Texas Legal Requirements for Owner Financing: Staying Compliant

Owner financing in Texas offers flexibility and opportunity—but it’s governed by strict legal rules. Whether you’re a seller offering financing or a buyer entering into a seller-financed agreement, it’s crucial to understand and follow the requirements under Texas and federal law.

Why Legal Compliance Matters

Improperly drafted or non-compliant owner-financed transactions can lead to lawsuits, unenforceable contracts, and even criminal penalties. In some cases, failing to meet disclosure or licensing requirements can result in the buyer rescinding the deal entirely.

Key Legal Requirements in Texas

  • Written Agreements: All terms must be in writing and signed by both parties to be enforceable.
  • Disclosures: Sellers must provide specific disclosures, especially for wraparound mortgages and balloon notes.
  • Property Code § 5.061 et seq.: For transactions involving a “contract for deed” or executory contract, Texas law imposes strict notice, recording, and rescission rights for buyers.
  • Recording the Deed: To protect both parties, the transaction should be properly recorded in county property records.

Dodd-Frank and Federal Oversight

Federal law, particularly the Dodd-Frank Act, restricts how often a property owner can offer financing unless they are a licensed mortgage loan originator (MLO). Exceptions apply for individuals who offer financing just once per year on a personal residence, but the rules can be complex.

Failing to comply can make your contract voidable and trigger penalties under the Consumer Financial Protection Bureau (CFPB).

Common Compliance Mistakes

  • Not using an MLO when required
  • Failing to provide written amortization schedules
  • Using informal or verbal agreements
  • Not addressing due-on-sale clauses in existing mortgages

How Guerra Days Can Help

Our firm assists sellers and buyers with:

  • Drafting legally compliant contracts
  • Wraparound and subject-to transactions
  • Balloon note structuring
  • Filing and recording the proper documents

Coming Up: Learn how Guerra Days helps buyers and sellers draft, negotiate, and enforce owner-financed real estate agreements in Page 3 of our series.

Need help with a current or upcoming transaction? Contact Guerra Days Law Group at 281-760-4295 today for a consultation.