Borrower Defaulted on Your Land Note in Texas — Here Are Your Options

When a borrower defaults on your land note in Texas, it can feel like the ground has shifted beneath you. The steady monthly payments you counted on have stopped, and suddenly you are facing a situation that involves legal deadlines, financial uncertainty, and real stress. If you are reading this, chances are you are in this situation right now or suspect you might be headed there. The good news is that you have options — more than you might realize. Texas law provides note holders with clear, enforceable remedies, and the secondary market for distressed notes means you can convert even a non-performing note into cash if that is the right move for your situation. This guide will walk you through every realistic option available when a borrower defaults on a land note in Texas, so you can make an informed decision and take control of the situation.

A borrower default on a land note in Texas can take many forms. It might be a single missed payment that stretches into two, then three. It might be a borrower who communicates openly about financial difficulties and asks for patience. Or it might be a borrower who simply vanishes — stops paying, stops answering the phone, and stops responding to letters. Each of these scenarios calls for a different approach, but the underlying legal framework is the same. As the holder of a promissory note secured by Texas land, you have a security interest in real property, and that security interest gives you powerful tools to protect yourself. Understanding those tools — and when to use each one — is what this article is all about.

Before diving into the specifics, it is worth acknowledging that dealing with a borrower default is genuinely stressful. You may have a personal relationship with the borrower. You may depend on the payments for your own financial stability. You may feel angry, anxious, or simply exhausted by the situation. All of those feelings are valid. But emotion-driven decisions in this arena can be costly. The most important thing you can do is educate yourself about your options, seek professional guidance where appropriate, and make a deliberate, well-informed choice about how to proceed.

Understanding What Constitutes a Default on a Texas Land Note

Payment Defaults

The most common type of default is a payment default — the borrower fails to make a required monthly payment by the due date specified in the promissory note. Most notes include a grace period, typically 10 to 15 days, after which a late fee is assessed. A single late payment that is eventually cured does not typically rise to the level of a default that triggers enforcement action, although it should be documented and the late fee should be collected. The critical threshold is usually defined in the note itself — many notes specify that a default occurs when a payment is 30 days or more past due, although some are stricter. Once the default threshold is crossed, the note holder's enforcement rights are activated, and the clock starts ticking on the various remedy options available under Texas law.

It is important to distinguish between a technical default and a material default. A technical default might be a payment that arrives two days after the grace period expires — technically late, but not indicative of a serious problem. A material default, such as three consecutive missed payments or a borrower who has clearly abandoned the property, is a fundamentally different situation that warrants more aggressive action. Texas courts generally look at the totality of the circumstances when evaluating default situations, so maintaining clear documentation of every missed payment, every communication attempt, and every notice sent is essential regardless of the severity of the default.

Non-Payment Defaults

Defaults are not limited to missed payments. Most well-drafted promissory notes and deeds of trust include additional default triggers, such as failure to maintain insurance on the property, failure to pay property taxes, allowing the property to deteriorate or be damaged through neglect, transferring the property without the note holder's consent (if there is a due-on-sale clause), or using the property in a manner that violates the terms of the agreement. These non-payment defaults can be just as serious as missed payments because they threaten the value of your collateral. If the borrower lets the property taxes go delinquent, for example, the tax lien takes priority over your deed of trust, putting your security interest at risk. If you discover a non-payment default, addressing it promptly is critical to protecting your position.

The Acceleration Clause

Most promissory notes include an acceleration clause, which gives the note holder the right to declare the entire remaining balance of the note immediately due and payable upon default. This is a powerful provision because it transforms a default on a single monthly payment into a demand for the full outstanding balance. Acceleration is typically a prerequisite for foreclosure — you cannot foreclose for a single missed payment without first accelerating the note. The acceleration must be communicated to the borrower in writing, and in Texas, the notice requirements are specific and must be followed precisely. If you plan to pursue foreclosure, the acceleration notice is one of the first formal steps in the process.

