Texas Lease Options

Well, I was hoping someone had posted a way around the new laws concerning Lease Options in Texas.

I probably invest a little differently than the way the guru’s teach, I actually carry the mortgage on my properties. One obstacle out of the way. As far as doing a lease purchase, I woulder if I could write it up as a rental with a 3% non-refundable deposit (old option fee), and include a sales price in the contract if the person decides to purchase before the lease runs out.



If you go to the AIREO.com bulletin board, you can read a lengthy message that I posted earlier today entitled “HB 1823 - Lease Option Alternatives in Texas”.

Steve Tiemann

Super, thanks…

Anyone know if this applies to property you own free and clear?

§ 5.085 deals with the “Free and Clear” issue.
In a nutshell; it still applies.

Section 2. 5.062 (f) of the Texas Property Code states:

(f) Notwithstanding any other provision of this subchapter,
only the following sections apply to an executory contract
described by Subsection (a)(2) if the term of the contract is three
years or less and the purchaser and seller, or the purchaser’s or
seller’s assignee, agent, or affiliate, have not been parties to an
executory contract to purchase the property covered by the
executory contract for longer than three years:
(1) Sections 5.063-5.065;
(2) Section 5.073, except for Section 5.073(a)(2); and
(3) Sections 5.083 and 5.085.

So part of the new law still applies even if your lease/Option term is three years or less according to the attorneys I’ve consulted.

To recap, these are the sections of the law that will still apply, even if the term is not more than three years.

§ 5.063. NOTICE.



[except for § 5.073(a)(2)]



You can read more about these sections of the Texas Property Code at the following link:


And the new law is at:


Yip, and speaking of “Speaking with Attorneys”, I’ve ponied up the $225 per hour to speak with a Real Estate attorney concerning this new law. Result: You cannot legally do a lease option in Texas unless you own the property free and clear, and then keeping up with other requirements is tough.

For starts, a lease option now requires you to sign over the deed, which means you have to go through a full foreclosure to get them out. The lender also has to send them a letter stating the status of you mortgage on the property, and tell the tenant if payments are late. What are the chances of that happening? These examples are just a tip of the iceberg…

Matt In Texas,

So did your attorney offer any suggestions about what to do with properties you don’t want to sell or rent?

We made an offer on a nice place near Austin, but after talking over the consequences, nixed the deal. I had wanted to escape the craziness of California, but with Texas REI being dictated by the Texas Communist party, it seems like the patients have taken over the asylum here too! lol

Another problem that bothers me is the potential tax event of the l/o being converted by law to the executory contract. The tax consequences alone could be a deal breaker, but there’s also the potential DOS clause problem for existing l/o’s after the first of next year, etc, etc.

Yeesh…what a mess. I read the “loophole” note above by Steve Tiemann, and the only thing that kept running through my mind was an image of standing in front of a judge, hearing him say, “Well gentlemen, this paperwork is all well and good, but it seems to me that your intent in all of this was to circumvent Texas law. Is that true?”



The attorney said a Wrap was the way to go…

I even suggested collecting a large non-refundable deposit (old option fee), but even that is not allowed by the property code.

I’m just going to tell the people strait up - I can’t legally do a lease option, but I can give you rent credit and I will sell you the house at appraisal value anytime you want to buy it.

Of course, my issue is with conveying the property to the TB as I buy properties outright (with a NOO mortgage) and make my money on the purchase. I realize some people take control of property using a LO - They have a real problem now.

What is the translation (plain english) of the new law in Texas? We were talking about doing lease options.

Thank you…that was very good info…so basically the LO is dead to anyone who carries a mortgage on the rental…yikes…time to move out of the TX area I guess.

How about rent to own? Would that be the same thing?

I have a little different take than most of the posts above.

I think that we should all remember that this is the “creative” real estate business.

What happened to everyone’s creativity?

I took a Bill Gatten PAC and NEH trust seminar a while back and I was looking through the materials. It seems that if one were to set up one of these trusts and leased the property to a Resident Beneficiary for a period of time and then allowed him to buy out the other beneficiaries, one would accomplish the equivalent of a lease option agreement, without it becoming one of those Executory Transfers…

Has anyone checked into this? Could this work? It appears that Gatten’s system has quite a bit offer.

Any Thoughts? ???

Concerning Gatten’s PACTrust and NEHTrust it appears will work in Texas … go to Gatten’s web site, www.landtrust.net and on the discussion board there are several posts concerning this bill, including some opinions from several attorney’s …

Thanks, I did check out the Gatten website, and it looks like it may work. I guess now we will just have to wait untill the courts and lawyers figure our what the law really says. Mean time, it looks like I will be buying another course.

I agree. Using Land Trusts may be the answer, however, I’ll remain cautiously optimistic until I can talk with a real estate attorney who is well versed on the subject. Even then, as the one lady attorney alluded to, the court system is more of an art than a science. So even though using land trusts in this manner could be legal on paper, a judge could still use subjective reasoning and say something like the investor was trying to weasel around the new law.

I have yet to find an attorney who really understands land trusts. If you can find one, good for you!

If structured correctly, it would appear that the land trust would allow you to circumvent the language of the new law. The politicians didn’t think of everything on this go-around. They might add new language to the law in the next session, however.

But can you explain this method to a civilian tenant/buyer without looking like you are up to something shady?

And just wait until the Tenant Legal Aid attorney gets you in front of a judge to explain the business purpose of your contract structure.

Is it going to be worth the trouble?

Land trusts have their place, but in a simple house deal with a layman tenant, can you make this work without looking like the crooked investors who caused this law to be enacted in the first place?

Hi Matt,
Did you find a solution?