Texas S.B. 17 Fourteen Months In: Foreign Buyer Ban Survives Court Challenges as the Attorney General Readies Rules That Make Lenders, Title Companies and Brokers Its Watchdogs

Texas S.B. 17 has been the law since September 1, 2025. It bars certain people and companies tied to China, Russia, Iran, and North Korea from acquiring almost any interest in Texas real property. Two federal lawsuits have tried to stop it. Neither has succeeded. Meanwhile, the Texas Attorney General is finishing rules that would turn lenders, title companies, brokers, appraisers, and insurers into a front-line reporting network. If you buy, sell, lease, finance, insure, or broker Texas real estate, this law now belongs on your closing checklist. Here is what you need to know.

WHAT THE STATUTE DOES

Governor Abbott signed S.B. 17 on June 20, 2025. It is codified at Texas Property Code § 5.251 et seq. (Subchapter H of Chapter 5). The law targets “designated countries.” Those are countries named as national security risks in recent federal Annual Threat Assessments, plus any country the Governor designates. Today that list is China, Russia, Iran, and North Korea.

The law prohibits these buyers from purchasing or otherwise acquiring an interest in Texas real property:

• The government of a designated country, and companies it controls.

• Companies headquartered in, or controlled from, a designated country.

• Companies majority-owned or controlled by covered individuals.

• Individuals domiciled in a designated country, plus certain other covered individuals, such as members of a designated country’s ruling party.

“Real property” is defined broadly. It includes farm and ranch land, commercial, industrial, and residential property, groundwater, water rights, minerals in place, mines and quarries, and standing timber. Leases of one year or longer are covered.

WHO IS NOT COVERED

• U.S. citizens and lawful permanent residents

• Companies owned or controlled exclusively by U.S. citizens or lawful permanent residents.

• Leases shorter than one year.

• A home bought as a residence homestead by a covered individual who is lawfully present and residing in the United States at the time of purchase.

THE PENALTIES

The stakes are high. The Attorney General can investigate, issue civil investigative demands, and file an in rem suit against the property itself. A court can order the interest divested and appoint a receiver to sell it. Companies face a civil penalty of the greater of $250,000 or 50 percent of the property’s market value. An individual who knowingly violates the law commits a state jail felony.

One point surprises many clients. Except for leases, a prohibited purchase is not void. The deed stands, but the property can be taken and sold. That means title, financing, and possession problems can linger long after closing.

THE ATTORNEY GENERAL’S IMPLEMENTING RULES: STILL PROPOSED

Status check.

Some published commentary describes the Chapter 67 rules as effective April 26, 2026. That is not correct. April 26 was only the earliest possible adoption date for the first proposal. The Attorney General proposed new Chapter 67 of Title 1 of the Texas Administrative Code on March 27, 2026. He then published a revised proposal on October 9, 2026. As of this writing, neither version has been adopted. The comment period on the revision runs 30 days from October 9, and the earliest possible adoption date is November 8, 2026. The rules may still change. But they show clearly how the State plans to enforce the law, and smart market participants are preparing now.

KEY DEFINITIONS

“Control.” The proposed rules define control broadly. It means the power to direct an entity’s management, its policies, or its real property decisions. These persons are deemed in control: general partners, managing members, executive officers, holders of 10 percent or more of voting interests, and anyone with a present or future right to acquire or dispose of the entity’s Texas real property. The 10 percent figure is part of the control test. It is not a stand-alone ban on every company with 10 percent foreign ownership.

“Purchase or otherwise acquire.” This includes gaining control of an entity that already owns Texas real property, through a stock purchase, redemption, or similar deal. It applies even if the entity bought the land before September 1, 2025. Entity-level M&A, recapitalizations, and refinancings after an ownership change all deserve a fresh look.

Successive short-term leases. The statute exempts leases shorter than one year. The rules close that gap. A chain of short leases, licenses, or similar arrangements that in substance creates a leasehold of one year or more is treated as a covered interest.