Option One: Work It Out with the Borrower

Negotiating a Forbearance or Modification

Before pursuing formal legal remedies, many note holders find it worthwhile to explore whether the default can be resolved through direct negotiation with the borrower. A forbearance agreement is a temporary arrangement in which you agree to accept reduced payments, deferred payments, or a pause in enforcement action for a specified period, giving the borrower time to resolve their financial difficulties. A loan modification is a more permanent change to the note terms — it might involve reducing the interest rate, extending the term, adding missed payments to the end of the note, or some combination of these adjustments. Both approaches can be effective if the borrower's financial difficulty is temporary and they are genuinely committed to resuming payments.

The key to a successful workout is realistic assessment. Is the borrower's financial problem truly temporary, such as a job loss with good prospects for re-employment, a medical issue that is resolving, or a one-time expense that strained their budget? Or is the problem structural — a borrower who simply cannot afford the payments and is unlikely to recover? If the problem is temporary and the borrower has a track record of good payments before the default, a forbearance or modification can preserve the note's value and save both parties the cost and hassle of foreclosure. If the problem is structural, delaying action through a workout that is unlikely to succeed only postpones the inevitable and can reduce the value of your options over time.

Accepting a Deed in Lieu of Foreclosure

A deed in lieu of foreclosure is an arrangement in which the borrower voluntarily transfers the property back to you in exchange for your agreement to cancel the note and waive any deficiency. This option can be attractive when the borrower recognizes they cannot continue making payments and prefers to walk away cleanly rather than go through foreclosure. For the note holder, a deed in lieu avoids the time, cost, and uncertainty of the foreclosure process and puts you in immediate possession of the property. However, there are important considerations: you need to ensure there are no junior liens or other encumbrances on the property that would survive the transfer, and you need to be prepared to own and manage the property until you can sell it or find a new buyer.

If you accept a deed in lieu, the transaction should be documented carefully. A written agreement between you and the borrower should specify the terms, including the cancellation of the note, the release of the borrower from further liability, and the borrower's representations about the condition of the property and the absence of other liens. The deed should be recorded in the county where the property is located, and a title search should be conducted to confirm the status of the title. Working with a Texas real estate attorney on a deed in lieu transaction is strongly advisable to ensure everything is handled correctly and your interests are protected.

Option Two: Foreclose on the Property

Non-Judicial Foreclosure Under a Deed of Trust

If your Texas land note is secured by a deed of trust, you have the option of non-judicial foreclosure — a process that does not require court involvement and can be completed in approximately 60 to 90 days. The process begins with sending the borrower a written notice of default, which must be sent by certified mail at least 20 days before the notice of sale is filed. The notice should clearly state the nature of the default, the amount owed, and what the borrower must do to cure the default. If the borrower does not cure within the 20-day period, you (or more precisely, the trustee named in the deed of trust) then files a notice of sale, which must be posted at the courthouse door, filed with the county clerk, and sent to the borrower by certified mail at least 21 days before the sale date.

Foreclosure sales in Texas occur on the first Tuesday of each month, between 10 a.m. and 4 p.m., at the county courthouse. The property is sold to the highest bidder, with the note holder typically having the right to bid up to the amount owed on the note without bringing cash. If the property sells for more than the amount owed, the excess goes to the borrower (or to junior lienholders, if any). If the property sells for less than the amount owed, you may have the right to pursue a deficiency judgment against the borrower, although this is subject to certain limitations under Texas law. For a comprehensive walkthrough of the foreclosure process, our detailed guide on how to foreclose on a land note in Texas covers every step.

Foreclosure Under a Contract for Deed

If your note is secured by a contract for deed rather than a deed of trust, the foreclosure process depends on how much the borrower has paid. Under Chapter 5 of the Texas Property Code, if the borrower has paid less than 40 percent of the purchase price and has made fewer than 48 monthly payments, you can cancel the contract with 30 days' written notice. If the borrower has exceeded either of those thresholds, you must go through a formal foreclosure process similar to the deed of trust foreclosure described above. The distinction matters because the early-stage cancellation process is significantly faster and less expensive than formal foreclosure, but it is only available during the early portion of the contract term.

