Balloon Payment Coming Due on Your Land Note in Texas — What to Do

A balloon payment coming due on your land note in Texas is one of the most significant financial events in the lifecycle of an owner-financed deal. If you are the note holder, the approaching balloon date means a potentially large lump sum is about to arrive — or, if the borrower cannot pay, a complicated situation that demands your attention and decision-making. Unlike the steady rhythm of monthly payments that may have defined your experience as a note holder for years, the balloon payment is a single, high-stakes event that can reshape your financial picture in a matter of weeks. Understanding your options well before the balloon comes due gives you the time and clarity to make the right moves, whether the borrower pays, negotiates, or defaults.

Balloon payments are a defining feature of most owner-financed Texas land notes. The typical structure involves monthly payments calculated on a longer amortization period — often 15, 20, or even 30 years — with the entire remaining balance due as a lump sum after a shorter period, commonly 3, 5, 7, or 10 years. This structure keeps monthly payments affordable for the borrower while ensuring the note holder does not have to wait decades for full repayment. The trade-off is the balloon itself: a concentrated financial event that requires the borrower to either pay a substantial sum, refinance, sell the property, or default. For note holders, the approaching balloon is the moment when the theoretical risk of non-payment becomes very real and immediate.

This guide is written specifically for Texas land note holders with a balloon payment coming due — whether it is six months away or right around the corner. We will cover what you should be doing right now to prepare, what happens in each possible scenario, and how to protect your financial interests regardless of the outcome. If you have been collecting payments for years and the balloon date has always seemed comfortably far in the future, this is your wake-up call. The time to plan is now, not the day the balloon comes due.

Understanding Your Balloon Payment: What the Numbers Look Like

Calculating the Balloon Amount

The first thing every note holder needs to know is the exact amount of the balloon payment that will be due. This is not always as straightforward as it seems, particularly if the borrower has made late payments, extra payments, or if the amortization has been modified during the life of the note. The balloon amount is the remaining principal balance after all scheduled monthly payments have been applied through the maturity date. If your note has been professionally serviced, your servicer can provide an amortization schedule showing the projected balance at maturity. If you have been managing the note yourself, you will need to calculate the remaining balance using the original note terms and your payment records.

To illustrate with a common example, consider a 60,000-dollar note at 10 percent interest, with monthly payments based on a 20-year amortization and a balloon due after 7 years. The monthly payment would be approximately 579 dollars, and after 84 monthly payments, the remaining principal balance — the balloon — would be approximately 52,800 dollars. That is a substantial sum that most borrowers cannot pay from savings alone. Understanding the magnitude of the balloon helps you assess the likelihood that the borrower can pay and guides your planning for alternative scenarios. If you are uncertain about the exact balloon amount for your note, now is the time to calculate it or have it calculated by a professional.

Interest Accrual and Final Payment Calculations

When the balloon payment comes due on your Texas land note, the total amount owed includes not just the remaining principal but also any accrued interest through the payoff date. Most notes accrue interest daily, so the exact amount due will depend on the specific date the payment is made. For example, if the balloon matures on the first of the month and the borrower pays on the fifteenth, an additional fifteen days of interest will be owed. Preparing a payoff statement that includes per diem interest — the daily interest charge — ensures that the final calculation is accurate regardless of when the borrower actually pays. This is standard practice for professional servicers and should be standard practice for self-managing note holders as well.

In addition to principal and accrued interest, the final payoff may include other charges depending on the terms of your note. Late fees on any delinquent payments, servicing fees, property inspection fees, and other authorized charges can be included in the payoff amount if the note permits. Reviewing your note carefully to identify all charges that can be included in the final payoff ensures you receive everything you are entitled to when the balloon is paid.

Scenario One: The Borrower Pays the Balloon on Time

What to Expect

The best-case scenario for a balloon payment coming due on your land note in Texas is a borrower who pays the full amount on time. This happens when the borrower has either saved the money, sold the property to a third party who is paying cash, or obtained refinancing from a conventional lender. In any of these cases, you will typically receive a payoff request several weeks before the maturity date. You or your servicer will prepare a payoff statement, the borrower (or their closing agent) will wire the funds, and you will confirm receipt and execute the lien release. The entire process is mechanical and straightforward, and the result is that you receive every dollar owed to you under the note.