WHO IS COVERED: “FACILITATING ENTITIES” The biggest practical change is aimed at the intermediaries who make deals happen. The rules define a facilitating entity as any business that, in the regular course of business, assists with, brokers, insures, finances, values, or processes a real property purchase. They expressly name mortgage lenders, title insurers, property insurers, appraisers, and licensed real estate professionals.

• Mandatory reporting. A facilitating entity must file a complaint with the Attorney General if it knows, or should have known after reasonable due diligence, that a transaction violates S.B. 17. The duty reaches post-closing transfers to affiliates, parents, subsidiaries, or commonly controlled entities used to carry out or hide a prohibited acquisition.

• Licensing exposure. If an entity fails to report, the Attorney General may refer it to its licensing or disciplinary authority, such as the Texas Real Estate Commission or the Texas Department of Insurance.

• No waterfall. Neither proposal lets one party rely on another party’s review. A lender cannot satisfy its own duty by pointing to the title company.

• New safe harbor (October revision). An entity that runs know-your-customer diligence consistent with a regulator’s guidelines, or with standards adopted in good faith by a recognized industry group, and finds no violation is not deemed to have known of one. The proposal does not yet say which standards qualify.

ENFORCEMENT MACHINERY AND GUIDANCE

• An enforcement unit within the Attorney General’s office, now with a dedicated task force, would receive complaints, issue guidance, and answer written inquiries about whether the law applies to a specific transaction.

• Any person, not just facilitating entities, may file a complaint.

• Anyone may voluntarily report property acquired before September 1, 2025 by a covered person. The rule says such a report does not by itself mean a violation occurred.

• Recipients of a civil investigative demand or Secretary of State interrogatories generally get at least seven calendar days to respond, with extensions for good cause.

• Complaints and investigative records are generally confidential.

• The Attorney General may plan a public online portal of covered properties. His October 9 announcement says it would be modeled on the Texas Sex Offender Registry, with mapping and search tools, and could include properties acquired before the law took effect.

The Attorney General’s October announcement frames the rules as tools to “vigorously enforce the law.” Clients should take that at face value.

THE COURT CHALLENGES WANG V. PAXTON

Wang v. Paxton, No. 4:25-cv-03103, 2025 WL 2402324 (S.D. Tex. Aug. 18, 2025), aff’d, No. 25-20354 (5th Cir. Dec. 11, 2025).

Chinese nationals living in Texas on visas filed this proposed class action on July 3, 2025. They claimed S.B. 17 violates equal protection and is preempted by the Fair Housing Act and the federal foreign-investment review system run by CFIUS. On August 18, 2025, Judge Charles Eskridge dismissed the case without prejudice for lack of standing. He found that the law did not apply to the plaintiffs. He denied class certification and a preliminary injunction as moot.

The Fifth Circuit affirmed on December 11, 2025. It gave two independent reasons. First, S.B. 17 reaches only people domiciled in a designated country, meaning their true, fixed, and permanent home. Mr. Wang had lived in Texas for 16 years and intended to stay, so he was not domiciled in China. Second, he faced no credible threat of enforcement, given the Attorney General’s repeated statements in court that the law does not apply to him. The court declined to send the meaning of domicile to the Texas Supreme Court. It also distinguished an Eleventh Circuit decision on Florida’s similar law, Shen v. Commissioner, Florida Department of Agriculture & Consumer Services, 158 F.4th 1227 (11th Cir. 2025), because Florida’s statute does not define domicile the way Texas’s does.

The court never reached the constitutional questions. The ruling does, however, give the market a useful working definition of who is covered.

