Texas Property Code Chapter 5 and Contracts for Deed: Seller Obligations

Texas promissory note holders who want to convert their future payments into a lump sum of cash can sell their note to a direct buyer and close in as little as two to four weeks. The process is straightforward: submit your note details, receive a cash offer within 24 hours, and close on your timeline. Longhorn Note Buyers, a San Antonio company that has been buying Texas notes since 1983 with more than $47 million purchased and a 100% close rate, provides same-day quotes and closes 100% of accepted offers with no fees.

This guide covers what Texas promissory note holders need to know about this topic, including the key factors that affect your options and how to get the best possible outcome.

What Is a Contract for Deed (Executory Contract) in Texas?

A contract for deed — referred to in Texas law as an "executory contract" — is a real estate transaction in which the seller agrees to convey title to the buyer after the buyer has completed all payments under the contract. Unlike a traditional sale with owner financing (where the buyer receives the deed at closing and the seller retains a lien through a deed of trust), a contract for deed means the seller retains legal title to the property throughout the payment period. The buyer has possession and equitable interest, but the deed is not transferred until the final payment is made.

Contracts for deed have a long history in Texas, particularly in rural areas and in transactions involving buyers who cannot qualify for traditional financing. They are especially common in land sales along the Texas-Mexico border and in rural counties where owner financing is the norm rather than the exception. However, the Texas legislature has determined that contracts for deed present unique risks to buyers — primarily the risk of losing their entire investment if they default near the end of the contract — and has responded with the detailed regulatory framework found in Chapter 5.

How Contracts for Deed Differ From Notes and Deeds of Trust

The key difference is the timing of deed delivery. In a traditional owner-financed transaction, the buyer receives the deed at closing, and the seller's security interest is protected by a deed of trust (or vendor's lien) recorded in the public records. If the buyer defaults, the seller forecloses on the lien. In a contract for deed, the buyer does not receive the deed until all payments are made. If the buyer defaults, the seller historically could simply cancel the contract and retake the property — without going through the foreclosure process.

This distinction matters because it creates an imbalance of power between the seller and buyer. A buyer under a contract for deed who has made years of payments but defaults near the end could lose everything — no equity, no deed, no property. Chapter 5 was enacted to address this imbalance and to provide contract-for-deed buyers with protections similar to those available to buyers who receive a deed at closing. For a detailed comparison of these structures, see our article on deed of trust vs contract for deed for Texas land.

Key Seller Obligations Under Chapter 5

Chapter 5 imposes numerous obligations on sellers who use contracts for deed. These obligations apply to residential property transactions (property used or to be used as the buyer's residence) and, in many cases, to non-residential transactions as well. Here are the most critical requirements.

Pre-Contract Disclosures (Section 5.069)

Before entering into a contract for deed, the seller must provide the buyer with specific written disclosures. These include a survey of the property or a current plat (or a statement that no survey exists), a legible copy of any liens or encumbrances on the property, a tax certificate showing the status of property taxes, a legible copy of any existing insurance policy, and a disclosure of the condition of the property and any known defects.

The seller must also provide a written disclosure statement that includes specific language prescribed by the statute, including information about the buyer's rights under the contract and the consequences of default. These disclosures must be provided before the contract is signed — not at closing, not after the fact, but before the buyer commits to the transaction.

Deed Delivery Within Specific Timeframes (Section 5.076-5.079)

One of the most significant Chapter 5 requirements is the deed delivery obligation. For residential property, if the buyer has paid 40% or more of the purchase price (or the equivalent of 48 monthly payments, whichever is less), the seller must transfer legal title to the buyer by delivering a deed. At that point, the transaction converts from a contract for deed to a traditional owner-financed arrangement with a deed of trust — the buyer gets the deed and the seller retains a lien.

Additionally, Texas Property Code Section 5.077 requires that the seller deliver the deed within 30 days of receiving the buyer's final payment under the contract. Failure to deliver the deed within this timeframe exposes the seller to damages. This delivery requirement is one of the most commonly violated provisions of Chapter 5, particularly among sellers who are unfamiliar with the law or who simply forget to execute and deliver the deed. Our article on Texas owner financing deed delivery requirements covers common mistakes sellers make with deed delivery.

Annual Accounting Statement (Section 5.077)

Each year, the seller must provide the buyer with a written annual accounting statement. This statement must include the amount paid under the contract during the preceding 12-month period, the remaining balance, the number of payments remaining, and any amounts owed for taxes, insurance, or other charges. The annual accounting statement must be delivered on or before January 31 of each year for the preceding calendar year.

Many sellers are unaware of this requirement or simply do not provide annual statements. This is a compliance gap that note buyers will identify during due diligence and that can affect the value of the contract for deed on the secondary market.

Recording Requirement (Section 5.076)

The seller must record the executory contract with the county clerk in the county where the property is located. This requirement ensures that the buyer's interest in the property is part of the public record and provides notice to third parties that the property is subject to a contract for deed. Failure to record the contract is a violation of Chapter 5.

