Contract for Deed in Texas: How It Works

A contract for deed is a form of owner financing in which the seller keeps legal title to the property until the buyer finishes paying, and the buyer takes possession and equitable title in the meantime. It is also called a land contract or an executory contract. The buyer makes payments to the seller over a set term under a written contract; legal title transfers only when the contract is satisfied. In Texas, contracts for deed are regulated under Tex. Property Code §5.061.

On a contract for deed, the seller keeps the deed until the very last payment. That one fact changes who holds title, who pays the tax, and how default works.

The short version

A contract for deed is owner financing where the seller keeps legal title until the buyer pays in full; the buyer gets equitable title and possession now.
It is also called a land contract or an executory contract, the same thing.
Default does not run through the §51.002 deed-of-trust foreclosure; the seller has to follow the executory-contract notice rules.
In Texas it is regulated under Tex. Property Code §5.061, with required annual statements and notices.

	Contract for deed	Deed-of-trust note
Legal title	Stays with the seller until paid in full	Transfers to the buyer at closing
Buyer holds	Equitable title and possession	Legal title, subject to the lien
Default path	Executory-contract notices under §5.061, not §51.002	Non-judicial foreclosure under §51.002
Texas rule	Tex. Property Code §5.061	Tex. Property Code §51.002

This is educational information, not legal, financial, or tax advice. Consult a licensed professional about your specific situation.

What is a contract for deed?

A contract for deed is a written agreement in which the seller of real property finances the buyer's purchase directly and keeps legal title until the buyer pays the contract in full. The buyer takes possession at signing and holds equitable title, which is an ownership interest that grows as the buyer pays down the balance. The two parties are sometimes called the seller and the purchaser, or the vendor and the vendee.

The structure separates two things that a conventional sale combines. In a conventional closing, the buyer takes legal title on day one and the lender records a lien. Under a contract for deed, the buyer gets use and possession of the property immediately, but legal title stays with the seller as security until the final payment. The deed is delivered only at satisfaction.

Texas treats a contract for deed as an executory contract for the conveyance of real property and regulates it under Tex. Property Code §5.061 through §5.085. Those sections set out the seller's disclosure, accounting, and notice duties and the buyer's protections. It is a regulated instrument with statutory formalities, not a handshake deal.

Is a contract for deed the same as a land contract?

Yes. Contract for deed, land contract, and executory contract are three names for the same structure. The terminology varies by region and by the document drafter, but the mechanics are identical: the seller carries the financing and keeps legal title until the buyer pays in full, while the buyer holds equitable title and possession. Texas regulates all of them under Tex. Property Code §5.061.

How does a contract for deed work?

Under a contract for deed, the seller and buyer sign a written contract that sets the price, the down payment, the interest rate, the term, and the payment schedule. The buyer takes possession and pays the seller directly over the term. The seller holds legal title as security until the buyer pays the contract in full; at satisfaction, the seller delivers the deed and legal title transfers. Because the seller carries the financing, the seller takes on lender-of-record duties: posting payments, keeping records, and reporting mortgage interest to the buyer each year on IRS Form 1098.

The sequence runs in a predictable order:

Signing. The seller and buyer execute the written contract, with all §5.069 statutory disclosures attached. The buyer pays the down payment and takes possession.
The term. The buyer pays the seller on the agreed schedule. The seller posts each payment, tracks the principal and interest split, and keeps the records the statute requires.
Annual reporting. Each year the seller reports mortgage interest to the buyer on IRS Form 1098 and, in Texas, delivers the §5.077 annual statement showing what was paid and what remains.
Satisfaction. When the buyer pays the contract in full, the seller executes and delivers the deed. Legal title transfers and the contract is closed out.

The industry commonly originates owner-finance paper with a 20% down payment, an interest rate near 10%, and a 15-year fully amortizing term, written through a licensed RMLO, with the balance paying to zero over the life of the contract. That is what the market typically does, not advice about your own deal. Route the structure of any specific deal to a licensed RMLO or a real estate attorney.

How is a contract for deed different from a deed of trust?