Steps After Receiving the Balloon Payment

Once you receive the balloon payment in full, you have several obligations. You must endorse the original promissory note as paid in full and deliver it to the borrower. You must execute a release of the deed of trust and have it recorded in the county where the property is located — Texas law requires this, and failure to release the lien within a reasonable time can expose you to liability. If the note was serviced by a third party, coordinate with the servicer to close out the account and confirm that all records are finalized. From a tax perspective, you will need to report any remaining deferred gain from the original installment sale in the year the balloon is received, and you should set aside an appropriate amount for this tax obligation. Consulting with your tax advisor before the payoff date helps you plan for this impact.

Scenario Two: The Borrower Cannot Pay and Requests an Extension

Evaluating the Extension Request

The most common alternative scenario when a balloon payment is coming due on a Texas land note is a borrower who contacts you before the maturity date and admits they cannot pay the full amount. They may ask for an extension — additional time to arrange financing, sell the property, or accumulate the necessary funds. This is a critical decision point for you as the note holder, and it deserves careful analysis rather than an emotional response. The key questions to ask are whether the borrower has a credible plan for paying within the extension period, what their payment history has been throughout the note's life, what the current property value is relative to the remaining balance, and what terms you would require for the extension to be acceptable.

A borrower who has made every payment on time for seven years, has been working with a lender on refinancing that hit a temporary snag, and is asking for a six-month extension is a very different situation from a borrower who has been chronically late, has no refinancing prospects, and is asking for an indefinite extension with no plan. In the first case, an extension may be the prudent choice that preserves the note as a performing asset and ultimately results in full payment. In the second case, an extension may simply delay an inevitable default while the property deteriorates and your position weakens. Being honest with yourself about which scenario you are actually facing is essential to making the right decision.

Structuring an Extension Agreement

If you decide to grant an extension, structuring it properly is critical. The extension should be documented in a written modification agreement that clearly specifies the new maturity date, any changes to the interest rate (most note holders increase the rate on an extension to reflect the additional risk and current market conditions), any lump sum payment required at the time of the extension as a good-faith demonstration, any additional covenants or requirements, and a statement that all other terms of the original note remain in effect. The modification should be signed by both parties and ideally recorded in the county records or at least acknowledged by any servicing company involved.

Common extension terms include a one to three year extension period, an interest rate increase of 1 to 2 percent above the original rate, a requirement for a partial principal payment at the time of extension, and additional monitoring requirements such as quarterly property tax verification. These terms protect your interests by compensating you for the additional risk and time, while giving the borrower a realistic framework for achieving payoff. If the borrower is unwilling to accept reasonable extension terms, that is a strong signal that the extension is unlikely to result in a successful outcome, and you should consider other options.

Scenario Three: The Borrower Defaults on the Balloon Payment

When No Payment and No Communication Occurs

The most challenging scenario is a borrower who neither pays the balloon nor communicates with you about alternatives. When the maturity date passes without payment and without any response from the borrower, you are dealing with a straightforward default. Your right to pursue remedies is clear — the note has matured, the full balance is due, and the borrower has failed to pay. The first step is to send a formal demand for payment by certified mail, clearly stating the amount owed and a deadline for payment. If your deed of trust requires an acceleration notice before foreclosure, send the acceleration notice simultaneously or immediately after the demand (noting that the maturity of the balloon may itself constitute acceleration under the note's terms).

If the borrower does not respond to the demand or pay within the specified period, you can proceed with the foreclosure process. In Texas, this means following the non-judicial foreclosure procedures under Section 51.002 of the Texas Property Code — sending the required notices, posting the sale at the courthouse, and conducting the auction on the first Tuesday of the month. The process takes approximately 60 to 90 days from the first required notice to the sale date. For note holders who have been collecting payments for years and suddenly find themselves in a foreclosure situation, this can be a jarring experience, but the legal framework is clear and the process is well-established. Working with a Texas foreclosure attorney ensures every step is handled correctly.

Costs and Considerations of Foreclosure After a Balloon Default

Foreclosing after a balloon payment default involves the same costs as any other foreclosure: attorney fees typically ranging from 1,500 to 3,500 dollars, trustee fees, title search costs, recording fees, and potentially property maintenance costs if the borrower has abandoned the property. One additional consideration specific to balloon defaults is that the borrower may have been an otherwise reliable payer who simply could not come up with the lump sum. In these cases, the property is often in reasonable condition (unlike properties where the borrower defaulted on monthly payments and may have neglected the property for months). This can work in your favor if you end up owning the property after the foreclosure sale, as the property may be easier to resell. For a thorough understanding of the foreclosure process, our detailed guide on how to foreclose on a land note in Texas covers every step.