HUANG V. PAXTON Huang v. Paxton, No. 1:25-cv-01509-ADA (W.D. Tex. Dec. 9, 2025) (order granting motion to dismiss in part and denying preliminary injunction), appeal docketed, No. 25- 51034 (5th Cir. Dec. 16, 2025). The same plaintiffs’ counsel filed this second challenge in Austin on September 16, 2025, with three new plaintiffs. Two were Chinese citizens living abroad who own Houston-area rental homes and want to buy more. The third was a Chinese graduate student in Waco on an F-1 visa who said the one-year lease limit was driving up his rent. The complaint adds a claim that the law is preempted by the Equal Credit Opportunity Act. On December 9, 2025, Judge Alan Albright dismissed the two overseas plaintiffs. He held that foreign citizens outside the United States cannot assert rights under the U.S. Constitution, including through a Supremacy Clause claim. He denied a preliminary injunction for the student because his lease ran through July 2026 and he showed no irreparable harm. He stayed the student’s claims pending the Fifth Circuit’s ruling in Wang. The overseas plaintiffs appealed. As of the most recent docket available to us, briefing at the Fifth Circuit was underway: the State filed its brief on June 5, 2026, and the plaintiffs’ reply was due June 26, 2026. We have not found a decision. The student’s claims remain in the district court.

WHAT REMAINS UNRESOLVED

• Preemption. No court has decided whether federal law, including CFIUS and the Foreign Investment Risk Review Modernization Act, the Fair Housing Act, or the Equal Credit Opportunity Act, preempts S.B. 17.

• Equal protection. Whether the law unlawfully discriminates by national origin is undecided.

• Who can sue. Wang and Huang together set a narrow path to court. Residents who plan to stay in Texas are not covered, and overseas owners cannot assert constitutional claims. The strongest future plaintiff may be a company, or a person facing an actual enforcement action.

• Domicile in practice. Domicile turns on intent. How the State will prove it in an enforcement case, and how sellers and lenders should verify it at closing, is unclear. Cf. Yin v. Diaz, 773 F. Supp. 3d 1344 (S.D. Fla. 2025) (holding that a Florida statute’s use of domicile to define whom it covered was not unconstitutionally vague).

• Reach of the rules. Final rule text may change. Open questions include which diligence standards earn the safe harbor, how change-of-control rules apply to land owned before September 1, 2025, and how a public registry would treat lawful pre-2025 ownership. Any of these issues could change how deals are structured or how the law is enforced. Note, however, that S.B. 17 makes every word and provision severable and directs that, even if part of the law falls, it must still be construed to bar purchases by non-U.S. citizens domiciled in a designated country. See Wang, 2025 WL 2402324 (describing the severability provision). A partial win for challengers may therefore leave the core ban in place. Expect more litigation once the rules are final and enforcement begins.

PRACTICAL TAKEAWAYS

For Buyers and Investors - Map your ownership. Know who holds 10 percent or more of voting interests, who serves as general partner, managing member, or officer, and who holds options or rights over your Texas real estate.

• Expect to provide detailed ownership and control disclosures to sellers, lenders, and title companies.

• Review changes of control in entities that already own Texas land before you sign.

• For close calls, consider a written inquiry to the Attorney General’s enforcement unit before closing. For Sellers and Landlords

• S.B. 17 imposes no direct liability on sellers or lessors, but a tainted deal can still collapse or end in litigation.

• Add S.B. 17 representations and warranties, closing conditions, and indemnities to purchase agreements and long-term leases.

• Watch lease structures that renew or stack short terms. They may be treated as one long lease. For Lenders, Title Companies, Brokers, Appraisers, and Insurers

• Adopt a written screening questionnaire and ownership review protocol now. Anchor it to a recognized regulatory or industry standard to position for the safe harbor.

• Document every diligence step. Your file is your main defense against a claim that you should have known.

• Train intake, underwriting, and closing staff on the reporting duty.

• Prepare to answer a civil investigative demand within seven days. For Everyone

• Remember the CFIUS overlay. Federal clearance does not mean state compliance, and the reverse is also true.

• Track the final Chapter 67 rules and the Huang appeal. Both could shift the ground quickly.

HOW ANDREWS MYERS CAN HELP

Our Houston real estate and litigation attorneys counsel buyers, sellers, lenders, and real estate professionals on S.B. 17 compliance, transaction structuring, and diligence protocols. We also represent clients in Attorney General investigations, divestiture proceedings, and real estate disputes.

For further information on these developments, please contact Bret Rycroft.