How to Collect Payments on a Land Note in Texas: A Practical Guide

Learning how to collect payments on a land note in Texas is one of the most important practical skills any note holder needs to master. When you sell a piece of Texas land with owner financing, you are stepping into the role of a lender, and with that role comes the responsibility of managing the ongoing collection of monthly payments. For some note holders, this process runs smoothly for years without a single issue. For others, it becomes a source of frustration, confusion, and even financial stress. This guide is designed to give you a thorough, practical understanding of every aspect of collecting payments on a Texas land note — from the methods and systems available to you, to the legal framework that governs your rights, to the options you have when things do not go as planned.

Whether you created your note last month or have been collecting payments for a decade, there is always room to improve your process and protect your interests. The way you manage payment collection affects not only your current cash flow but also the future value of your note if you ever decide to sell it. A note with a clean, well-documented payment history is significantly more valuable on the secondary market than a note with spotty records, missed payments, and informal collection practices. By putting the right systems in place now, you are protecting both your present income and your future optionality as a note holder in the Texas land market.

Setting Up Your Payment Collection System for a Texas Land Note

Choosing a Collection Method

The first decision you need to make as a note holder is how you want to collect payments on your land note in Texas. There are several options, each with its own advantages and drawbacks. The most common methods include direct personal collection, where the borrower sends payments directly to you by check or electronic transfer; bank-facilitated collection, where payments are routed through a bank account with automatic transfers; and professional loan servicing, where you hire a third-party company to handle all aspects of payment collection, record-keeping, and borrower communication. The right choice depends on the size and complexity of your note, the reliability of your borrower, and how much time and effort you want to invest in the process.

Direct personal collection is the simplest approach and works well for note holders who have a single note, a reliable borrower, and are comfortable keeping their own records. In this arrangement, the borrower sends a check to your address or makes an electronic transfer to your bank account on the scheduled date each month. The advantage is that there are no additional fees, and you have complete control over the process. The disadvantage is that all of the administrative burden falls on you — tracking payments, sending receipts, managing escrow for taxes and insurance if applicable, and dealing with any communication issues. For note holders who prefer a hands-off approach, or who have multiple notes, professional servicing is usually the better option.

Using a Professional Loan Servicer

A professional loan servicer is a company that specializes in collecting and processing loan payments on behalf of note holders. When you engage a servicer, the borrower makes their payments to the servicing company, which deposits the funds into your account after deducting their fee. The servicer handles payment processing, maintains detailed payment records, sends the borrower monthly statements and year-end tax documents, manages escrow accounts if applicable, and provides you with regular reports on the status of your note. Servicing fees typically range from 15 to 40 dollars per month per note, depending on the servicer and the complexity of the arrangement.

The benefits of professional servicing extend beyond convenience. From a legal standpoint, having a third party between you and the borrower creates a professional buffer that can prevent misunderstandings and disputes. From a record-keeping standpoint, professional servicers maintain the kind of detailed, verifiable payment histories that note buyers want to see when evaluating a note for purchase. If you ever decide to sell your note, having professional servicing records can significantly streamline the due diligence process and potentially improve the price you receive. For note holders who are considering selling at some point in the future, the cost of servicing is a worthwhile investment in their note's marketability.

Setting Up Automatic Payments

Regardless of whether you use personal collection or a professional servicer, setting up automatic payments is one of the best things you can do to ensure consistent collection on your Texas land note. Automatic payments, typically structured as ACH (Automated Clearing House) transfers from the borrower's bank account, reduce the risk of late or missed payments caused by simple forgetfulness. Most borrowers who intend to pay on time will agree to automatic payments because it makes their life easier as well. If you are using a professional servicer, they will typically set up the ACH enrollment as part of their onboarding process. If you are collecting payments directly, you can set up recurring transfers through your bank or use a payment platform that facilitates automatic billing.

Legal Framework for Collecting Payments on a Land Note in Texas

Your Rights as a Note Holder

As the holder of a promissory note secured by Texas land, you have specific legal rights that govern the collection process. The promissory note itself is the primary document that defines your rights — it specifies the payment amount, the due date, the interest rate, the late payment penalties, and the consequences of default. In Texas, the statute of limitations for enforcing a written promissory note is generally six years from the date of default, though the deed of trust or contract for deed may provide for acceleration of the entire balance upon default, which can affect the statute of limitations analysis. It is essential that you understand the specific terms of your note and the applicable legal deadlines so that you do not inadvertently waive your rights through inaction.

