Contract for deed vs deed of trust: how Texas sellers should choose

The two structures look similar from a distance. In both, a buyer pays over time. Where they differ is who holds title, what happens in a default and which Texas rules apply.

What is a deed of trust sale?

At closing, the seller signs a deed that transfers title to the buyer. The buyer signs a promissory note and a deed of trust that gives the seller a lien on the land. The deed of trust names a trustee who may sell the land if the buyer defaults. The deed of trust is recorded in the county records.

If the buyer stops paying, you follow the notice steps in the documents and Texas law, then a trustee sale can take place without a lawsuit. This is called nonjudicial foreclosure. It is usually faster than a court case.

What is a contract for deed?

A contract for deed is an agreement in which the seller keeps legal title until the buyer finishes paying. The buyer takes possession and pays installments. At the end, the seller signs the deed. Texas calls these executory contracts.

Sellers like them because they imagine that, if the buyer stops paying, they can simply keep the land and the payments. Texas law has narrowed that in many cases, especially when the land is a home.

What do Texas statutes say?

Chapter 5, Subchapter D of the Texas Property Code regulates executory contracts for conveyance of real property, with the heaviest rules for property used as a residence. Based on summaries from Texas attorneys, the rules can require pre-sale disclosures, recording of the contract, annual accounting statements to the buyer and a written notice and cure period before a seller can enforce a default. If a buyer has paid enough of the price, the seller may have to use a foreclosure-style sale instead of simply taking the land back. A seller who violates the rules can face rescission, refund of payments and statutory remedies, including under the Deceptive Trade Practices Act.

This is a summary, not legal advice, and the details depend on how the land is used. Ask a Texas attorney before you choose.

How do they compare?

Which structure protects a seller more?

For most sellers, the deed of trust is the safer route, because the process after default is defined and does not depend on whether a court sees the contract as a disguised mortgage. A contract for deed can look attractive on raw land with no home, but it can still raise issues if the buyer plans to build or live there. When in doubt, use a deed of trust and a title company.

What mistakes do sellers make?

• Using an internet form with no Texas disclosures.
• Skipping recording, which weakens priority.
• Letting the buyer move onto the land before documents are signed.
• Ignoring the annual statement and tax rules.
• Assuming forfeiture is always allowed.

Compare these choices against a straight cash sale and read the main owner-financing guide.

What does each structure look like in a simple scenario?

Scenarios help here because the legal terms are abstract. The two below are hypothetical and meant only to show how the structures behave.

Scenario one, deed of trust. Suppose you sell 20 acres for $100,000. The buyer pays $20,000 down. At closing you sign a deed, the buyer signs a note for $80,000 and a deed of trust, and the title company records the deed and the deed of trust. The buyer now owns the land and you hold a lien. If the buyer stops paying after two years, you send the notices your documents and Texas law require. If the default is not cured, a trustee can sell the land at a sale and the proceeds pay the note. You do not start by filing a lawsuit.

Scenario two, contract for deed. Suppose you sell the same 20 acres on a contract for deed. The buyer pays $20,000 down and moves onto the land. You keep title in your name. The buyer makes payments, and when the last one is paid you sign the deed. If the buyer stops paying after two years, you might hope to keep the land and the $20,000. Whether you can depends on the Texas rules for executory contracts, how the land is used, how much the buyer has paid and whether you followed the notice steps. A seller who guesses wrong can end up refunding money.

The practical difference is that a deed of trust gives you a defined path. A contract for deed gives you a path that depends on facts and statutory compliance.

Why do sellers think a contract for deed is safer?

The reasoning is understandable. You still hold title, so it feels as though you still hold the land. If the buyer disappears, you assume nothing needs to be undone.

Three problems undercut that feeling.

1. Equity changes the picture. Suppose the buyer has paid $35,000 toward a $100,000 price over three years. A court or regulator may see that as meaningful ownership, not a rental. Keeping the land and the money looks like a forfeiture, and Texas law has limited forfeiture in many cases.
2. Your title is still exposed to your own problems. While you hold title, a judgment against you, a tax lien in your name, a divorce or your death can complicate the sale. A buyer who has paid for years then depends on your estate to finish the job.
3. Your own lender may object. If you have a loan on the land, many loan documents include a due-on-sale clause, and a contract for deed may trigger it. Ask your lender or attorney before you sign.

