Land Note Due-on-Sale Clause in Texas: What Sellers Need to Know

The land note due-on-sale clause in Texas is one of the most powerful — and most misunderstood — provisions in owner-financed real estate transactions. If you hold a promissory note secured by Texas land, understanding how the due-on-sale clause works is essential to protecting your investment, maintaining control over your collateral, and making informed decisions about your note's future. This clause, sometimes called an alienation clause, gives you the right to demand full payment of the note if the borrower sells, transfers, or otherwise conveys their interest in the property without your consent. It is a standard feature in most well-drafted deeds of trust, and it plays a critical role in the economics and risk management of owner-financed land deals throughout the Lone Star State.

The due-on-sale clause exists for a practical reason. When you agreed to finance the sale of your land, you evaluated the buyer — their creditworthiness, their financial stability, their down payment, and their ability to make the agreed-upon payments. You structured the note based on that specific buyer and that specific risk profile. If that buyer turns around and sells the property to someone else — someone you have never evaluated and may not find creditworthy — the risk profile of your note changes dramatically. The due-on-sale clause protects you from this scenario by giving you the option to demand full payment if the property changes hands. Without it, you would be powerless to prevent your carefully evaluated note from becoming an obligation of a complete stranger with unknown financial capacity.

Despite its importance, many Texas land note holders are unclear about how the land note due-on-sale clause in Texas actually works in practice — when it can be enforced, when it cannot, what exceptions exist under federal and state law, and how it affects the value and marketability of their note. This comprehensive guide will walk you through every aspect of the due-on-sale clause so you can exercise your rights effectively and make well-informed decisions about your Texas land note.

What Exactly Is a Due-on-Sale Clause in a Texas Land Note?

The Legal Definition and Purpose

A due-on-sale clause is a provision in a deed of trust or mortgage that gives the lender (or note holder) the right to accelerate the loan — demand immediate payment of the entire outstanding balance — if the borrower sells, transfers, conveys, or otherwise disposes of their interest in the secured property without the lender's prior written consent. The clause is triggered by any transfer of ownership, whether through a traditional sale, a gift, a transfer into a trust or LLC, a transfer through divorce, or any other conveyance that changes who holds title to the property. The core purpose is to ensure that the note holder retains control over who is responsible for the debt and that the collateral remains in the hands of a party the note holder has approved.

In the context of Texas land notes, the due-on-sale clause typically appears in the deed of trust rather than the promissory note itself, although it may be referenced in both documents. The standard language generally provides that any transfer of all or any part of the property or any interest in the property, without the prior written consent of the note holder, shall be an event of default entitling the note holder to accelerate the note and declare the full balance immediately due and payable. Some clauses are broader than others — some cover only full transfers of ownership, while others extend to partial transfers, transfers of beneficial interests, and even long-term lease agreements. The specific language of your clause determines the scope of your rights, which is why reviewing the actual document is essential before taking any action.

How the Due-on-Sale Clause Differs from Other Default Triggers

The due-on-sale clause is distinct from other default provisions in several important ways. Unlike a payment default, which occurs because the borrower fails to meet an obligation, a due-on-sale violation can occur even when the borrower is current on all payments. The borrower might sell the property, pocket the proceeds, and leave the new owner to continue making payments — and the payments might continue arriving on time. But the transfer itself constitutes a violation of the due-on-sale clause, giving you the right to accelerate even though no payment has been missed. This is an important distinction because it means that monitoring the ownership status of your collateral is a separate responsibility from monitoring payment performance. If you are not aware that a transfer has occurred, you cannot enforce the clause.

Federal Law and the Garn-St Germain Act

Preemption of State Law

The enforceability of due-on-sale clauses in the United States is governed primarily by the Garn-St Germain Depository Institutions Act of 1982, a federal law that preempts state laws restricting the enforcement of due-on-sale clauses. Before this act, some states had laws or court decisions that limited when lenders could enforce due-on-sale clauses, but Garn-St Germain established a uniform federal rule: due-on-sale clauses are generally enforceable, with certain specific exceptions. This federal preemption applies to all real property loans, including owner-financed land notes in Texas, which means that the exceptions listed in Garn-St Germain are the primary limitations on your ability to enforce your land note due-on-sale clause in Texas.

