Texas Contract for Deed: The Executory Contract Rules Under Property Code Subchapter D

Texas Property Code Chapter 5, Subchapter D (§§ 5.061–5.087) governs the "contract for deed" — a seller-financed sale where the seller keeps legal title and only delivers the deed after the buyer finishes paying, instead of transferring title at closing the way a mortgage or a TREC 26-8 seller-financed deal does. Texas loads this structure with unusually heavy consumer-protection rules: mandatory pre-signing disclosures, a strict notice-and-cure process before a seller can take the property back, an unconditional 14-day cancellation right, and several separate paths to get the buyer into recorded title. This page describes what the statute says. It is not legal advice. Executory contracts carry real regulatory risk for the seller — consult a Texas real estate attorney before using one, and before relying on this page to structure or unwind a specific deal.

What makes a deal an "executory contract" under this subchapter

Section 5.061 defines "default" for the subchapter as the failure to make a timely payment or to comply with a contract term. Section 5.062(a) sets the scope: the subchapter applies only to an executory contract for property "used or to be used as the purchaser's residence" — or the residence of someone related to the purchaser within the second degree by consanguinity or affinity, computed under Government Code Chapter 573. Two rules apply for this subchapter specifically:

• A lot of one acre or less is presumed to be residential property, for purposes of this subchapter only.
• An option to purchase that's combined with, or executed at the same time as, a residential lease — a lease-purchase or rent-to-own structure — is itself treated as an executory contract, together with the lease.

That second point matters: a rent-to-own arrangement isn't outside this statute just because it's papered as a lease with an option, rather than a straight installment sale.

What's exempt from this subchapter entirely

Section 5.062(b) and (c) carve out three categories where none of Subchapter D applies:

1. The sale of state land.
2. A sale of land by the Veterans' Land Board, the State of Texas or a political subdivision, or an entity created to act on their behalf.
3. An executory contract that delivers the deed within 180 days of the contract's final execution — a short-term close-out structure falls outside the subchapter regardless of the payment terms.

The related-party carve-outs

Two more provisions narrow the subchapter for family transactions and short lease-purchases, and they're easy to conflate with each other:

• § 5.062(d) — waiver between close relatives. If the purchaser is related to the seller within the second degree by consanguinity or affinity, and the parties waive it in a written agreement, § 5.066 (equity protection) and §§ 5.068–5.080 (disclosures, cancellation right, default/cure process, recording, accounting, title-transfer duties) don't apply. Both conditions — the relationship and the written waiver — are required; the relationship alone doesn't waive anything.
• § 5.062(e) — unconditional exclusion for lease-purchase contracts. For any lease-purchase contract under § 5.062(a)(2) — a rent-to-own deal, of any term length, with no duration condition at all — §§ 5.066 (equity protection), 5.067, 5.071, 5.075, 5.079, 5.081 (conversion rights), and 5.082 (payoff-balance request) don't apply. This isn't tied to how long the lease runs; it applies the moment a deal is a § 5.062(a)(2) lease-option.
• § 5.062(f)-(g) — additional narrowing for short lease-purchase contracts. Layered on top of the § 5.062(e) exclusion above, a lease-purchase contract under § 5.062(a)(2) with a term of three years or less — where the parties (or their assignees, agents, or affiliates) haven't already had a longer executory contract on the same property — is narrowed further, to only a short list of sections: §§ 5.063–5.065 (notice and cure), § 5.073 except (a)(2) (prohibited terms, minus the no-prepayment-penalty rule), and §§ 5.083 and 5.085 (improper-platting cancellation and fee-simple-title maintenance). Where this narrower list conflicts with another part of the subchapter, the narrower list wins — except it never overrides the § 5.062(b) exemptions.

What the seller must disclose before the buyer signs

Three separate disclosure duties run before the purchaser signs the contract, and each has its own consequence for skipping it:

• § 5.069 — property condition. A survey or plat completed within the past year; legible copies of any document describing an encumbrance, restrictive covenant, or easement affecting title; and a written notice, attached to the contract, in the statute's own box-check format warning the purchaser "IF ANY OF THE ITEMS BELOW HAVE NOT BEEN CHECKED, YOU MAY NOT BE ABLE TO LIVE ON THE PROPERTY." The checked items cover: recorded-subdivision status, potable water service, sewer service, septic-system approval, electric service, floodplain status, who maintains the access roads, confirmation that no other party has an ownership claim, lien, or interest, and confirmation there's no restrictive covenant or easement blocking construction of a house. If the property isn't in a recorded subdivision, the seller must give a separate notice that utilities may not be available until it's recorded, and any advertisement for the property must disclose water, sewer, and electric service availability.
• § 5.070 — taxes and insurance. A tax certificate from the collector for every taxing unit that assesses the property, and a legible copy of the insurance policy or binder showing the insurer, the insured, the property description, and the coverage amount.
• § 5.071 — financing terms. A written statement of the purchase price, the interest rate, the total interest to be paid (or an estimate, if the rate is variable), the total principal and interest to be paid, any late charge, and a statement that the seller may not charge a prepayment penalty.