A deed of trust is the standard Texas residential mortgage structure: the buyer takes legal title at closing, the seller records a lien, and default and foreclosure proceed non-judicially under Tex. Property Code §51.002. A contract for deed keeps legal title with the seller until the contract is satisfied, and the buyer holds equitable title and possession. The two structures have different default mechanics, different consequences when a buyer stops paying, and different tax treatment.

The choice between them is made at closing on a real estate attorney's advice. For the side-by-side comparison and when each structure tends to be used, see the owner finance servicing complete guide.

Who pays the property tax on a contract for deed?

On a contract for deed, the buyer in possession usually bears the economic cost of the property tax, but the bill is often issued in the seller's name because the seller still holds legal title in the county records. The contract itself states who is responsible for the tax and whether it is collected through escrow. This is the single point that catches the most people off guard.

Three facts drive how the tax is handled:

Legal title sits with the seller during the term. Until the buyer pays in full and the deed is delivered, the seller is the record owner, so the county may address the tax statement to the seller.
The buyer in possession typically pays the tax economically. The contract usually obligates the buyer to fund the property tax, either directly or by paying into an escrow the seller administers.
An unpaid tax bill threatens both parties. A tax lien attaches to the property regardless of which party was supposed to pay. If the tax goes delinquent, the seller's title and the buyer's equity are both exposed.

When the contract escrows, the tax piece is administered the same way a deed-of-trust escrow works. The servicer accrues the tax monthly from the buyer's payment, holds it in trust, and disburses it to the county tax assessor before the deadline so nothing lapses. Texas property tax bills arrive in October or November from the county tax assessor with a January 31 due date; escrow exists so that bill is paid on time and reconciled at the annual escrow analysis. For the mechanics of how property tax escrow runs on a Texas note, see the Texas property tax escrow page.

If the contract does not escrow, the buyer pays the county directly, and the seller monitors to confirm the tax was paid. A lapse here is high-risk: an unpaid tax bill can mature into a tax foreclosure that wipes out both the seller's title and the buyer's equity. Many sellers escrow taxes on a contract for deed precisely to keep that risk off the table.

Who pays for hazard insurance on a contract for deed?

Insurance follows the same logic as the tax. The property has to stay insured throughout the term because both parties have an interest in it: the seller holds legal title and the buyer holds possession and equity. The contract states who carries the policy and whether the premium is escrowed. When insurance is escrowed, the servicer accrues the premium monthly and pays the carrier on schedule, and monitors coverage so a lapse does not go unnoticed. A casualty loss on an uninsured property is one of the most common ways a contract for deed ends in a dispute.

Is a contract for deed legal in Texas?

Yes. Contracts for deed are legal in Texas and are regulated under Tex. Property Code §5.061. Both state and federal rules can apply, and which ones govern a given contract turns on the property and the parties. The 2005 reforms to the executory-contract chapter strengthened the buyer's protections substantially, so a Texas contract for deed today carries real statutory formality. For the full framework, see the Texas seller-finance regulations guide.

The headline statutory duties for the seller are:

§5.069 disclosures before signing, covering the legal description, the price, any liens, the current tax bill, and the seller's insurance situation.
§5.077 annual accounting, an annual statement to the buyer each January showing amounts paid, the balance owed, payments remaining, and taxes and insurance paid.
Notice and cure before forfeiture or cancellation, with the statute setting the cure period and the form of notice.
Equity protection that changes the seller's remedy once the buyer has paid down enough of the contract or once the contract is recorded.

Failure to comply can expose the seller to rescission, statutory penalties, and loss of the seller's remedies under the contract.

How common is seller financing in Texas?

Texas accounts for 24.7% of all U.S. seller-financed notes, the #1 state, roughly three times Florida (NoteInvestor / Advanced Seller Data Services, 2025). Contracts for deed are one structure within that broader seller-finance market, alongside deed-of-trust notes. The volume reflects a deep pool of buyers who can make a monthly payment but cannot pass a conventional underwriting engine, and a developer ecosystem that sells land and lots on owner-finance terms.

What happens if the buyer stops paying on a contract for deed?

Default on a contract for deed does not run through the §51.002 non-judicial foreclosure process used for a deed of trust; the contract-for-deed structure under §5.061 governs instead. The seller has to give the required notices, and the notice work has to be exact. A defective notice can reset the process.

