deed only after paying in full or converting the contract. For residential property, Tex. Prop. Code §§ 5.061-5.087 require pre-signing disclosures, recording within 30 days, annual statements, and written notice with at least 30 days to cure before forfeiture.
Texas law uses the term "executory contract for conveyance." Subchapter D of Property Code Chapter 5 applies when the property is used or to be used as the purchaser's residence, or the residence of a relative within the second degree (Tex. Prop. Code § 5.062(a)). A lot of one acre or less is presumed residential. A residential lease combined with an option to purchase counts as an executory contract too, which pulls many rent-to-own arrangements into the statute.
Some deals fall outside it: sales of state land, sales by the Veterans' Land Board or a governmental seller, and contracts that call for delivery of the deed within 180 days (§ 5.062(b)-(c)). Inside it, the seller must own the property in fee simple, free of liens, when the contract is signed, and must keep it that way for the life of the contract, with narrow exceptions (§ 5.085).
- Governing law
- Tex. Prop. Code §§ 5.061-5.087 (residential property)
- Recording
- Seller records the contract within 30 days after execution (§ 5.076)
- Buyer may cancel
- For any reason, by the 14th day after the contract date (§ 5.074)
- Cure period
- 30 days, or at least 60 once 40% or 48 payments are paid or the contract is recorded (§§ 5.065-5.066)
- Late fee cap
- Lesser of 8% of the monthly payment or actual processing cost (§ 5.073)
Disclosures before the buyer signs
The seller must hand over a survey completed within the past year or a plat of a current survey, copies of documents describing encumbrances such as restrictive covenants and easements, and a signed property condition notice in the statutory form covering water, sewer, electricity, floodplain, roads and liens (§ 5.069). The seller also owes a tax certificate from each taxing unit and evidence of insurance (§ 5.070), plus a written statement of price, interest rate, total interest, late charge and the bar on prepayment penalties (§ 5.071). If the negotiations were conducted mainly in another language, the documents must be provided in that language (§ 5.068).
A failure under §§ 5.069 or 5.070, or a missing no-oral-agreements notice under § 5.072, is a deceptive act actionable under the Deceptive Trade Practices Act and lets the buyer cancel and recover every payment made.
Rights while the contract runs
Each January the seller sends an annual accounting: amounts paid and owed, payments remaining, and taxes and insurance paid for the buyer (§ 5.077). A seller with fewer than two such transactions in 12 months who misses it owes $100 per statement and attorney's fees. A seller with two or more owes $250 a day after January 31, capped at the property's fair market value.
Outside lease-option arrangements (§ 5.062(e)), the buyer can convert the contract to recorded legal title at any time, without penalty, by paying the balance or by signing a promissory note on the same terms secured by a deed of trust (§ 5.081). On written request, the seller must state the payoff amount within 10 days (§ 5.082). The contract may not impose a prepayment penalty (§ 5.073(a)(3)).
Default and the seller's remedies
A default notice must go by registered or certified mail, in 14-point bold or uppercase type, with the statutory warning on a separate page, an itemized delinquency, and the remedy the seller intends to use (§ 5.063). Rescission or forfeiture is available only after that notice, only if the buyer fails to cure within 30 days, and only if the contract is unrecorded and the buyer has not crossed the equity threshold (§§ 5.064-5.065).
The threshold is 40 percent of the amount due or the equivalent of 48 monthly payments. Past it, or once the contract is recorded, the seller cannot forfeit at all. The seller's remedy becomes a public sale by a trustee after at least 60 days to cure, conducted under the nonjudicial foreclosure statute, § 51.002 (§ 5.066). Any surplus over the remaining balance goes to the buyer.
Transfer of title at payoff
A recorded executory contract is treated as a deed with a vendor's lien for the unpaid price, with a general warranty implied unless limited (§ 5.079(a)). For a contract that was never recorded or converted, the seller has 30 days after receiving the final payment to transfer recorded legal title. Liquidated damages run at $250 a day from day 31 through day 90, and $500 a day after that, plus attorney's fees (§ 5.079(b)).
