Texas Executory Contracts (Contract for Deed): §§5.061-5.085

TL;DR

Texas Property Code Subchapter D (§§5.061-5.085), titled "Executory Contract for Conveyance," heavily regulates executory contracts — the classic "contract for deed" and lease-with-option-to-purchase arrangements — when the property is used or intended to be used as the purchaser's residence. Section 5.062(a) provides that Subchapter D applies to any executory contract for conveyance of RESIDENTIAL real property where the contract extends beyond 180 days from execution to final delivery of the deed. Section 5.062(c) exempts short-term contracts (deed delivery within 180 days). Section 5.062(d) provides a family-relationship exception if the parties are related within the second degree by consanguinity or affinity AND have signed a written waiver. Section 5.077 requires the seller to provide the buyer an ANNUAL ACCOUNTING STATEMENT every January covering payments, remaining balance, taxes, insurance, and current insurance policy — with statutory damages of $100 per year plus attorney fees for sellers conducting fewer than two transactions in a 12-month period, or $250 PER DAY (capped at fair market value of the property) plus attorney fees for sellers conducting two or more. Section 5.076 requires recording of the executory contract within 30 days. Section 5.079 provides that a recorded executory contract has the same effect as a deed with a vendor's lien and requires the seller to convey title within 30 days of receiving the full purchase price, with liquidated damages of $250 per day from day 31 through day 90 after final payment and $500 per day thereafter, plus attorney fees. Section 5.081 gives the buyer an ABSOLUTE RIGHT to convert the executory contract at any time to recorded legal title without penalty. Violations may also trigger DTPA liability.

What is an executory contract — and why Subchapter D exists

An executory contract for conveyance of real property is any transaction that defers material action by either party pertaining to ownership or possession of real property into the future. The classic form is the "contract for deed" (also called a land contract or installment land contract) — a seller-financing arrangement in which the buyer makes monthly payments to the seller over a period of years, and legal title does not transfer to the buyer until the final payment is made. During the payment period, the buyer has an equitable interest but the seller retains legal title. This structure is attractive to buyers who cannot qualify for traditional mortgage financing and to sellers who want to finance the sale outside conventional lending. It is also historically prone to abuse.

Before Subchapter D reforms began in 1995 and were substantially expanded in 2001 and 2005, Texas saw persistent abuses in the acquisition of homes in the colonias — substandard, generally impoverished, rural subdivisions along the Mexico border where residents lacked access to traditional mortgage financing. Buyers could purchase a home, complete most or all of the payments under the contract, and then be evicted by the seller claiming some technical default causing forfeiture of all buyer rights. In a mortgage foreclosure the buyer would have some equity protection through the sale process; in a contract for deed the buyer had no protected equity position, only an executory contract right. The Legislature enacted Subchapter D to level the playing field — imposing significant seller disclosure and procedural burdens with substantial statutory damages for violations. For related state-specific frameworks, see our Texas earnest money guide and our Texas contract contingencies guide.

Scope of Subchapter D under §5.062

Section 5.062 defines the scope of Subchapter D. The regulations apply to any transaction involving an executory contract for conveyance of real property used or to be used as the PURCHASER'S RESIDENCE, or as the residence of a person related to the purchaser within the second degree by consanguinity or affinity. Key scope provisions:

The 180-day exclusion under §5.062(c) is what protects ordinary residential purchase contracts with earnest money deposits from being swept into Subchapter D — a standard TREC contract that closes within 60 days from execution is outside Subchapter D even though it is technically an "executory contract for conveyance." What triggers Subchapter D is the extended payment period stretching beyond 180 days: the classic contract-for-deed arrangement running 10, 15, or 30 years.

The §5.077 annual accounting statement

Section 5.077 is one of the most consequential seller obligations under Subchapter D. Every January, the seller must provide the buyer an ANNUAL ACCOUNTING STATEMENT covering:

Amounts paid. Total amount received from the purchaser during the year and cumulatively.

Remaining balance owed. Amount still to be paid under the contract.

Number of payments remaining. Count of installments left before final payment.

Amount paid in taxes. Property taxes paid on the property during the accounting year.

Amount paid for insurance. Insurance premiums paid during the year.

Accounting for insurance payments. Payments received from an insurer (e.g., claims proceeds) and their application.

Copy of the current insurance policy. The buyer receives the current policy documenting the coverage in force.