Insurance and Tax Obligations

The seller is responsible for ensuring that property taxes are paid and that hazard insurance is maintained on the property throughout the term of the contract. If the buyer is making payments that include amounts for taxes and insurance, the seller must apply those amounts to their intended purposes. Misappropriating tax or insurance escrow payments is a serious violation that can give the buyer grounds to cancel the contract.

Restrictions on Forfeiture (Section 5.073-5.074)

Chapter 5 significantly limits the seller's ability to simply forfeit the buyer's interest and retake the property if the buyer defaults. For contracts where the buyer has paid less than 40% of the purchase price (or less than 48 monthly payments), the seller must follow specific notice and cure procedures before terminating the contract. For contracts where the buyer has paid 40% or more, the seller must go through a judicial or non-judicial foreclosure process — the same process that would apply if the transaction were structured as a deed of trust.

These forfeiture restrictions are one of the primary reasons Chapter 5 exists. They prevent sellers from using contracts for deed as a tool to extract payments from buyers without ever delivering the property — a practice that was historically common in some parts of Texas.

Penalties for Non-Compliance With Chapter 5

The penalties for violating Chapter 5 are severe and create significant risk for both the seller and any potential buyer of the contract.

Buyer's Right to Cancel

If the seller fails to comply with certain Chapter 5 requirements — particularly the disclosure requirements and the deed delivery obligations — the buyer may have the right to cancel the contract and recover all payments made. This is the most devastating penalty because it effectively unwinds the entire transaction. The buyer gets their money back, and the seller gets the property back (but has lost the income stream).

Liquidated Damages

For certain violations, Chapter 5 provides that the buyer may recover liquidated damages. The specific amount depends on the violation, but damages can be substantial — particularly if the violation persists over a long period.

Impact on Note Buyers

When you sell your vendor's interest in a contract for deed, the buyer steps into your shoes and assumes your obligations under Chapter 5 — including any liability for past non-compliance. This means that Chapter 5 violations do not disappear when you sell; they transfer to the new owner. Note buyers are acutely aware of this and will carefully evaluate Chapter 5 compliance as part of their due diligence. Significant compliance gaps will result in a lower offer or, in some cases, a refusal to purchase. Our article on selling the vendor's interest in a contract for deed explains how this process works.

Common Chapter 5 Compliance Failures

In our experience at Longhorn Note Buyers, the following are the most common Chapter 5 violations we encounter when evaluating contracts for deed.

Failure to Provide Pre-Contract Disclosures

Many sellers, particularly those who handled the transaction themselves without an attorney, never provided the required pre-contract disclosures to the buyer. This is the single most common violation and one of the most significant, because it can give the buyer the right to cancel the entire contract.

Failure to Record the Contract

Some sellers never recorded the executory contract with the county clerk. This leaves the buyer's interest unprotected against third-party claims and violates Chapter 5's recording requirement. If you have not recorded your contract for deed, record it now — even if it is years after the transaction.

Failure to Deliver Annual Accounting Statements

Many sellers do not provide the required annual accounting statements. While this violation is less severe than failing to provide pre-contract disclosures, it is still a compliance gap that note buyers will identify and that can reduce the value of the contract.

Failure to Deliver the Deed After 40% Threshold

Once the buyer has paid 40% of the purchase price (or 48 monthly payments, whichever is less), the seller must deliver a deed and convert the transaction to a deed of trust structure. Many sellers are unaware of this requirement or choose to ignore it. This is a serious violation that exposes the seller to the buyer's right to cancel the contract. If you believe your buyer has crossed the 40% threshold and you have not delivered a deed, consult a Texas real estate attorney immediately.

Fixing Chapter 5 Compliance Issues Before Selling

If you want to sell your vendor's interest in a contract for deed and you have compliance gaps, there are steps you can take to improve your position.

Provide Missing Disclosures Now

While the disclosures were required to be provided before the contract was signed, providing them now — even retroactively — is better than not providing them at all. It demonstrates good faith and may limit the buyer's ability to claim they were harmed by the non-disclosure.

Record the Contract if It Was Not Recorded

If the contract was never recorded, record it with the county clerk now. Late recording does not fix the past violation, but it protects the buyer's interest going forward and demonstrates compliance effort.

Begin Providing Annual Accounting Statements

Start providing annual accounting statements if you have not been doing so. Include a catch-up statement covering the period since the last statement (or since the contract began, if no statements have ever been provided).

Deliver the Deed if the 40% Threshold Has Been Met

If the buyer has paid 40% or more of the purchase price, deliver the deed and convert the transaction to a deed of trust structure. This is the most important corrective action you can take, because it eliminates the ongoing obligation to comply with many of Chapter 5's requirements (once the deed is delivered, the transaction is no longer an executory contract). Our Texas contract for deed compliance checklist can help you identify all the steps you need to take.