Scenario Four: Selling the Note Before the Balloon Comes Due

Why Selling Before Maturity Can Be the Smartest Move

For many Texas land note holders, the approaching balloon payment is the trigger that prompts them to consider selling the note. The reasoning is sound: while the note is still performing — the borrower is making monthly payments and the balloon has not yet come due — the note has its maximum value as a performing asset. Once the balloon arrives and the borrower cannot pay, the note's value drops because it transitions from a performing asset to a workout or foreclosure situation. By selling before the balloon comes due, you capture the note's value at its peak and transfer the balloon risk to the buyer.

The discount you accept when selling a performing note before a balloon maturity is typically smaller than the discount on a note that has already defaulted on the balloon. The buyer evaluates the note based on the remaining monthly payments plus their assessment of the balloon outcome, and a performing note with a borrower who has a good payment history is a much more attractive asset than a defaulted note requiring foreclosure. If you have any doubt about the borrower's ability to pay the balloon, selling before the date arrives is a way to convert uncertainty into certainty — you know exactly what you are receiving, and you can plan your finances accordingly.

Getting a Quote on Your Note

Understanding the current market value of your note is essential to making an informed decision, whether you ultimately decide to sell, extend, or hold. Longhorn Note Buyers provides free, no-obligation quotes within 24 hours for Texas land notes of all types, including those with approaching balloon payments. With over $46 million in Texas notes purchased since 2007, Longhorn has deep experience evaluating balloon notes and can help you understand how the approaching maturity affects your note's value. Having a concrete offer in hand gives you a baseline for comparison — you can weigh the certainty of selling against the uncertainty of the balloon outcome and make the decision that best serves your financial interests.

Proactive Steps for Note Holders with Approaching Balloons

Start the Conversation Early

The single most important thing you can do when a balloon payment is coming due on your Texas land note is to start the conversation with your borrower early — ideally six to twelve months before the maturity date. Ask the borrower directly about their plan for the balloon payment. Are they planning to refinance? Have they started the process? Are they planning to sell the property? Do they have savings or other resources? The answers to these questions will tell you a great deal about how likely the balloon is to be paid and give you time to plan for alternative scenarios if the borrower's plan seems uncertain or unrealistic.

Early communication also benefits the borrower. Many borrowers do not realize how long the refinancing process can take, particularly for rural land where lender options are limited. By prompting them to start early, you increase the likelihood that they will be able to obtain financing in time. If the borrower tells you they have no plan and no prospect of paying the balloon, you know immediately that you need to evaluate your options — extension, foreclosure, or selling the note — and you have time to do so thoughtfully rather than reactively.

Verify the Property's Current Value

Knowing the current value of the property securing your note is important for several reasons. It tells you your loan-to-value ratio, which affects the note's value if you decide to sell. It informs your foreclosure analysis — if the property is worth significantly more than the balloon balance, foreclosure represents a strong recovery; if the property value has declined below the balance, foreclosure is riskier. It also helps you evaluate extension requests — if the property provides substantial equity cushion, extending the note is lower risk. You can estimate the property's value through online resources, county appraisal district records, or by engaging a professional appraiser. For land in rural Texas, the county appraisal district's assessed value is often a reasonable starting point, although it may not reflect current market conditions precisely.

Organize Your Documents

Whether the balloon results in a payoff, an extension, a foreclosure, or a note sale, you will need your documents in order. Pull together the original promissory note, the deed of trust or contract for deed, any modifications or amendments, the complete payment history, and all correspondence with the borrower. If you are missing any documents, take steps to locate or replace them now rather than when time is short. Having your documents organized and accessible makes every possible outcome smoother and faster. For a complete list of what you will need, our guide on documents needed to sell a land note in Texas covers everything.

The Emotional Side of Balloon Payments for Note Holders

Managing Uncertainty

For many Texas land note holders, the approaching balloon creates genuine anxiety. After years of predictable monthly income, the prospect of a major financial event with an uncertain outcome can be stressful. Will the borrower pay? Will you need to foreclose? Will you end up owning a property you do not want? These are legitimate concerns, and acknowledging the emotional component of the situation is important. The best antidote to anxiety is preparation — by understanding your options, organizing your documents, communicating with your borrower, and knowing the value of your note on the secondary market, you transform uncertainty into manageable decision-making. You may not be able to control whether the borrower pays, but you can control how prepared you are to respond to any outcome.