Exceptions Where the Due-on-Sale Clause Cannot Be Enforced

The Garn-St Germain Act lists several specific situations in which a due-on-sale clause cannot be enforced, even though a transfer of the property has occurred. These exceptions reflect policy decisions by Congress to protect certain types of transfers that are considered involuntary, family-related, or otherwise deserving of protection. The most important exceptions include transfers resulting from the death of the borrower, where the property passes to a relative who will occupy it as a primary residence; transfers to the borrower's spouse or children; transfers resulting from a divorce or legal separation where the spouse becomes the owner; transfers into a living trust where the borrower remains a beneficiary; and the creation of a junior lien or encumbrance that does not relate to a transfer of occupancy rights.

These exceptions are narrower than many people assume. For example, the exception for transfers resulting from the borrower's death applies only when the property is transferred to a relative who will occupy it — if the property is inherited by someone who does not plan to occupy it, the exception may not apply. Similarly, the exception for transfers into a living trust applies only when the borrower is a beneficiary of the trust — a transfer into a trust controlled by a third party may trigger the clause. Understanding these nuances is important for Texas land note holders because the exceptions determine whether you can enforce your clause in specific situations. If you are unsure whether a particular transfer falls within an exception, consulting with a Texas real estate attorney is the prudent course of action.

Enforcing the Due-on-Sale Clause on a Texas Land Note

Discovering That a Transfer Has Occurred

One of the practical challenges of enforcing a land note due-on-sale clause in Texas is discovering that a transfer has occurred in the first place. If the borrower sells the property through a conventional closing with a title company, you should receive a payoff demand or be notified of the sale. But if the borrower conveys the property through an informal deed — a quit claim deed, a general warranty deed recorded without your knowledge, or a transfer through a trust or LLC — you may not learn about the transfer until well after it has occurred. This is why periodic monitoring of the property's ownership status is important for note holders. Checking the county records periodically, or having your servicer monitor for title changes, can help you catch unauthorized transfers early.

Some note holders also include a provision in their deed of trust requiring the borrower to notify them of any intended transfer before it occurs. While this provision does not prevent an unauthorized transfer from happening, it establishes a contractual obligation that strengthens your position if you need to enforce the clause. If the borrower transferred the property without notifying you as required, that is an additional breach of the agreement that supports your right to accelerate the note and demand full payment.

The Process of Enforcement

If you discover that an unauthorized transfer has occurred and you decide to enforce your due-on-sale clause, the process is similar to other default enforcement actions. You send the borrower (and typically the new property owner) a written notice stating that the transfer constitutes a violation of the due-on-sale clause, that you are exercising your right to accelerate the note, and that the full outstanding balance is due within a specified period. If the balance is not paid, you proceed with the foreclosure process as described in the deed of trust and governed by the Texas Property Code. For a detailed walkthrough of the foreclosure steps, our guide on how to foreclose on a land note in Texas covers the entire process.

It is worth noting that enforcement of a due-on-sale clause is discretionary — the clause gives you the right to accelerate, but it does not require you to do so. In some situations, you may decide that the transfer is acceptable. Perhaps the new owner has a strong credit profile and agrees to assume the note under its existing terms. Perhaps the transfer is to a family member who is equally capable of making payments. In these cases, you might choose to consent to the transfer rather than enforce the clause. This flexibility is an advantage because it allows you to evaluate each situation on its merits rather than being forced into a rigid response.

Waiver and Delay Risks

If you learn about an unauthorized transfer but take no action for an extended period, you risk a legal argument that you have waived your right to enforce the due-on-sale clause. Texas courts have recognized that unreasonable delay in enforcing a contractual right can constitute waiver, particularly if the other party has relied on the lack of enforcement to their detriment. For example, if the property was transferred two years ago, the new owner has been making payments the entire time, and you only now decide to enforce the clause, the new owner might argue that your delay constituted acceptance of the transfer. To protect yourself, act promptly when you discover an unauthorized transfer — either enforce the clause or formally consent to the transfer in writing. Leaving the situation unresolved creates legal uncertainty that benefits no one.

Due-on-Sale Clauses and Contracts for Deed

A Different Legal Framework

The discussion so far has focused primarily on notes secured by deeds of trust, where the due-on-sale clause is well-established and its enforcement is supported by clear legal authority. The situation is somewhat different for notes secured by contracts for deed. In a contract for deed, the seller retains legal title to the property, and the buyer holds equitable title — essentially the right to purchase the property upon full payment. Because the buyer does not hold legal title, a transfer of the buyer's equitable interest is a legally distinct event from a sale of property secured by a deed of trust.