Costs and Risks of Foreclosure

Foreclosure, while an effective remedy, is not free. You will incur costs for attorney fees, trustee fees, title searches, notice preparation and mailing, and potentially property maintenance and taxes during the foreclosure period. If you end up owning the property after foreclosure (which is common when there are no other bidders at the sale), you will have the additional costs and responsibilities of property ownership, including property taxes, insurance, maintenance, and eventually the costs of reselling the property. For some note holders, these costs and responsibilities are manageable and the property represents a valuable asset. For others, particularly those who live far from the property or do not want to deal with property management, the total cost of foreclosure can outweigh the benefits.

There are also legal risks to consider. If the foreclosure process is not conducted precisely according to Texas law — if a notice is sent too late, a filing is missed, or the sale is not conducted properly — the foreclosure can be challenged and potentially voided. The borrower may raise defenses such as improper notice, fraud in the inducement, or violations of consumer protection laws. While these defenses are not always successful, defending against them takes time and money. For these reasons, most note holders who pursue foreclosure work with an experienced Texas foreclosure attorney who can ensure the process is handled correctly from start to finish.

Option Three: Sell the Defaulted Note

The Market for Non-Performing Texas Land Notes

Many note holders are surprised to learn that there is an active market for non-performing notes — notes where the borrower has stopped paying. Experienced note buyers, including Longhorn Note Buyers, regularly purchase defaulted Texas land notes because they have the expertise, legal resources, and capital to work through the default and extract value from the situation. For the note holder, selling a defaulted note provides immediate cash, eliminates the need to deal with the foreclosure process, and transfers all of the risk and responsibility to the buyer. The price you receive will be lower than what a performing note would fetch, but the certainty and immediacy of the cash can be extremely valuable, particularly if you need the money for other purposes or simply want to be done with the situation.

The value of a defaulted note depends on several factors: the current value of the underlying property, the remaining balance on the note, the length and severity of the default, the borrower's payment history before the default, the condition of the title, and the type of instrument securing the note (deed of trust versus contract for deed). An experienced buyer will evaluate all of these factors and provide a quote based on their assessment of the likely recovery. Even in difficult situations — long defaults, unknown property conditions, messy documentation — there is usually some value that can be extracted, and selling to a buyer who specializes in these situations is often the fastest and least stressful path to resolution.

Why Selling Can Be Better Than Foreclosing

For many note holders facing a borrower default on a land note in Texas, selling the note is a better option than foreclosing for several practical reasons. First, selling provides immediate liquidity — you receive cash at closing rather than waiting months for the foreclosure process to play out and then potentially owning a property you need to sell. Second, selling eliminates legal risk — once the note is assigned to the buyer, any challenges to the foreclosure or workout become the buyer's problem, not yours. Third, selling eliminates ongoing costs — no attorney fees, no trustee fees, no property taxes, no insurance, and no maintenance costs during the foreclosure period. Fourth, selling provides certainty — you know exactly how much you are receiving, while the foreclosure process involves uncertain outcomes, including the possibility that the property will sell for less than expected at the foreclosure sale.

For note holders who are weighing this option, Longhorn Note Buyers has extensive experience purchasing non-performing Texas land notes and can provide a fair, transparent evaluation of your note within 24 hours. With over $46 million in Texas notes purchased and a track record of closing every deal they quote, Longhorn has the credibility and capability to handle even complex default situations. Whether your note has been in default for a month or a year, understanding the value of selling as an alternative to foreclosing is an essential part of making an informed decision. Our guide on selling non-performing land notes in Texas provides additional detail on this option.