Failing to provide the § 5.069 or § 5.070 disclosures is a false, misleading, or deceptive act or practice under DTPA § 17.46, and entitles the purchaser to cancel and rescind the contract and get a full refund of everything paid. If negotiations were conducted primarily in a language other than English, § 5.068 requires the seller to provide every transaction document — the contract, disclosures, annual statements, default notices — in that language too.

No side deals — everything has to be in the written contract

Section 5.072 makes an executory contract unenforceable unless it's written and signed. Prior oral agreements are superseded and merged into the written contract, and the contract can't be varied by anything said before or at signing. The seller has to include a 14-point bold statement, printed in the contract or a separate document, reading substantially: "THIS EXECUTORY CONTRACT REPRESENTS THE FINAL AGREEMENT BETWEEN THE SELLER AND PURCHASER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES." Skipping that statement carries the same DTPA/cancel-and-refund consequence as the disclosure failures above.

Contract terms Texas law won't let a seller include

Section 5.073(a) bans five specific provisions from the contract outright:

1. A late-payment fee exceeding the lesser of 8% of the monthly payment, or the actual administrative cost of processing the late payment.
2. A provision prohibiting the purchaser from pledging their interest in the property to secure a loan for improvements — including utility or fire-protection improvements.
3. A prepayment penalty or similar fee for paying off the contract early.
4. Forfeiture of an option fee or other option payment for a late payment.
5. Any price increase, fee, or other penalty against a lease-option purchaser for requesting repairs or exercising a right under Chapter 92 (the residential landlord-tenant chapter).

Section 5.073(b) goes further: any contract provision that purports to waive a right, or exempt a party from a liability or duty, under this subchapter is void — a seller can't draft around these protections.

The buyer's unconditional 14-day right to cancel

Separate from any default-related right, § 5.074 gives the purchaser an unconditional right to cancel and rescind the contract for any reason within 14 days of the contract date, by delivering signed written notice in person or by telegram, certified, or registered mail. If the purchaser cancels, the seller has 10 days to return the executed contract and any property or payments exchanged, and to cancel any resulting security interest. The seller must post a 14-point bold notice next to the signature line naming the cancellation deadline, and must provide a statutory Notice of Cancellation form at signing — and may not ask the purchaser to waive receipt of that form.

Default, notice, and the right to cure

Before a seller can enforce rescission or forfeiture-and-acceleration against a defaulting purchaser, § 5.064 requires all four of the following:

1. The seller notified the purchaser, under § 5.063, of the intent to enforce a remedy and of the purchaser's right to cure within 30 days.
2. The purchaser failed to cure within that 30-day period.
3. Section 5.066 (equity protection, below) does not apply.
4. The contract has not been recorded.

The § 5.063 notice itself has strict form requirements: written, sent by registered or certified mail return receipt requested, in 14-point boldface or uppercase type, with the statute's own "NOTICE... UNLESS YOU TAKE THE ACTION SPECIFIED IN THIS NOTICE BY (date) THE SELLER HAS THE RIGHT TO TAKE POSSESSION OF YOUR PROPERTY" language on a separate page — plus specifics on the remedy sought and, for a payment default, an itemized breakdown of the delinquent amount. Section 5.065 gives the purchaser 30 days from that notice to cure by complying with the contract, "notwithstanding an agreement to the contrary" — this cure right can't be waived by contract. Separately, § 5.067 makes clear that a lien placed on the property for utility-service improvements does not itself count as a default.

Equity protection — once the buyer has real equity, forfeiture is off the table

Section 5.066 is the subchapter's central consumer protection. Once a defaulting purchaser has paid 40% or more of the amount due, or the equivalent of 48 monthly payments, or — regardless of how much has been paid — the contract has simply been recorded, the seller loses the right to forfeit the purchaser's interest outright. Instead, the seller must sell the property through a trustee, using a process modeled on a mortgage foreclosure: a substitute 60-day cure notice, posting/filing/serving a notice of sale under § 51.002, a trustee-conducted sale that conveys clear fee-simple title, and — critically — any sale proceeds above the remaining contract balance go back to the purchaser. If the purchaser defaults before reaching that 40%/48-payment threshold, the seller can still use the ordinary rescission/forfeiture process under §§ 5.063–5.064.

Ongoing seller duties for the life of the contract

• § 5.076 — recording. The seller must record the executory contract, with the § 5.069 disclosure attached, within 30 days of execution, and must record the terminating instrument if the contract ends. Skipping this makes the seller liable to the purchaser the same way a § 5.079 title-transfer violation does, capped at $500 per calendar year of noncompliance.
• § 5.077 — annual accounting statement. Every January, the seller must send the purchaser a statement (postmarked by January 31, if mailed) showing the amount paid, the remaining balance, payments remaining, any tax and insurance amounts the seller collected and paid on the purchaser's behalf, an accounting of any insurance proceeds applied to the property, and a current policy copy if coverage changed. A seller doing fewer than two of these transactions a year who misses this owes $100 in liquidated damages per missed statement; a seller doing two or more owes $250 a day past January 31 (capped at the property's fair market value) — plus attorney's fees either way. This duty continues even after the purchaser gets title.
• § 5.078 — insurance proceeds. The named insured must tell the insurer about the executory contract and the other party within 10 days of getting coverage or signing. Casualty proceeds must be issued jointly to purchaser and seller, and must be used to repair, remedy, or improve the property — not diverted elsewhere.

