Appellate / 3 min read
As the September 1, 2025, effective date approaches, a new Texas law, Senate Bill 17 (SB 17), is poised to significantly impact the real estate landscape across the state. This legislation introduces new restrictions on who can purchase or acquire interests in real property in Texas, primarily targeting individuals and entities associated with certain foreign nations. For real estate professionals, understanding the nuances of SB 17, its rationale, the legal challenges it faces, is crucial.
Understanding SB 17: Key Provisions and Affected Parties
SB 17 prohibits certain foreign individuals and entities from purchasing or otherwise acquiring an interest in real property in Texas. This covers a broad range of property types, including:
- agricultural land and improvements on it;
- commercial and industrial property;
- residential property (with limited exceptions); and
- groundwater, mines, quarries, minerals in place, standing timber, and water rights.
The term "interest" is not explicitly defined but can include acquisitions of easements, licenses, mineral interests, water rights, and life estates, in addition to direct property ownership. Leasehold interests of one year or more are also subject to the prohibition.
The law designates specific countries as posing a national security risk, initially including China, Russia, Iran, and North Korea. The Governor, in consultation with the public safety director of the Department of Public Safety (DPS), can also designate or remove countries or even transnational criminal organizations from this list.
Prohibited parties include individuals or entities from, controlled by, or majority-owned by designated countries, as well as those designated by the Governor. The Act does not apply to U.S. citizens or lawful permanent residents, nor to entities owned or controlled exclusively by them. Leasehold interests under one year are exempt, and a "residential homestead exception" allows lawfully present individuals from designated countries to acquire one primary residence.
Proponents’ Rationale: National Security Concerns
Proponents of SB 17, including Governor Greg Abbott and State Senator Louis Kolkhurst, argue that the law is essential to protect Texas from foreign threats, particularly those posed by "Chinese nationals" and other adversarial nations. The legislature, referencing the U.S. Director of National Intelligence's 2025 Annual Threat Assessment, cites threats such as China's dominance in critical materials, Russia's cyber capabilities, Iran's aggressive cyber operations, and North Korea's espionage and military pursuits, noting increased cooperation among these countries as a significant risk to U.S. national security.
Opposition and Current Legal Battle
Despite its stated national security objectives, SB 17 has faced strong opposition, with critics calling it "unconstitutional" and discriminatory for targeting individuals based on race, ethnicity, color, and national origin. Opponents compare SB 17 to early 20th-century "Alien Land Laws" that restricted land ownership by Asian immigrants and were repealed or struck down by the 1950s; Texas repealed its own Alien Land Law in 1965.
The legal challenge to SB 17 began on July 3, 2025, when the Chinese American Legal Defense Alliance (CALDA) filed a class action complaint in the United States District Court for the Southern District of Texas, Houston Division. The lawsuit, Peng Wang, Qinlin Li, and Yisi Wang v. Ken Paxton, Attorney General of Texas, names three Chinese citizens lawfully residing in Texas as plaintiffs: an F-1 student, an F-1/H1-B engineer, and an H1-B actuary, all legally present in the U.S. and Texas and not members of the Chinese government or Communist Party.
The lawsuit argues that SB 17 is preempted by federal authority over foreign affairs and investment, directly conflicts with the federal framework established by Committee on Foreign Investment in the United States (CFIUS) and the Foreign Investment Risk Review Modernization Act (FIRRMA), and imposes discriminatory restrictions based on race, ethnicity, and national origin. Plaintiffs claim SB 17 violates the Equal Protection Clause of the 14th Amendment by targeting Chinese persons, draws on discredited historical precedents, and encourages discrimination in real estate transactions. They further assert that SB 17 constitutes a "discriminatory housing practice" banned by the Fair Housing Act and is unconstitutionally vague due to its undefined use of "domicile," exposing nonimmigrant visa holders to potential criminal penalties. Plaintiffs argue that assurances from the Attorney General regarding enforcement are not binding and that the risk of enforcement remains significant.
The ultimate outcome of the appeal to the Fifth Circuit will significantly shape the future of SB 17. In the interim, with the law now in effect as of September 1, 2025, vigilance and a thorough understanding of the law are paramount.