Failure to provide the required annual accounting statement triggers substantial statutory damages under §5.077(c). For a seller who has conducted FEWER than two transactions in a 12-month period, damages are $100 per year of noncompliance plus attorney fees. For a seller who has conducted TWO OR MORE transactions in a 12-month period, damages jump dramatically to $250 PER DAY of noncompliance (capped at the fair market value of the property) plus attorney fees. The two-transaction threshold reflects a policy judgment that repeat sellers who use contracts for deed as a business model face heightened statutory exposure.

Recording under §5.076 and conversion under §5.081

Section 5.076 requires the seller to RECORD the executory contract within 30 days of execution. The seller must also record the instrument terminating the contract if the contract is terminated for any reason. Failure to record can result in damages of up to $500 for each calendar year of noncompliance. Recording under §5.076 has substantive significance beyond ordinary priority-notice functions: under §5.079, a recorded executory contract has the same effect as a deed with a vendor's lien, giving the buyer a recorded interest that reflects the buyer's equitable ownership subject to the seller's continuing security interest for the unpaid balance.

Perhaps the most powerful buyer protection under Subchapter D is §5.081, which gives the buyer an ABSOLUTE RIGHT to convert the executory contract at any time — without paying penalties or charges of any kind — to recorded legal title. The deed must contain any warranties required by the contract; if the executory contract has been recorded, §5.079 provides that a general warranty is implied unless the recorded contract limits it. The seller has no choice if the buyer follows §5.081: the buyer may either tender the balance owed, or deliver a compliant promissory note for the remaining balance with the same interest rate, due dates, and late fees, while simultaneously executing a deed of trust securing the note. This is true whether or not the executory contract was recorded. The right to convert is available at any time during the contract, not just at the natural end of the payment period, giving the buyer flexibility to escape the executory-contract structure whenever traditional financing or other resources permit.

Cure of default under §5.065 and title-conveyance under §5.079

Section 5.065 gives the purchaser in default a RIGHT TO CURE within 30 days notwithstanding any agreement to the contrary. This 30-day cure right protects the buyer from the harsh common-law rule that a single missed payment could trigger forfeiture of all payments made under the contract. The 30-day cure period runs from the date the seller delivers the required notice of default and the purchaser's right to cure.

Section 5.079 requires the seller to convey legal title to the buyer within 30 days of the buyer's payment in full. Failure by the seller to deliver the deed within 30 days after final payment can result in liquidated damages of $250 per day from day 31 through day 90 after final payment, and $500 per day after day 90, plus reasonable attorney's fees (§5.079(b)). The buyer's remedies for a delayed title conveyance can include specific performance to compel the deed, damages for the delay, and attorney fees. Combined with §5.081's absolute right to convert, §5.079 gives the buyer strong tools to force the seller to complete the title transfer.

DTPA and additional buyer remedies

The 2005 reforms to Subchapter D made seller violations actionable under the Texas Deceptive Trade Practices — Consumer Protection Act (DTPA), which can result in treble damages plus attorney fees for knowing violations. The DTPA overlay adds significant deterrent force to the Subchapter D framework: a seller who violates §5.077's annual accounting requirement is not just liable for the statutory per-day damages but also potentially exposed to DTPA remedies including trebling. Practitioners have observed that DTPA exposure has significantly curtailed the use of contracts for deed in Texas residential contexts because well-meaning sellers cannot rely on defenses that would have been available under earlier iterations of the statute.

The Texas Supreme Court in Morton v. Nguyen, 412 S.W.3d 506 (Tex. 2013) emphasized that Subchapter D's requirements were designed to protect buyers and confirmed that the burden falls entirely on the seller to comply. The court has been generally unsympathetic to sellers who claim good-faith error in complying with the accounting-statement rules — even a good-faith mistake can result in statutory damages, though whether exemplary DTPA damages apply may depend on additional evidence of knowing violation.

Frequently Asked Questions

Does Subchapter D apply to my earnest-money residential purchase contract?

Only if the contract extends beyond 180 days from execution to deed delivery. Under §5.062(c), Subchapter D does NOT apply to executory contracts that provide for delivery of a deed within 180 days of the date of final execution. A standard TREC residential purchase contract that closes within 60 days is outside Subchapter D. What triggers Subchapter D is the extended payment period stretching beyond 180 days — the classic contract-for-deed arrangement running years or decades.

Does Subchapter D apply to a lease with an option to purchase?