Most well-drafted contracts for deed include provisions restricting the buyer's ability to assign or transfer their interest without the seller's consent. These provisions function similarly to a due-on-sale clause but are governed by different legal principles. The enforceability of these restrictions can be more complex under Texas law, particularly given the buyer protections in Chapter 5 of the Texas Property Code. If your note is secured by a contract for deed and you are concerned about unauthorized transfers, consulting with a Texas real estate attorney who has experience with contract for deed transactions is advisable.

The Buyer's Right to Convert

An additional complication for contract for deed holders is the buyer's right to convert the contract for deed into a deed of trust arrangement under Section 5.081 of the Texas Property Code. Once the buyer has paid 40 percent of the purchase price or made 48 monthly payments, they can demand conversion. After conversion, the transaction is restructured as a traditional deed of trust arrangement, and the standard due-on-sale framework applies. If you are holding a contract for deed that is approaching the conversion threshold, understanding how conversion affects your due-on-sale protections is important planning consideration.

How the Due-on-Sale Clause Affects Note Value and Marketability

A Positive Factor for Note Buyers

When note buyers evaluate a Texas land note for purchase, the presence of a properly drafted due-on-sale clause is a positive factor that supports the note's value. The clause provides the buyer with the same protections it provides you — the ability to prevent unauthorized transfers and maintain control over who is responsible for the debt. A note without a due-on-sale clause is less attractive to buyers because it means the borrower could sell the property to anyone without the note holder's knowledge or consent, fundamentally changing the risk profile of the investment. If your note lacks a due-on-sale clause, this deficiency will likely be reflected in a lower purchase price.

Longhorn Note Buyers evaluates the due-on-sale clause as part of their standard due diligence process when purchasing Texas land notes. With over $46 million in Texas notes purchased since 2007, they have encountered every variation of due-on-sale language and understand how it affects note value. Whether your clause is standard, customized, or missing entirely, Longhorn can evaluate the situation and provide a fair quote that reflects the note's actual risk profile.

Implications for Selling Your Note

When you sell your note, the due-on-sale clause transfers to the buyer along with all other rights under the deed of trust. The new note holder steps into your shoes and has the same right to enforce the clause if an unauthorized transfer occurs. This is a seamless transfer that does not require any additional action by the borrower — it happens automatically as part of the note assignment. Understanding this can be reassuring for note holders who are considering selling their note, as it means the protections they built into the original deal will continue to benefit whoever holds the note going forward. For more on how the note selling process works, our guide on how to sell your land note in Texas covers the complete process.

Common Scenarios Involving Due-on-Sale Clauses in Texas

The Borrower Sells Without Telling You

Perhaps the most common scenario is discovering after the fact that the borrower sold the property without obtaining your consent. You might learn about this through a title search, a change in the mailing address for property tax bills, a call from the new property owner, or a review of county deed records. When this happens, you need to evaluate the situation quickly. Who is the new owner? Are payments still being made? What is the current value of the property relative to the note balance? Based on your assessment, you can decide whether to enforce the clause and accelerate the note, negotiate with the new owner to formally assume the note, or consent to the transfer if you are comfortable with the new owner's creditworthiness.

The Borrower Wants to Sell and Asks for Your Consent

A more cooperative scenario is when the borrower approaches you before selling and asks for your consent to the transfer. This gives you the opportunity to evaluate the proposed new owner, negotiate the terms of the assumption (including potentially adjusting the interest rate or requiring additional down payment), and ensure that the transfer is documented properly. Handling the transfer proactively is almost always better than discovering it after the fact, and it preserves the professional relationship between you and the borrower. If the borrower is selling because they can pay off the note in full from the sale proceeds, the due-on-sale clause becomes a payoff rather than a transfer issue, and the process is straightforward.

Transfer to a Family Member or Entity

One of the most sensitive scenarios involves a borrower who wants to transfer the property to a family member, a trust, or an LLC. These transfers may be motivated by estate planning, asset protection, tax planning, or simply family convenience. As discussed above, some of these transfers are protected by the Garn-St Germain Act exceptions and cannot trigger the due-on-sale clause. Others may be outside the exceptions and are subject to your enforcement rights. The key is to evaluate each transfer individually, understand whether an exception applies, and make a decision that protects your interests while being fair to the borrower. If you are uncertain whether a particular transfer falls within an exception, seeking legal advice before taking action is the wise course.

