Owner financed land in Texas means the seller becomes the lender. You convey the tract, take back a note for most of the price, and collect payments for years. Done right, it sells acreage a bank will not finance and earns interest on the balance. Done wrong, it leaves you holding a hard-to-enforce contract on land you no longer control, or calling a buyer you know personally about a late payment.
This guide is written for the seller or investor carrying the note, with notes for the buyer where the two sides meet. Cedar Top does not give legal or tax advice; we service Texas owner finance notes and lend on Texas land. Every legal point below cites its source, and each one should be confirmed with your Texas real estate attorney before you sign.
How a Texas owner-financed land sale is papered
The standard structure uses three instruments, closed at a title company like any other sale:
- Warranty deed with a vendor's lien retained. Title passes to the buyer at closing. The deed recites that part of the price is paid by the note and retains a vendor's lien in your favor until the note is paid.
- Promissory note. The buyer's promise to pay: amount, rate, payment, term, and what happens on default. It is signed, not recorded.
- Deed of trust. The lien instrument, recorded in the county where the land sits. It names a trustee and gives you a power of sale if the buyer defaults.
The power of sale is the point of the structure. Under Texas Property Code Section 51.002, a sale under a deed of trust is a public auction held between 10 a.m. and 4 p.m. on the first Tuesday of a month at the county courthouse in the county where the land is located, after the required notices. If the property is the debtor's residence, Section 51.002(d) requires a written notice of default by certified mail and at least 20 days to cure before notice of sale can be given. Notice periods and the form of notice are exact; have your attorney run any foreclosure.
- Contract executed Price, down payment, and the financing terms the note will carry
- Title commitment and survey Ordered by the title company; Schedule B and C reviewed by both sides
- Attorney drafts the note and deed of trust Rate, term, balloon, escrow, default, and acceleration terms settled
- Closing at the title company Buyer pays the down payment; deed, note, and deed of trust signed
- Recording Warranty deed and deed of trust recorded in the county land records
- Note boarded with the servicer Buyer receives a welcome and first-payment letter
Why most Texas practitioners avoid a contract for deed
A contract for deed, also called an executory contract, keeps title in your name until the buyer pays in full. It sounds safer for the seller. In Texas it is usually the opposite. Texas Property Code Chapter 5, Subchapter D regulates executory contracts for real property used or to be used as the purchaser's residence, and for that subchapter a lot of one acre or less is presumed to be residential (Section 5.062). Where it applies, the subchapter imposes seller obligations and buyer remedies that a deed-of-trust sale does not carry. The statute also exempts contracts that deliver the deed within 180 days of signing (Section 5.062(c)).
Even on raw acreage where Subchapter D may not reach, a contract for deed gives the buyer an interest that is hard to insure, muddies who pulls permits and pays taxes, and gives you a slower remedy than a power of sale. Deed, note, and deed of trust is the structure title companies, attorneys, and servicers are built around. Whether Subchapter D applies to a particular tract is a question for your attorney.
What the note and deed of trust should specify
A note that leaves these open is the note that ends up in a lawyer's office. Have your attorney address each one in writing:
- Interest rate. State it plainly and confirm it is at or above the IRS applicable federal rate for the note's term. If the stated rate is too low, IRS unstated-interest rules can recharacterize part of the principal as interest for tax purposes. The IRS covers this in Publication 537, Installment Sales, which also explains installment-sale reporting on Form 6252, and publishes the rates monthly on its applicable federal rates page. Your CPA sets the number.
- Term and amortization. How many months, and whether the payment fully amortizes the balance or leaves a balloon.
- Balloon. If the note balloons, say when, in what amount, and what notice the buyer gets before it comes due. Assume the buyer will need a refinance to pay it.
- Late charge and grace period. The days of grace and the charge, in a form your attorney confirms is enforceable in Texas.
- Property taxes and escrow. Who pays, and whether the monthly payment includes an escrow deposit that the servicer disburses to the county. Delinquent taxes put your collateral at risk; escrow is how sellers keep them paid.