Texas law also provides specific protections for note holders when it comes to enforcing their security interest. If the note is secured by a deed of trust, you have the right to initiate non-judicial foreclosure through the trustee if the borrower defaults. If the note is secured by a contract for deed, your enforcement rights depend on how much the borrower has paid, as discussed in detail in our article on what to do when a borrower stops paying in Texas. In either case, your right to collect payments is backed by a security interest in the land itself, which gives you significant leverage in ensuring the borrower fulfills their obligations.

Late Fees and Grace Periods

Most promissory notes include provisions for late fees — charges assessed when the borrower fails to make their payment by the specified due date. Texas law does not prescribe a specific maximum for late fees on real estate notes, but the fee must be reasonable and consistent with the terms of the note. A common structure is a late fee of 4 to 5 percent of the monthly payment amount, assessed after a grace period of 10 to 15 days following the due date. For example, if the monthly payment is 500 dollars, a 5 percent late fee would be 25 dollars, assessed if the payment has not been received by the 15th of the month (assuming a 15-day grace period on a payment due the 1st).

It is important to enforce late fees consistently. If you have a practice of waiving late fees, you may inadvertently establish a pattern that the borrower can use to argue that the late fee provision has been waived or modified. At the same time, enforcing late fees in a reasonable and consistent manner encourages on-time payment and compensates you for the cost and inconvenience of late payments. If you are using a professional servicer, they will typically handle late fee assessment and collection as part of their standard process, which ensures consistency and removes any personal awkwardness from the situation.

Sending Required Notices and Statements

Depending on how your note is structured and the instrument securing it, you may have legal obligations regarding notices and statements. If your note is secured by a contract for deed, Texas Property Code Chapter 5 requires you to provide the borrower with an annual accounting statement showing the amount paid, the remaining balance, the number of payments remaining, and the amount paid in interest. Even if your note is secured by a deed of trust and no such legal requirement exists, providing regular statements is a best practice that maintains transparency and reduces the likelihood of disputes. Most professional servicers send monthly statements and year-end summaries as part of their standard service, which is another advantage of using a servicer.

Managing Common Payment Collection Challenges in Texas

Dealing with Late Payments

Late payments are an inevitable part of being a note holder. Even the most reliable borrowers may occasionally be late due to job changes, family emergencies, banking issues, or simple oversight. The key is to have a clear, consistent process for handling late payments. When a payment is late, a polite but firm reminder after the grace period has expired is usually sufficient to prompt payment. If the borrower is consistently late, a conversation about the reasons behind the lateness and potential solutions — such as setting up automatic payments or adjusting the due date to better align with their pay schedule — can be productive. The goal is to resolve the issue before it escalates into a more serious delinquency.

If late payments become a pattern, it is important to document everything in writing. Send formal late payment notices, keep copies of all communications, and note the dates and amounts of every late payment. This documentation serves two purposes: it protects your legal rights if you need to pursue enforcement action, and it creates a clear record that any future buyer of your note can review. A note with occasional late payments but thorough documentation showing how they were resolved is far more attractive to buyers than a note with a murky payment history and no documentation of how issues were handled.

When the Borrower Stops Paying Entirely

The most challenging scenario a Texas land note holder can face is a borrower who stops paying entirely. When this happens, you need to act promptly and deliberately. The first step is to send a formal written demand for payment, clearly stating the amount owed, the deadline for payment, and the consequences of continued non-payment. In Texas, if your note is secured by a deed of trust, you will need to follow the notice requirements outlined in the Texas Property Code before initiating foreclosure — this means sending a written notice of default at least 20 days before sending the notice of sale. The entire process, from the first notice to the foreclosure sale, typically takes 60 to 90 days when done correctly.

However, foreclosure is time-consuming, stressful, and comes with its own costs and risks. Many note holders in this situation choose to sell their note rather than go through the foreclosure process themselves. Even a non-performing note — one where the borrower has stopped paying — has value to experienced note buyers who specialize in workout situations. Selling a non-performing note allows you to receive a lump sum of cash immediately and transfer the burden of collection or foreclosure to the buyer. If you find yourself in this situation, reaching out to an experienced buyer like Longhorn Note Buyers can help you understand your options and make an informed decision about the best path forward.

Borrower Requests to Modify Payment Terms

Sometimes a borrower will contact you requesting a modification to their payment terms. This might be a request to lower the monthly payment, extend the term, defer a payment, or change the due date. Each request needs to be evaluated on its own merits, considering the borrower's reasons, their overall payment history, and the impact on your financial position. In some cases, a reasonable modification can keep a performing note performing and avoid the costs and complications of default and foreclosure. In other cases, a modification request may be a sign of deeper financial trouble that will ultimately lead to default regardless of any changes you make.