Best Practices for Texas Land Note Holders Regarding Due-on-Sale

Review Your Documents

The first step is to review your deed of trust or contract for deed to confirm that a due-on-sale clause exists and understand its specific terms. If your document does not include a due-on-sale clause, consider whether a modification is possible (it would require the borrower's agreement). If the clause is present, make sure you understand its scope — what types of transfers it covers, whether it requires written consent for any transfer, and what your options are upon discovering a violation. Having a clear understanding of your rights puts you in the strongest position to exercise them effectively.

Monitor Property Ownership

Periodically checking the county deed records for the property securing your note is a prudent practice that can alert you to unauthorized transfers early. Many Texas counties have online deed search tools that make this easy to do from your computer. If you use a professional loan servicer, ask whether they offer title monitoring as part of their service. Early detection of an unauthorized transfer gives you the most options and the strongest legal position for enforcement. Discovering a transfer years after the fact complicates the situation and may expose you to waiver arguments.

Consult a Professional Before Taking Action

Before enforcing or waiving your due-on-sale clause, consider consulting with a Texas real estate attorney who can review the specific facts of your situation, advise you on whether any Garn-St Germain exceptions apply, and help you take the appropriate action. The cost of a legal consultation is modest compared to the potential consequences of enforcing the clause improperly or failing to enforce it when you should. An attorney can also help you draft consent letters, assumption agreements, or enforcement notices that protect your rights and comply with Texas law. For note holders who are considering selling their note, understanding the due-on-sale clause and any pending transfer issues is important preparation for assembling the documents needed to sell.

Ready to Sell Your Note?

Whether your Texas land note has a robust due-on-sale clause or you are dealing with the complications of an unauthorized transfer, Longhorn Note Buyers can help. With over $46 million in Texas notes purchased since 2007 and a 100 percent close rate on every deal they quote, Longhorn has the experience to evaluate notes with complex due-on-sale situations and provide fair offers. 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 within 24 hours. No matter how complicated your situation, Longhorn has seen it before and can help you find the best path forward.

Frequently Asked Questions

Can I enforce the due-on-sale clause if the borrower transfers the property to a family member?

It depends on the specific circumstances. The Garn-St Germain Act provides exceptions for certain family-related transfers, including transfers to a spouse or children of the borrower and transfers resulting from the death of the borrower where a relative will occupy the property. If the transfer falls within one of these exceptions, you cannot enforce the due-on-sale clause regardless of what your deed of trust says. If the transfer does not fall within an exception — for example, a transfer to a sibling, cousin, or business partner — you generally have the right to enforce the clause. The specific facts matter, and consulting with an attorney before taking action is advisable.

What happens if I do not enforce the due-on-sale clause after discovering a transfer?

If you discover an unauthorized transfer and take no action, you risk the legal argument that you have waived your right to enforce the clause. The longer you wait, the stronger the waiver argument becomes, particularly if the new owner has been making payments and relying on the lack of enforcement. To protect yourself, either enforce the clause promptly or provide written consent to the transfer. Do not leave the situation in limbo, as the uncertainty benefits no one and can weaken your legal position over time.

Does the due-on-sale clause apply if the borrower refinances?

A refinance typically involves the borrower obtaining a new loan and using the proceeds to pay off your note in full. In this case, the due-on-sale clause is not really the relevant mechanism — the borrower is simply paying off the note, which they have the right to do (absent a prepayment penalty provision). The result is the same as any payoff: you receive the full remaining balance, and your lien is released. The due-on-sale clause would be relevant if the borrower attempted to transfer the property to a new owner who then sought to refinance — in that case, the transfer itself could trigger the clause before the refinance takes place.

Is a due-on-sale clause required in Texas land notes?

No, a due-on-sale clause is not legally required in Texas land notes. It is an optional provision that is included at the discretion of the parties (typically at the seller's or lender's insistence). However, it is considered a best practice and is included in virtually all professionally drafted deeds of trust. A note without a due-on-sale clause leaves the note holder vulnerable to unauthorized transfers that change the risk profile of the note without any recourse. If you are creating a new owner-financed deal, including a due-on-sale clause in the deed of trust is strongly recommended.

How does the due-on-sale clause affect the price I receive when selling my note?

The presence of a standard due-on-sale clause is a positive factor that supports the value of your note on the secondary market. Note buyers want the same protections that you have — the ability to prevent unauthorized transfers and maintain control over the borrower relationship. A note without a due-on-sale clause is less attractive to buyers because it carries additional transfer risk, which will typically result in a lower purchase price. If your note has a well-drafted due-on-sale clause and there are no pending transfer issues, this is a positive feature that contributes to a stronger offer from buyers like Longhorn Note Buyers.