How the Sale Process Works for a Defaulted Note

Selling a defaulted note follows essentially the same process as selling a performing note, with some additional considerations. You provide the buyer with your note documents, payment history (including documentation of the default), information about the property, and any correspondence with the borrower regarding the default. The buyer evaluates the note and property, typically ordering a title search and property valuation as part of their due diligence, and provides you with a purchase price. If you accept, the closing involves endorsing the note to the buyer, executing an assignment of the deed of trust or contract for deed, and receiving your payment. The buyer then steps into your shoes as the note holder and handles the workout or foreclosure process from there.

Option Four: Pursue the Borrower Personally

Deficiency Judgments in Texas

If the value of the property is less than the amount owed on the note, you may have the right to pursue a deficiency judgment against the borrower after foreclosure. A deficiency judgment is a court order requiring the borrower to pay the difference between the amount owed and the amount recovered through the foreclosure sale. In Texas, the process for obtaining a deficiency judgment on a non-judicial foreclosure requires filing a lawsuit within two years of the foreclosure sale. The court will evaluate the fair market value of the property at the time of the foreclosure sale, and the deficiency is calculated based on the greater of the sale price or the fair market value, which provides some protection to the borrower against below-market foreclosure sales.

As a practical matter, deficiency judgments are difficult to collect. If the borrower defaulted because they could not afford the payments, they likely do not have significant assets that you can seize to satisfy a judgment. The cost of pursuing the judgment through the courts can also be substantial, and there is no guarantee of success. For most Texas land note holders dealing with a borrower default, the time and money spent pursuing a deficiency judgment would be better allocated to other options — selling the note, completing the foreclosure and reselling the property, or moving on entirely. That said, in cases where the borrower has significant other assets or where the deficiency is large, pursuing a judgment may be worthwhile, and a Texas attorney can advise you on the likelihood of a successful recovery.

When Litigation Makes Sense

Beyond deficiency judgments, there are limited situations where litigation against the borrower may be appropriate. If the borrower has committed waste — deliberately damaging or stripping the property — you may have a separate cause of action for damages. If the borrower made material misrepresentations during the original transaction, that could give rise to fraud claims. If the borrower transferred the property in violation of a due-on-sale clause, you may need to pursue legal action to enforce your rights. In each of these scenarios, the potential recovery must be weighed against the cost and time of litigation. For most routine defaults on Texas land notes, the enforcement mechanisms built into the deed of trust or contract for deed — foreclosure and property recovery — are the most efficient and effective remedies.

Protecting Yourself Before a Default Happens

Structuring Notes to Minimize Default Risk

While this article focuses on what to do after a default, it is worth noting that the best protection against default is a well-structured note created at the outset. A note with a meaningful down payment of 20 percent or more, a reasonable interest rate, a payment amount that the borrower can realistically afford, and clear terms covering late fees, default, and acceleration is far less likely to end up in default than a poorly structured note. The down payment is particularly important because it gives the borrower skin in the game — a borrower who has invested 25 percent of the purchase price is much less likely to walk away from the property than a borrower who put down only 5 percent. If you are currently holding a note that was structured with a small down payment and generous terms, understanding your heightened default risk can help you prepare and take proactive steps to protect yourself.

Early Warning Signs to Watch For

Defaults rarely happen overnight. In most cases, there are warning signs that precede a full default — increasingly late payments, partial payments, requests for forbearance, reduced communication from the borrower, or reports of the property being neglected or abandoned. Paying attention to these warning signs and addressing them early can sometimes prevent a full default or at least give you a head start on evaluating your options. If you notice a pattern of deteriorating payment performance, reaching out to the borrower proactively, checking on the property, and consulting with a Texas real estate attorney can help you stay ahead of the situation rather than reacting to it after it has fully developed.