If you do agree to a modification, it is critical to document it properly. A written modification agreement, signed by both parties, should clearly state the original terms, the modified terms, the effective date of the modification, and an acknowledgment that all other terms of the original note remain in effect. Without proper documentation, a verbal agreement to modify terms can lead to confusion, disputes, and complications if you later need to enforce the note or sell it. This is another area where having a professional servicer or a Texas real estate attorney involved can protect your interests and ensure everything is handled correctly.

Record-Keeping Best Practices for Texas Land Note Holders

What Records to Maintain

Good record-keeping is the backbone of successful payment collection on a Texas land note. At a minimum, you should maintain a complete payment history showing every payment received, including the date received, the amount, how the payment was made (check, ACH, cash), and how the payment was applied between principal, interest, and any escrow. You should also keep copies of all correspondence with the borrower, including late payment notices, modification agreements, and any other communications related to the note. The original promissory note, the deed of trust or contract for deed, any title documents, and your original closing paperwork should be stored in a secure location — these are the foundational documents that establish your legal rights and will be needed if you ever sell the note.

Why Record-Keeping Affects Note Value

When a note buyer evaluates your Texas land note, one of the first things they will request is a complete payment history. This is not just a formality — the payment history tells the buyer everything they need to know about the borrower's reliability and the note's performance. A clean, detailed payment history showing years of on-time payments is a powerful selling point that can significantly increase your note's value. Conversely, a payment history with gaps, unexplained late payments, or inconsistent records raises red flags that will result in a lower offer or even a pass by the buyer. The time and effort you invest in maintaining good records pays dividends when it comes time to sell. For more on preparing your note for sale, our comprehensive guide on how to sell your land note in Texas walks through the entire process step by step.

Digital Tools and Systems for Record-Keeping

In 2026, there are numerous digital tools available to help note holders maintain accurate records. Spreadsheet programs like Excel or Google Sheets can be used to create a payment tracking template that calculates principal and interest allocations, running balances, and annual summaries. Cloud storage services provide secure, accessible backup for all of your documents. Some note holders use dedicated loan management software that automates many of these tasks and generates reports. If you use a professional servicer, they will handle record-keeping as part of their service and can provide you with detailed reports on demand. Regardless of the tool you use, the key is consistency — update your records after every payment and every communication, and do not let paperwork pile up. A few minutes of record-keeping each month can save you hours of headaches later.

Tax Considerations for Collecting Payments on a Texas Land Note

Reporting Interest Income

When you collect payments on a land note in Texas, the interest portion of each payment is taxable income that must be reported on your federal tax return. Texas does not have a state income tax, so the federal reporting is your primary concern. If you receive more than 600 dollars in interest from a single borrower in a calendar year, you are generally required to report the amount on Form 1099-INT and provide a copy to the borrower. If you are using a professional servicer, they will typically handle the preparation and filing of 1099-INT forms as part of their service. If you are collecting payments directly, this is a responsibility you need to manage on your own, and failure to do so can result in IRS penalties.

Installment Sale Reporting

If you sold the land using the installment method — which is common in owner-financed transactions — you may be reporting the gain on the sale over the life of the note using IRS Form 6252. Under the installment sale method, each payment you receive is divided into three components: return of basis (the portion representing your original cost or adjusted basis in the property), capital gain (the profit portion), and interest income. This method can provide significant tax advantages by spreading the gain over multiple years rather than recognizing it all in the year of sale. However, if you sell the note before it is fully paid, you will generally need to recognize the remaining deferred gain in the year of the note sale. Understanding these tax implications is important when considering whether to continue collecting payments or sell the note, and a qualified tax advisor can help you run the numbers for your specific situation.

Escrow for Property Taxes

Some promissory notes require the borrower to make escrow payments for property taxes in addition to their regular principal and interest payments. If your note includes an escrow provision, you are responsible for collecting the escrow payments, holding them in a separate account, and paying the property taxes on the borrower's behalf when they come due. This adds administrative complexity to your collection process, but it also protects your security interest by ensuring that property taxes are paid and no tax liens are placed on the property. If you are collecting escrow payments, accuracy is essential — underfunding the escrow account can leave you short when taxes are due, while overfunding creates a refund obligation. A professional servicer can manage escrow accounts efficiently, making this another argument in favor of using one.

When Collecting Payments Becomes More Trouble Than It Is Worth

Signs It Might Be Time to Sell

For many Texas land note holders, there comes a point when the hassles of collecting payments outweigh the benefits of the monthly income. This tipping point can be triggered by a variety of circumstances: increasing difficulty getting the borrower to pay on time, personal life changes that make managing the note burdensome, the desire for a lump sum of cash for a specific purpose, health issues, retirement planning, or simply the realization that the ongoing administrative and emotional burden of being a lender is not worth the remaining return on the note. When you reach this point, selling your note to a professional buyer can provide immediate relief and liquidity.