Consult a Texas Real Estate Attorney

If your compliance situation is complex — multiple violations, a long period of non-compliance, a buyer who may be aware of their rights — consulting an attorney is essential. An attorney can advise you on the best strategy for resolving compliance issues and minimizing your exposure before selling the contract. Our article on whether you need a lawyer to sell your note discusses when legal counsel is advisable.

Chapter 5 and the Decision to Use a Contract for Deed vs. a Deed of Trust

Given the extensive obligations that Chapter 5 imposes, many Texas sellers wonder whether they should have used a deed of trust structure instead of a contract for deed. The answer depends on the specific transaction, but here are some considerations that may be helpful for future transactions — or for understanding why your existing contract is structured the way it is.

When Contracts for Deed Make Sense

Contracts for deed can still make sense in certain situations. If the buyer cannot qualify for traditional financing and the seller wants to retain title as additional security until a significant portion of the purchase price is paid, a contract for deed provides that structure. In land transactions where the buyer intends to develop the property over time, contracts for deed are sometimes preferred because they allow the seller to maintain some control over the property during the development period.

However, the compliance burden of Chapter 5 has made many Texas sellers reconsider this structure. The disclosure requirements, annual accounting statements, deed delivery obligations, and forfeiture restrictions add significant administrative work and legal risk. Many Texas real estate attorneys now recommend using a deed of trust structure even in situations where a contract for deed was historically the norm.

Converting Mid-Transaction

If you currently have a contract for deed and want to simplify your situation, you can convert to a deed of trust structure at any time by delivering a deed to the property buyer and recording a deed of trust. This conversion eliminates most of the ongoing Chapter 5 obligations and creates a cleaner, more standard note that is easier to sell on the secondary market. If you are planning to sell your interest soon, converting first can result in a significantly better offer. Our guide on structuring owner finance to sell the note later discusses how the choice of structure affects future salability.

Sell Your Contract for Deed Interest to an Experienced Buyer

Contracts for deed in Texas are more complex than traditional notes and deeds of trust, and not every note buyer is equipped to handle them. You need a buyer with deep knowledge of Chapter 5, experience evaluating compliance issues, and the willingness to work with sellers to resolve problems and close transactions.

Longhorn Note Buyers has been purchasing Texas notes and contracts for deed since 2007, and founder Nick McFadin has been buying notes since 1983 — over 42 years of Texas note-buying experience. We have purchased more than $47 million in notes and contracts, and we understand Chapter 5 inside and out. We evaluate each contract for deed on its full merits, including the property value, payment history, remaining balance, and compliance status.

Our 100% close rate means we stand behind every offer we make. Our A+ BBB rating reflects our commitment to fairness and transparency. We provide a firm offer within 24 hours and handle all the closing documentation. Call Sandy McFadin at (210) 828-3573 or email sandy@longhornnotebuyers.com to get started.

Frequently Asked Questions

Does Chapter 5 apply to all contracts for deed in Texas?

Chapter 5's executory contract provisions apply primarily to residential property — property used or to be used as the buyer's residence. Some provisions also apply to non-residential transactions. The specific applicability depends on the property type and the nature of the transaction. For contracts for deed on commercial or purely investment property, some but not all of the Chapter 5 requirements may apply. A Texas real estate attorney can advise on the specific applicability for your contract.

Can I convert a contract for deed to a deed of trust structure in Texas?

Yes. In fact, Chapter 5 requires the conversion once the buyer has paid 40% of the purchase price or 48 monthly payments (whichever is less). Even if the threshold has not been met, you can voluntarily convert the transaction at any time by delivering a deed to the buyer and recording a deed of trust to secure the remaining balance. Converting eliminates many of the ongoing Chapter 5 obligations and simplifies the transaction for both parties — and for any future buyer of the note.

What happens if the buyer defaults on a contract for deed in Texas?

The seller's remedies depend on how much the buyer has paid. If the buyer has paid less than 40% of the purchase price (or less than 48 monthly payments), the seller must provide written notice and give the buyer a specified cure period before terminating the contract. If the buyer has paid 40% or more, the seller must go through a foreclosure process (judicial or non-judicial, depending on the contract terms) rather than simply canceling the contract. The specific procedures are set out in Chapter 5 and in the contract itself.

Will a note buyer purchase a contract for deed with Chapter 5 compliance issues?

Some note buyers will and some will not. Experienced Texas note buyers like Longhorn Note Buyers regularly evaluate contracts for deed with varying degrees of Chapter 5 compliance. The buyer will assess the severity of the compliance issues, the practical risk they create, and the cost of remediation. Significant compliance gaps will result in a lower offer to account for the additional risk, but many contracts for deed with compliance issues are still saleable.

Does Chapter 5 apply if the property is vacant land with no house?

Chapter 5's executory contract provisions apply primarily to residential property. If the contract for deed is for vacant land with no dwelling (and no intent for the buyer to use it as a residence), some of the Chapter 5 requirements may not apply. However, the definition of "residential property" can be broader than expected — for example, if the buyer intends to place a mobile home on the land and use it as their residence, Chapter 5 could apply. When in doubt, assume Chapter 5 applies and comply with its requirements to be safe.