The Value of Professional Servicing

Having your note professionally serviced can provide early warning of potential problems. A professional servicer tracks payment patterns, sends timely notices, and provides you with regular reports on the status of your note. If payments start arriving late or the borrower misses a payment, the servicer will flag it immediately, giving you time to evaluate the situation and decide on a course of action. For note holders who have experienced a default or are concerned about the possibility of one, adding professional servicing to their current notes is a worthwhile step. It is also a factor that can increase the value of your note if you decide to sell, as buyers like Longhorn Note Buyers appreciate notes with professional servicing histories.

Ready to Sell Your Note?

Whether your borrower has defaulted on your Texas land note or payments are becoming increasingly unreliable, Longhorn Note Buyers can help. With over $46 million in Texas notes purchased — including both performing and non-performing notes — and a 100 percent close rate on quoted deals, Longhorn has the experience and resources to evaluate your situation and make a fair offer within 24 hours. Founded by Nick McFadin, who has been in the note business since 1983, and partnered with Sandy McFadin since 2013, Longhorn Note Buyers is based in San Antonio and works exclusively in Texas. Call (210) 828-3573 or visit longhornnotebuyers.com today for a free, no-obligation quote. Do not let a default situation drag on — explore your options now and make the best decision for your financial future.

Frequently Asked Questions

How long do I have to act after a borrower defaults on my Texas land note?

The statute of limitations for enforcing a written promissory note in Texas is generally six years from the date the cause of action accrues, which is typically the date of default or the date the note is accelerated. However, waiting to act is generally not advisable — the longer a default persists, the more risk there is of property deterioration, title complications, and reduced recovery. Additionally, the value of your note on the secondary market decreases the longer the default continues. Taking prompt action, whether through foreclosure, negotiation, or selling the note, puts you in the strongest position to protect your interests.

Can I foreclose if the borrower has only missed one payment?

Technically, most promissory notes define a default as occurring after a single missed payment (beyond the grace period), and an acceleration clause can be triggered at that point. However, as a practical matter, most note holders and their attorneys recommend allowing a reasonable period for the borrower to cure before initiating foreclosure. Foreclosing after a single missed payment can appear heavy-handed and may invite challenges from the borrower. A more common approach is to send a formal demand letter after the first missed payment, follow up with an acceleration notice if payments continue to be missed, and proceed with foreclosure if the borrower does not respond or cure within a reasonable time. The specific approach depends on the terms of your note and the advice of your attorney.

What is the difference between foreclosure and cancellation for a contract for deed?

For a contract for deed in Texas, the remedy available to you depends on how much the borrower has paid. If the borrower has paid less than 40 percent of the purchase price and has made fewer than 48 monthly payments, you can cancel the contract with 30 days' written notice — a faster and simpler process than formal foreclosure. If the borrower has exceeded either of those thresholds, you must go through a formal foreclosure process, which is essentially the same as foreclosing under a deed of trust and takes approximately 60 to 90 days. This distinction is important because it affects your timeline and costs when dealing with a default.

Will I get a good price if I sell a defaulted note?

The price you receive for a defaulted note will be lower than what a performing note would command, but it can still be substantial depending on the underlying property value, the remaining balance, and the overall situation. Experienced note buyers evaluate defaulted notes based on the expected recovery — typically the property value minus the costs of foreclosure, holding, and resale. If the property is worth significantly more than the note balance, you may receive a relatively high percentage of the balance. If the property value has declined or the situation is complicated by title issues or other problems, the discount will be steeper. Getting a quote from an experienced buyer is the best way to understand the current market value of your defaulted note.

Should I try to work things out with the borrower before considering other options?

Attempting a workout with the borrower is often a reasonable first step, particularly if the borrower has a history of good payments and the default appears to be caused by a temporary financial setback. A successful workout preserves the note as a performing asset and avoids the costs and complications of foreclosure or sale. However, workouts should be approached with realistic expectations — if the borrower's financial problems are structural rather than temporary, a workout may simply delay the inevitable while the value of your position erodes. Set clear terms and a firm timeline for any workout arrangement, document everything in writing, and be prepared to move to other options if the workout does not produce results within the agreed timeframe.