If you sold a home or land in Texas and carried the financing, you can sell that note for a lump sum of cash. This guide covers the two ways Texas deals get written, the rules that matter, and how a sale works.
I buy Texas notes. Here's what I look at.
Short version: Most Texas owner financing uses a note and a deed of trust. Those sell well. Contracts for deed are a different animal in Texas. They come with strict rules, and a buyer will check every one.
Two kinds of Texas seller financing
1. A note with a deed of trust. This is the most common setup. You deed the property to the buyer at closing. They sign a real estate lien note and a deed of trust that secures it. You hold the lien. This is the cleanest kind of note to sell.
2. A contract for deed. Texas law calls this an executory contract. You keep title until the buyer pays in full. Texas has a whole set of rules for these when the home is the buyer's residence. They're in the Texas Property Code, Chapter 5, Subchapter D.
Not sure which one you have? Look at your closing papers. If the buyer got a deed at closing, you likely have a deed of trust. If you still hold title, it's a contract for deed.
Notes with a deed of trust
Texas is a nonjudicial foreclosure state. If a payer stops paying, the lender can usually foreclose without a lawsuit. The rules are in Property Code Section 51.002.
- Notice to cure. On a homestead, the payer gets written notice and at least 20 days to catch up.
- Notice of sale. After that, notice of the sale goes out at least 21 days ahead.
- Sale day. Foreclosure sales happen on the first Tuesday of the month at the county courthouse.
That process is faster and cheaper than in many states. It's one reason Texas deed of trust notes are attractive to buyers like me.
Contracts for deed in Texas
Texas tightened its contract for deed rules after years of abuse. If your contract covers a home the buyer lives in, here's what the law expects from the seller:
- Record it. The seller must record the contract within 30 days after signing.
- Send a yearly statement. Each January, the seller sends an accounting. It shows what was paid, what's left, and the taxes and insurance paid.
- Give disclosures up front. That includes a recent survey, a tax certificate, the financing terms, and a copy of any insurance policy.
- Deliver the deed on time. After the last payment, the seller has 30 days to deliver the deed. Penalties apply after that.
- Late fees are capped. The late fee can't be more than 8% of the payment.
Default rules depend on how much has been paid. The seller must send a written notice of default and give time to cure. Under Section 5.066, if the contract is recorded, or the buyer has paid 40% or more, or has made 48 monthly payments, the cure period is 60 days. After that, the seller can't just take the property back. They have to sell the buyer's interest through a trustee sale, like a foreclosure. In other cases, the cure period is generally 30 days.
The buyer can convert. Texas lets the buyer turn the contract into a deed and a recorded lien. Many note buyers like that step, because it turns a contract for deed into a standard deed of trust note.
If some of these steps were missed, don't panic. Many can be fixed before or during a sale. Tell your buyer up front. It's better to price it right than to find a surprise at closing.
Other Texas rules to know
- Homestead protection is strong. Texas protects homesteads more than most states. Your lien needs to be set up the right way to hold up.
- Licensing rules can apply. Texas has licensing rules for people who make home loans. Some seller financing is exempt, depending on how many deals you do and how they're set up. A buyer will check that your deal fits.
- Wraparound notes have their own law. If your buyer pays you and you still owe on an underlying loan, Texas has separate wrap rules. Tell your buyer if your deal is a wrap.
I'm not a lawyer. For legal questions about your contract, talk with a Texas real estate attorney.
Why this affects your price
A note buyer is buying your right to collect. They also take on the risk that the payer stops paying. A clean deed of trust note with fast foreclosure is lower risk. A contract for deed that missed required steps is higher risk.
Equity matters as much as paperwork. A payer with 20% or more equity and a year of on-time payments brings the best prices.
What a buyer will check
I look at three things on every deal: the payer, the property, and the paperwork.
- The payer. On-time history, how long they've paid, and whether they live in the home.
- The property. What it's worth, its condition, and whether taxes and insurance are current. Texas property taxes are high, so I always check them.
- The paperwork. The signed note and deed of trust, or the contract. Proof it was recorded. Your closing statement. Any title policy.
How the sale works, step by step
- Get a quote. Send the balance, rate, payment, and payment history. Start here.
- Send copies of your papers. See the documents you need to sell a mortgage note.
- Due diligence. The buyer orders a title search and a property value check, then confirms the balance with your payer. Plan on two to three weeks.
- Close. You sign an assignment of the deed of trust and endorse the note. A title company handles it. You get paid.
- Your payer gets a letter. It tells them where to send payments. Their terms don't change.
Most sales close in about four to five weeks.
What your Texas note is worth
Most notes sell for less than the balance, because the buyer pays you today for payments that come in over years. Typical notes sell for about 70% to 85% of the balance. Strong ones can bring more. Thin-equity notes and contracts with gaps come in lower.
Try the note value calculator for a rough range. Or get a real quote. You can also sell just part of the payments. See how a partial sale works.
Frequently asked questions
Can I sell a Texas contract for deed?
Usually, yes. The buyer will check that it was recorded and that the required notices and statements were handled. Gaps can lower the price, and some can be fixed before closing.
Is a deed of trust note easier to sell than a contract for deed in Texas?
Yes, in most cases. It's the standard way to secure a Texas home loan, and the foreclosure process is clear and fast.
Do I need my payer's permission to sell?
Usually not. Most notes can be sold without the payer's consent. Check your paperwork for any clause about assigning it.
What if I never sent the yearly statement on my contract for deed?
Tell your buyer. It's a common gap. It can lead to penalties, so it affects the price, but it doesn't always stop a sale.
How long does it take to sell a Texas note?
Most close in about four to five weeks from the first quote.
Will I owe taxes when I sell?
You might. Texas has no state income tax, but federal tax still applies. Read taxes when you sell an owner-financed note and talk with your CPA first.
Larry has invested in real estate since 2006 and has bought more than 300 mortgage notes. He runs LJH Investments, LLC, an Ohio company based in Madison, Indiana. More about Larry
This article is general information, not legal or tax advice. Laws change. Talk with your own attorney and tax adviser about your situation.