The remedy depends on how far the buyer has paid in:

Above the equity threshold, or once the contract is recorded. The seller can no longer simply terminate the contract and keep the payments. The statute requires the seller to proceed through a foreclosure-style sale instead, with any surplus returned to the buyer.
Below that threshold, on an unrecorded contract. The seller's notice-and-cure forfeiture path is available.

The line between those two remedies is statutory and fact-specific, so a default is worth routing to a real estate attorney who handles the notices. For the statutory background on how a Texas foreclosure proceeds, see default and foreclosure servicing and the Texas foreclosure timeline.

Can a contract for deed be serviced?

Yes. A servicer can perform the lender-of-record work on a contract for deed on the seller's behalf: posting payments, keeping records, sending the buyer IRS Form 1098 each year, and administering property taxes and insurance if the contract escrows. Moat is a licensed Texas mortgage servicer, bonded, NMLS 1419346, and services contracts for deed secured by Texas property only. It is a servicer, not an originator; drafting the contract is regulated origination work that runs through a Texas-licensed RMLO.

Moat boards performing contracts only. If a serviced contract later goes into default, Moat keeps servicing it; foreclosure is handled only when the seller separately elects foreclosure services. If a serviced loan reaches roughly 120 days delinquent with no resolution and no instruction to foreclose, Moat offboards it, because it cannot carry non-performing paper.

If your property is outside Texas, tell us the state at request your state and we will point you in the right direction. If you carried the note yourself on Texas property, the what to do after you sell with owner financing guide walks through the seller's duties.

What does it cost to service a contract for deed in Texas?

Servicing runs $35/month for a non-escrowed note and $40/month for an escrowed note, with a one-time $150 setup. The full schedule is published up front and there is no contract; you give 30-day notice to terminate. Boarding a note typically takes 5 to 10 business days; a paid $50 expedite carries a firm 48-hour commitment. See the full Texas note servicing fee schedule for payoff, NSF, and other line items.

Contract for deed, answered

What is a contract for deed?

A contract for deed is owner financing in which the seller keeps legal title until the buyer finishes paying, while the buyer takes possession and equitable title. It is also called a land contract or executory contract. The buyer pays the seller over a set term under a written contract, and legal title transfers only at satisfaction. In Texas it is regulated under Tex. Property Code §5.061.

Is a contract for deed the same as a land contract?

Yes. Contract for deed, land contract, and executory contract are different names for the same structure: the seller carries the financing and keeps legal title until the buyer pays in full, while the buyer holds equitable title and possession. Texas regulates these arrangements under Tex. Property Code §5.061.

Who pays the property tax on a contract for deed?

On a contract for deed, the buyer in possession usually bears the economic cost of the property tax, but the bill is often issued in the seller's name because the seller still holds legal title. The contract states who is responsible and whether taxes are escrowed. When a servicer administers escrow, the tax amount is accrued monthly from the buyer's payment and disbursed to the county before the January 31 deadline.

Is a contract for deed legal in Texas?

Yes. Contracts for deed are legal in Texas and regulated under Tex. Property Code §5.061. Under a contract for deed the seller keeps legal title until the buyer pays in full, and the buyer holds equitable title and possession. Default does not run through the §51.002 non-judicial foreclosure process used for a deed of trust.

How does default work on a contract for deed in Texas?

Default on a Texas contract for deed does not run through the §51.002 non-judicial foreclosure process used for a deed of trust. The seller has to give the required notices before the contract can be terminated. The notice work has to be exact; a defective notice can reset the process.

How does a contract for deed work step by step?

The seller and buyer sign a written contract setting the price, down payment, interest rate, term, and payment schedule. The buyer takes possession and pays the seller over the term while the seller holds legal title as security. Each year the seller reports mortgage interest to the buyer on IRS Form 1098 and, in Texas, delivers the §5.077 annual statement. When the buyer pays in full, the seller delivers the deed and legal title transfers.

Have a Texas contract for deed to service? Schedule a consultation and we'll review your loan documents and quote the boarding. Moat services notes secured by Texas property only; out-of-state holders can use request your state.