Conditions before a seller may forfeit
- Notice to the buyer of the seller's intent to enforce the remedy and of the buyer's right to cure, in the form § 5.063 requires (§ 5.064(1)).
- The buyer's failure to cure within 30 days after notice is given (§§ 5.064(2), 5.065).
- The buyer has paid less than 40 percent of the amount due and less than the equivalent of 48 monthly payments (§§ 5.064(3), 5.066).
- The contract has not been recorded in the county where the property is located (§ 5.064(4)).
Who owns the house in a contract for deed?
The seller holds legal title until the buyer pays off or converts the contract. The buyer has possession and contract rights, and recording changes the picture considerably: a recorded executory contract is "the same as a deed with a vendor's lien" for the unpaid price (§ 5.079(a)). That lien is enforced by a trustee sale under § 5.066 or by judicial foreclosure. Until payoff, the seller must keep fee simple title free of liens other than those the statute allows (§ 5.085(b)).
Does a contract for deed need to be notarized in Texas?
In practice, yes, because the seller must record it, and Texas county clerks record instruments conveying real property only when they are acknowledged or sworn before an authorized officer, or signed before two credible subscribing witnesses (Tex. Prop. Code §§ 5.076, 12.001(b)). The contract must be in writing and signed by the party to be bound (§ 5.072(a)). A seller who fails to record is liable to the buyer for damages of up to $500 for each calendar year of noncompliance (§ 5.076(e)).
What happens if the seller dies during a contract for deed?
The contract survives. The statute defines "seller" in § 5.079 to include a successor, assignee, personal representative, executor or administrator, and requires the seller's heirs or assigns to keep fee simple title free of liens for the life of the contract (§§ 5.079(d), 5.085(b)). If an heir needs a court order to clarify heirship before conveying good title, the court may waive the daily liquidated damages for late title transfer when the heir is pursuing that order with reasonable diligence (§ 5.079(c)).
How long does a contract for deed last in Texas?
As long as the contract says. Subchapter D sets no statewide maximum, though a contract that delivers the deed within 180 days falls outside it entirely (§ 5.062(c)). A county under 100,000 people in a metropolitan statistical area of more than 1.5 million, adjacent to another of more than 2.5 million, may by commissioners court order bar residential executory contracts that do not require conversion to legal title within three years (§§ 5.0622, 5.087). Except under a lease-option, the buyer can end the arrangement early by converting (§§ 5.062(e), 5.081).
Business owners meet this statute most often as sellers: an investor carrying paper on a house, a landowner selling lots on terms, a landlord offering a lease with an option to buy. Subchapter D applies to all of them if the property is the buyer's residence, and its penalties accumulate. Section 5.073(b) voids contract terms that waive rights under the subchapter, though a buyer related to the seller within the second degree may waive certain sections in writing (§ 5.062(d)). Short lease-option deals get partial relief: where the term is three years or less and the parties have not been in an executory contract on the property for more than three years, only a handful of sections apply (§ 5.062(f)). The lease portion is also governed by Property Code Chapter 92 until the option is exercised (§ 5.0621).
- A buyer who receives a default notice has 30 days after notice is given to cure (§ 5.065), or at least 60 days if 40 percent or 48 monthly payments have been paid or the contract is recorded (§ 5.066(b)).
- Buyers commonly check the notice against § 5.063: delivery by registered or certified mail, 14-point type, the statutory warning on a separate page, and an itemized delinquency.
- A buyer may request a written payoff statement, which the seller must provide within 10 days (§ 5.082).
- Amounts the seller owes the buyer under the subchapter may be deducted from contract payments without going to court (§ 5.084).
- A Texas lawyer who handles residential real estate or consumer disputes can review whether the contract and the notice comply with Subchapter D.