Yes, if the option is combined with or executed concurrently with a residential lease. Under §5.062(a)(2), an option to purchase real property that includes or is combined or executed concurrently with a residential lease agreement, together with the lease, is considered an executory contract for conveyance of real property. This means most "rent-to-own" arrangements involving residential property are subject to the full Subchapter D framework — including §5.077 annual accounting, §5.076 recording, and the §5.081 right to convert. Options that are not combined with a residential lease, or that are on commercial property, are outside Subchapter D.

What is the difference in statutory damages between one-transaction and multi-transaction sellers?

Under §5.077(c), for a seller who has conducted FEWER than two transactions in a 12-month period, damages for failure to provide the annual accounting statement are $100 per year of noncompliance plus attorney fees. For a seller who has conducted TWO OR MORE transactions in a 12-month period, damages are $250 PER DAY of noncompliance (capped at fair market value of the property) plus attorney fees. The daily penalty for repeat sellers reflects a legislative policy targeting sellers who use contracts for deed as a business model with recurring exposure — a $250-per-day penalty across a multi-year noncompliance period can quickly reach the property's fair market value.

Can the buyer force the seller to give a deed before the final payment?

Yes. Under §5.081, the buyer has an ABSOLUTE RIGHT to convert the executory contract at any time to recorded legal title without paying any penalty or charge. The buyer may tender the remaining balance in full, or may use the §5.081 note-and-deed-of-trust conversion mechanism if the statutory requirements are met, and the seller must deliver a deed containing any warranties required by the contract. This right exists whether or not the executory contract was recorded. §5.081 is one of the most consequential buyer protections in Subchapter D because it eliminates the historical trap where a buyer could pay for years, run into technical default, and lose everything.

Are family transactions exempt from Subchapter D?

Partially. Under §5.062(d), Sections 5.066 and 5.068-5.080 do NOT apply if the purchaser is related to the seller within the second degree by consanguinity or affinity AND the parties have signed a written agreement waiving applicability of those sections. Second-degree relatives include parents, grandparents, siblings, children, and grandchildren. The waiver must be in a written agreement — an unwritten family arrangement does not qualify. And note that the family exception does NOT sweep away all of Subchapter D — some sections (including §5.081's right to convert) continue to apply.

What DTPA remedies are available for Subchapter D violations?

Under the 2005 reforms, seller violations of Subchapter D are actionable under the Texas Deceptive Trade Practices Act. A buyer proving a knowing DTPA violation may recover economic damages, mental anguish damages in some cases, and up to trebled damages for knowing violations, plus attorney fees. DTPA exposure is often the most significant financial risk for a seller who fails to comply with Subchapter D — the treble-damages potential exceeds the per-day §5.077 penalty. Practitioners have noted that DTPA liability is why most Texas real estate attorneys will not assist sellers in structuring contracts for deed on residential property.

Bottom Line

Texas Property Code Subchapter D (§§5.061-5.085) heavily regulates executory contracts for conveyance of residential real property — the classic "contract for deed" and residential lease-with-option-to-purchase arrangements. Section 5.062(a) applies Subchapter D to residential executory contracts extending beyond 180 days from execution to deed delivery; §5.062(c) exempts short-term contracts (≤180 days), which is what protects standard TREC purchase contracts; §5.062(d) provides a family-relationship exception if parties are within the second degree of consanguinity/affinity AND have signed a written waiver. Section 5.077 requires the seller to provide an ANNUAL ACCOUNTING STATEMENT every January covering payments, balance, taxes, insurance, and a copy of the current policy — with damages of $100/year (fewer than 2 transactions in 12 months) or $250/DAY capped at fair market value (2+ transactions) plus attorney fees. Section 5.076 requires recording within 30 days; §5.079 makes a recorded executory contract equivalent to a deed with vendor's lien and requires title conveyance within 30 days of final payment, with liquidated damages of $250/day (days 31-90) and $500/day thereafter plus attorney fees. Section 5.081 gives the buyer an ABSOLUTE RIGHT to convert to legal title at any time without penalty, either by paying the remaining balance or by using the statutory promissory-note/deed-of-trust conversion mechanism. Section 5.065 provides a 30-day right to cure any default. The 2005 reforms made violations actionable under the DTPA with treble-damages exposure. Morton v. Nguyen (Tex. 2013) confirmed the seller bears the burden of compliance. For related state-specific frameworks, see our Texas earnest money guide, our Texas contract contingencies guide, and our Texas deeds and title transfer guide.

Source: Texas Property Code Chapter 5 Subchapter D — Executory Contract for Conveyance · Texas Property Code §5.077 — Annual Accounting Statement · Morton v. Nguyen, 412 S.W.3d 506 (Tex. 2013)