None of this means a contract for deed is never used. It means it asks more of the seller in paperwork and carries more risk than most sellers expect.

What if the land is raw acreage and not a home?

The heaviest Texas rules apply when the property is used as a residence. Raw acreage that will be used for hunting, grazing or holding often falls on the lighter side, but the line depends on facts. A buyer who plans to put a mobile home or cabin on the land, or to live there at some point, can shift the analysis. Describe the buyer’s real plans to your attorney and ask which rules apply.

Even where the rules are lighter, many Texas sellers still choose a deed of trust. It gives you a recorded lien, a title company in the middle and a known process after default. For a longer look at how to set up the documents, read how to structure an owner-financed land sale.

How does the choice change by situation?

This table is a starting point and not legal advice. Your facts may point elsewhere.

What happens step by step after a default under a deed of trust?

The details depend on the documents and Texas law, so ask an attorney for the exact steps. In general terms, the order looks like this.

1. A payment is missed. Check your ledger and the grace period in the note.
2. You send written notice of default. The notice gives the buyer a period to cure.
3. The buyer cures or does not. If the buyer pays what is owed, the note continues.
4. You send notice of the sale. Texas requires set notice before a trustee sale.
5. A trustee sale takes place. The land is sold at the county sale, and the proceeds go to the debt.
6. You deal with what remains. That might be a new owner, taking the land back, or sorting out leftover amounts.

Compare that with the steps for a contract for deed, which may require disclosures, annual accounting statements, a notice and cure period and sometimes a foreclosure-style process. Seeing both lists side by side tends to settle the question. Our guide on what to do when a buyer defaults goes further.

What should you gather before you meet an attorney?

• The deed that shows how you hold title.
• A list of any liens, mortgages or judgments.
• Tax statements.
• The buyer’s name, planned use of the land and a summary of the proposed price, down payment and payment schedule.
• A copy of any form contract the buyer or an agent has offered.
• Your questions, written down.

Bring the form contract even if you do not plan to use it. An attorney can tell you quickly whether it fits Texas requirements.

What should you ask a Texas attorney, a title company and a CPA?

Attorney.

1. Does the contract for deed statute apply to this land and this buyer?
2. If it does, what must I disclose, record and send each year?
3. What would a default cost me in time and money under each structure?
4. Is there a reason to prefer a contract for deed here?

Title company.

1. Can you close a deed of trust sale and record the documents in order?
2. Will you pay off taxes and liens from the down payment?
3. Can you issue a lender’s policy to protect my lien?

CPA.

1. How will each structure affect when I report income? See installment sale tax on owner-financed land.
2. Does it change anything if I inherited the land?

What other mistakes should sellers avoid?

The list above covers common errors. Here are a few more.

• Treating a handshake as a contract. Anything involving land needs a signed writing.
• Taking cash payments with no receipts. Use checks or transfers that leave a record.
• Letting the buyer assign the contract without consent. Your documents should limit transfers.
• Skipping title work because the deal feels informal. Informal deals are where title problems hide.
• Delaying the deed. If a contract for deed is complete and paid, deliver the deed promptly and record it.
• Not asking about heirs. If you or the buyer die before the deal ends, what happens? Plan for it.

When does a clean cash sale beat both structures?

If you are juggling a loan payoff, back taxes, heirs in different cities or a deadline, neither financing structure is fast or simple. A cash sale pays you at closing and ends the risk. Read owner financing vs a cash offer to compare the numbers. We buy Texas land for cash. If we buy on terms, we explain which structure we would use, and your attorney reviews it. You can see how our process works, read answers on our FAQ page or contact us for a no-pressure look.

By the Sell My Texas Estate team · Updated October 2026. General information, not legal, tax or financial advice. Talk with a licensed Texas attorney or CPA about your situation.