Some note holders worry that selling their note means accepting a significant loss, but the reality is more nuanced. The discount you accept when selling reflects the time value of money, the risk the buyer is assuming, and the cost of servicing the note going forward. In many cases, when you factor in the ongoing costs of your time, the risk of future default, the tax implications of continuing to collect, and the opportunity cost of not having that capital available for other uses, selling can be a smart financial decision. Everyone's situation is different, but understanding that selling is a legitimate and often advantageous option can be liberating for note holders who have been struggling with the collection process.

What to Expect When Selling a Performing Note

If your note has a strong payment history — on-time payments, good documentation, and a performing borrower — you are in a strong position to sell. Performing notes are in high demand from experienced buyers, and a well-documented performing note with a reasonable interest rate and a good loan-to-value ratio will attract competitive offers. The process typically involves providing the buyer with your note documents and payment history, receiving a quote, negotiating the price, and closing the transaction. From start to finish, a straightforward note sale can be completed in two to four weeks with an experienced buyer. Longhorn Note Buyers, for example, provides quotes within 24 hours and has the capacity to close quickly once terms are agreed upon.

Ready to Sell Your Note?

If collecting payments on your Texas land note has become a burden — or if you simply want to convert your future payment stream into a lump sum of cash today — Longhorn Note Buyers is here to help. With over $46 million in Texas notes purchased, a 100 percent close rate on every deal they quote, and a BBB A+ rating, Longhorn Note Buyers has the experience and track record you can trust. Nick McFadin has been buying notes since 1983, and the team at Longhorn understands the Texas market inside and out. Call (210) 828-3573 or visit longhornnotebuyers.com to get a free, no-obligation quote within 24 hours. Whether your note is performing perfectly or you are dealing with collection challenges, Longhorn can help you explore your options and make the right decision for your situation.

Frequently Asked Questions

Do I need to use a professional loan servicer to collect payments on my Texas land note?

No, there is no legal requirement in Texas to use a professional loan servicer. Many note holders successfully collect payments directly from their borrowers using personal checks, electronic bank transfers, or other direct payment methods. However, using a professional servicer provides significant advantages in terms of record-keeping, legal compliance, borrower communication, and future note marketability. If you have multiple notes, a complicated arrangement, or plan to sell your note at some point in the future, the relatively modest cost of servicing — typically 15 to 40 dollars per month — is a worthwhile investment.

What should I do if my borrower is consistently late with payments?

Consistent late payments require a proactive approach. Start by communicating with the borrower to understand the reason for the lateness and explore solutions such as automatic payments or an adjusted due date. Enforce your late fee provisions consistently to create an incentive for on-time payment. Document every late payment and every communication about the issue. If the lateness continues despite your efforts, consider whether the situation is likely to escalate into default and evaluate your options, which may include selling the note to a buyer who can manage the situation or pursuing formal enforcement through your note's default provisions.

How does having a professional servicer affect the value of my note when selling?

Having a professional servicer can positively affect the value of your note because it provides the buyer with a reliable, verifiable payment history from an independent third party. Note buyers place significant weight on payment history when evaluating a note, and a professional servicer's records are considered more reliable than a seller's personal records. Additionally, having a servicer in place means the buyer can seamlessly take over the servicing arrangement, which simplifies the transition and reduces the buyer's operational burden. While using a servicer is not strictly necessary to sell your note, it can result in a higher offer and a smoother transaction.

Can I collect payments on my Texas land note in cash?

While it is technically possible to accept cash payments on a Texas land note, it is strongly discouraged. Cash payments are difficult to document, create tax reporting complications, and provide no paper trail in the event of a dispute. If the borrower later claims they paid more than you recorded, you will have no bank records to support your position. Electronic payments — whether through ACH transfer, wire transfer, or even online payment services — create automatic documentation that protects both you and the borrower. If your borrower insists on paying in cash, require signed receipts for every payment and deposit the cash immediately so there is a bank record of the deposit.

What happens to my payment collection if I sell the note?

When you sell your Texas land note, the buyer assumes all rights to collect future payments from the borrower. The borrower is notified of the assignment and instructed to send future payments to the new note holder or their servicer. You receive a lump sum payment from the buyer at closing and have no further collection responsibilities. The transition is typically seamless for the borrower, especially if a professional servicer is already in place. From your perspective, selling the note means converting an uncertain stream of future payments into a certain sum of money today, freeing you from all of the administrative, legal, and emotional burdens of ongoing collection.