- Insurance. If there is a house, barn, or other improvement, require hazard insurance naming you as mortgagee, with proof delivered at each renewal.
- Default, acceleration, and cure. What counts as default, how many days the buyer has to cure, and your right to call the full balance due.
- Due-on-sale and assumption. Whether the buyer can sell or assign the land without paying you off.
- Prepayment. Whether the buyer can pay early and whether any charge applies.
If the tract includes a home the buyer will live in
Raw land is one set of rules. A tract with a house the buyer will occupy is another. Seller financing of a residence can be a residential mortgage loan under Texas Finance Code Chapter 156. Section 156.202(a-1)(3) exempts an owner of residential real estate who makes no more than three such loans to purchasers in any 12-consecutive-month period. Outside that exemption the loan may need a licensed originator. Confirm with your Texas real estate attorney before the contract is signed.
The diligence the seller still owes
You are conveying the land, but if the buyer defaults you are taking it back. Diligence protects collateral you may end up owning twice.
- Survey. A current boundary survey by a Registered Professional Land Surveyor fixes what you are selling and what the deed of trust covers. Fence lines are not boundaries in rural Texas.
- Legal access. Confirm recorded access to a public road. A landlocked tract is hard for the buyer to resell or refinance, and the buyer's refinance is how your balloon gets paid.
- Title commitment. Order it even though no bank requires it. Schedule B exceptions (easements, mineral reservations, pipeline rights-of-way) and Schedule C requirements (unreleased liens) affect what the buyer is getting and what you can foreclose on. Ask the title company about a mortgagee policy insuring your lien.
- Ag valuation and rollback taxes. Put in the contract who bears the rollback tax if the buyer changes the use. The mechanics are in how to buy land in Texas.
Why sellers hand the note to a third-party servicer
Collecting a payment every month from someone you closed with in person gets personal fast. A third-party servicer sits between you and the buyer so it stays a business transaction. At Cedar Top that means:
- Payment accounting and processing, with automatic bank draft, online, or mailed-check options for the buyer
- Monthly statements to both lender and borrower
- Escrow collection and disbursement for property taxes and insurance, with escrow analysis
- IRS reporting on the note
- Late payment notifications, so the call about a missed payment does not come from you
- Real-time online account access for both parties
- A welcome and first-payment letter to the buyer at boarding, after which we are the buyer's point of contact
- Distribution of collected funds to you
To board a note we ask for the promissory note, deed of trust, closing disclosure or HUD-1, sales contract, W-9, first payment letter, proof of insurance where there is a dwelling, and the tax certificate. Setup and pricing depend on the note and how it is structured; with those documents we confirm what servicing costs to get started. We board existing notes as well as new ones. Full detail is on the owner finance note servicing page and the loan servicing overview.
When the buyer should borrow instead, and the seller's refinance exit
Owner financing works when the seller does not need the cash now. Some sellers do. If a seller wants to be paid at closing, or will only carry a small second lien, the buyer's option is a short-term land and ranch loan: up to 65% of market value, $50,000 to $10,000,000, 6 to 24 months interest only, closing in as little as 24 hours pending title work, on Texas non-owner-occupied land. What that costs is laid out in Texas land loan rates. Terms are subject to underwriting and approval.
For the seller, the same math runs the other way. Most balloons are paid by a refinance, so set the balloon far enough out that the buyer can build a payment history and improve or entitle the land enough for a bank to take it. A short balloon on raw acreage with no plan behind it is a default with a date on it.
Where Cedar Top fits
Cedar Top services Texas owner finance notes and lends on Texas land. Co-founder Kody Fain spent six years in commercial and agricultural banking before Cedar Top, and the servicing platform runs on that discipline. We do not draft your note or give legal or tax advice; your attorney and CPA do that. Once the note is signed, we collect, escrow, report, and handle the buyer so you do not have to.