Texas Foreign Ownership Law Faces Federal Court Scrutiny

Texas Senate Bill 17, which restricts certain foreign individuals and entities from acquiring real property in the state, is facing a federal appellate challenge. On November 2, 2026, the U.S. Court of Appeals for the Fifth Circuit heard arguments involving two Chinese citizens living outside the United States who say the law prevents them from purchasing additional Texas properties.

The case could affect how the state’s foreign-property ownership restrictions are challenged and enforced. However, the court did not issue an immediate ruling, and the law remains in effect while the litigation continues.

What Texas Senate Bill 17 Does

Senate Bill 17 took effect on September 1, 2025, adding restrictions to the Texas Property Code on certain purchases or acquisitions of interests in real property by individuals, companies and other entities connected to designated foreign countries.

The law identifies China, Russia, Iran and North Korea among the countries covered by its restrictions. Its scope depends on the statutory definitions and the circumstances of the individual or entity involved; it should not be interpreted as a blanket prohibition on every foreign national purchasing property in Texas.

The law authorizes state investigations and civil enforcement actions. Depending on the circumstances, violations may lead to divestiture of property interests, court-appointed receivership, civil penalties and criminal consequences for certain intentional or knowing violations.

The Federal Court Challenge

The case involves Min Huang, who lives in Shanghai, and Qiong Dai, who lives in New Zealand. Both own rental properties in the Houston area and want to acquire additional real estate in Texas. They argue that SB 17 unconstitutionally prevents them from making further purchases.

During the November 2 hearing, the Fifth Circuit panel questioned whether the plaintiffs had demonstrated sufficiently concrete plans to purchase additional properties and whether they could bring the challenge in federal court. The state has argued that their proposed purchases and the prospect of enforcement are too speculative.

The case also has a procedural complication involving unresolved claims by another plaintiff in the lower-court proceedings. As a result, questions about the appeal’s readiness for review are part of the legal dispute, in addition to the constitutional arguments.

The appellate court did not issue a ruling at the hearing. Until the court or another competent authority changes the law’s status, SB 17 remains in effect.

Proposed Enforcement Rules Could Affect Real Estate Professionals

Separately, the Texas Office of the Attorney General published revised proposed enforcement rules on October 9, 2026. The proposal would establish procedures for complaints, investigations and coordination among state agencies, along with additional transparency measures related to property ownership covered by SB 17.

The proposal includes a process for submitting complaints about potentially prohibited transactions and an optional mechanism for reporting certain property interests acquired before the law took effect. It also addresses due diligence by entities involved in real estate transactions and provides for a possible public-facing property information portal.

These provisions are proposed rules, not requirements that should automatically be treated as finalized or in force. The proposal’s comment period was scheduled to close on November 9, 2026. Readers should check official state notices for any subsequent adoption, revision or effective date.

Potential Penalties and Compliance Considerations

SB 17 provides for significant consequences when a transaction violates the law. The statute authorizes a civil penalty against a company or entity found by a court to have violated the applicable provisions. That penalty is the greater of $250,000 or 50% of the market value of the real-property interest involved.

The law also provides for divestiture and other court-supervised remedies. Certain individuals who intentionally or knowingly acquire an interest in violation of the statute may face criminal consequences. The applicable provisions and potential consequences depend on the facts and the party involved.

The proposed enforcement rules could also affect how certain facilitating entities handle suspected violations and due diligence. Because the rules are still subject to the rulemaking process, real estate professionals should distinguish existing statutory obligations from requirements that may be added or clarified in a final rule.

What Texas Property Owners and Real Estate Professionals Should Know

For property owners, buyers, sellers, investors and community management professionals, the litigation is a reminder that real estate transactions can be affected by state restrictions involving ownership, control and eligibility—not just price and financing.

Before proceeding with a transaction that may involve a person or entity covered by SB 17, parties should:

• Review the applicable statutory definitions and exemptions rather than relying on nationality alone.
• Confirm ownership and control details where relevant to the transaction.
• Consult a Texas-licensed real estate attorney or other qualified professional when the law may apply.
• Monitor official Texas Attorney General and court updates for changes to enforcement rules or the status of the appeal.

The Fifth Circuit’s eventual decision may clarify aspects of the legal challenge, but the November 2 hearing itself did not overturn SB 17. For now, the statute remains in effect, and the status of the proposed enforcement rules should be checked separately.

This article is for general informational purposes only and is not legal advice. The application of SB 17 depends on the facts of each transaction. Consult a qualified Texas attorney for advice about a specific situation.