Making Decisions Based on Facts, Not Fear

When a balloon payment is coming due on your land note in Texas, decisions made from fear or frustration tend to produce poor outcomes. Granting an indefinite extension because you are afraid to confront the borrower, rushing into foreclosure because you are angry about the borrower's lack of preparation, or accepting the first offer on your note without getting a proper evaluation — these are all examples of emotional decision-making that can cost you money. Take the time to gather information, consult with professionals (attorneys, tax advisors, note buyers), and evaluate each option on its merits. The balloon event, while significant, is a manageable situation when approached with preparation and rationality.

Ready to Sell Your Note?

If you have a balloon payment coming due on your Texas land note and want to explore your options, Longhorn Note Buyers is ready to provide a fair, no-obligation quote within 24 hours. With over $46 million in Texas notes purchased, a 100 percent close rate on every deal quoted, and a BBB A+ rating, Longhorn Note Buyers has the experience and capital to handle balloon notes of all sizes and complexities. Founded by Nick McFadin — buying notes since 1983 — and partnered with Sandy McFadin since 2013, Longhorn is based in San Antonio and works exclusively in Texas. Call (210) 828-3573 or visit longhornnotebuyers.com today. Do not wait until the maturity date arrives to start planning — get your free quote now and make the most informed decision possible about your Texas land note.

Frequently Asked Questions

How far in advance should I start planning for a balloon payment on my Texas land note?

Ideally, you should begin planning at least six to twelve months before the balloon maturity date. This gives you time to communicate with the borrower about their plans, evaluate the property's current value, organize your documents, and explore all of your options including extension, foreclosure, and selling the note. Starting early transforms the balloon event from a potential crisis into a manageable financial decision. If the maturity date is less than six months away and you have not started planning, begin immediately — even a few weeks of preparation is better than being caught off guard.

What if the borrower makes a partial balloon payment?

A partial payment on the balloon does not satisfy the borrower's obligation to pay the full amount due at maturity. However, you have the discretion to accept a partial payment and negotiate terms for the remainder. This might take the form of a modified note with a new balloon date, a lump sum payment now with monthly payments continuing until a new balloon date, or any other arrangement the parties agree to. Whatever you decide, document the arrangement in a written modification agreement. If you are not willing to accept a partial payment, you can insist on full payment and proceed with enforcement remedies if the full amount is not received by the maturity date.

Can the borrower refinance the balloon payment with another owner-financed deal?

There is no restriction on the source of funds the borrower uses to pay the balloon. If another private lender or owner-financer is willing to provide the borrower with a new loan to pay off your note, that is perfectly acceptable. From your perspective, it makes no difference whether the balloon payment comes from a bank, a private lender, the borrower's savings, or any other source — as long as you receive the full payoff amount, the note is satisfied. In some cases, the borrower may even ask you to carry a new note as a form of refinancing, essentially extending the arrangement with new terms. This is your decision and should be evaluated on its merits just like any other extension request.

What happens to the monthly payments while we negotiate about the balloon?

Until the balloon is resolved, the borrower should continue making their regular monthly payments. The maturity of the balloon does not eliminate the borrower's obligation to make monthly payments — if the note terms require monthly payments through the maturity date, those payments are still owed. If the borrower stops making monthly payments in addition to failing to pay the balloon, the situation becomes more serious because you are now dealing with both a balloon default and a payment default. In any negotiation about the balloon, make clear to the borrower that monthly payments must continue during the negotiation period and that failure to make them will be treated as an additional default.

Is it better to sell my note now or wait for the balloon to be paid?

This depends on your confidence in the borrower's ability to pay the balloon and your personal financial situation. If you are highly confident the borrower will pay — they have strong financials, are already working with a lender, and the property easily supports refinancing — waiting for the full payoff may be the better choice since you receive the entire balance with no discount. If you are uncertain about the borrower's ability to pay, selling the note now locks in a known value and eliminates the risk of a default scenario. Selling before the balloon comes due typically produces a better price than selling after a balloon default, so timing matters. Getting a quote from Longhorn Note Buyers gives you a concrete number to weigh against the uncertain balloon outcome.