Getting to title: three different paths, not one automatic trigger

It's a common assumption that a contract for deed converts to a warranty deed automatically once the buyer has paid enough. The statute doesn't work that way. There are three separate mechanisms, and they don't overlap the way that assumption implies:

1. § 5.066 equity protection (above) changes how the seller can take the property back on default — it does not transfer title to the purchaser at any point. It only forces a trustee sale instead of forfeiture.
2. § 5.081 — right to convert, at any time. The purchaser can convert their interest into recorded legal title whenever they want, with no payment-percentage or payment-count requirement, either by tendering the full remaining balance, or by delivering a promissory note matching the contract's balance, interest rate, due dates, and late fees and simultaneously executing a deed of trust. The seller has 10 days to either give a written legal justification for refusing, or schedule the closing. Using TREC's published forms for this transaction satisfies the section. Once both documents are executed, the executory contract is "considered completed" and "has no further effect."
3. § 5.079(a) — the seller's duty on final payment. If the contract hasn't already been recorded or converted under § 5.081, the seller must transfer recorded legal title within 30 days of receiving the purchaser's final payment — the 100% point, not a threshold. Missing that deadline triggers liquidated damages of $250/day for days 31–90, then $500/day after day 90, plus attorney's fees.

Separately, § 5.082 gives the purchaser a right to request a written payoff balance and (if applicable) the seller's proposed trustee for a § 5.081 closing, with a 10-day response window and a fallback process if the seller doesn't respond.

More buyer protections

• § 5.083 — improper platting. If the purchaser learns the seller never properly subdivided or platted the property, the purchaser can cancel and rescind at any time. The seller then has 10 days to notify an intent to properly plat (with up to 90 days to actually do it) or must refund every payment made plus reimburse taxes paid and the value of any improvements — and can't remove the purchaser from the property until that payment happens.
• § 5.084 — right to deduct. If the seller owes the purchaser money under this subchapter, the purchaser can deduct it directly from what's owed to the seller, without going to court first.
• § 5.085 — fee-simple title requirement. A seller can't execute an executory contract without owning the property in fee simple, free of liens, and must keep it that way for the entire contract term. There's a narrow, multi-part carve-out for a specific pre-existing purchase-money lien the seller placed before signing — but it only applies if the seller gives detailed advance written disclosure, the lien is capped at the purchaser's outstanding balance and tied only to this property, the lienholder agrees to deal directly with the purchaser on default, and the contract itself contains matching payment, notice, and cure covenants. A violation is a DTPA violation with the same cancel/refund/reimburse remedy as § 5.083.

Section 5.080 makes clear that any of these disclosures, when made by the seller's agent, counts as if the seller made it directly — an agent can't shield the seller from the disclosure duties by being the one who (fails to) deliver them.

A related disclosure duty for anyone selling an option on, or assigning an interest in, a contract for deed without holding legal title now lives at § 5.0205 (Subchapter A) — it was relocated there from this subchapter's former § 5.086, effective 2024-01-01. That's directly relevant to a TC handling an assignment or flip of a contract-for-deed interest: the seller of that option or assignor of that interest owes the buyer a written disclosure before the contract is signed.

Contract for deed vs. the TREC 26-8 seller financing addendum

These are two different structures for the same underlying idea — the seller acting as the lender — and it's worth being precise about which one a given deal actually is. The TREC 26-8 Seller Financing Addendum attaches to a standard purchase contract where the seller finances all or part of the price, but the buyer still gets a deed at closing and the seller secures repayment with a deed of trust — the same basic security instrument a bank would use. Subchapter D's executory contract, by contrast, is a deal where the seller keeps legal title and only conveys it later, contingent on the buyer finishing payment (or converting under § 5.081). A "contract for deed" is the term most people use for this Subchapter D structure specifically. If a deal is being negotiated as owner financing, confirming which of these two structures is actually being used — deed-and-deed-of-trust at closing, versus a true executory contract — determines which set of statutory rules and disclosures applies.

Why this matters for a TC

Executory contracts show up in a narrow but recurring set of files: rent-to-own deals, family sales structured as installment purchases, and lower-priced properties where the buyer can't qualify for conventional financing. The disclosure list, the notice-and-cure sequence, and the equity-protection threshold are all places where a seller can inadvertently expose themselves to DTPA liability or lose the forfeiture remedy they were counting on. This page describes what the statute requires; it doesn't tell you whether a specific file is structured correctly — that determination belongs to a Texas real estate attorney before the contract is signed, not after a default happens.