Individuals or entities associated with designated countries may face criminal or civil penalties if they purchase or otherwise acquire interest in real estate within the state of Texas.

On June 20, 2025, Texas Governor Greg Abbott signed into law Senate Bill 17 (SB 17 or the Act), which will impose new civil and criminal penalties against foreign individuals and entities associated with foreign individuals from certain designated countries, particularly China, Russia, Iran and North Korea. The Act is set to become effective September 1, 2025, and will prohibit the acquisition of interests in real property in Texas by foreign individuals or entities domiciled in these countries designated as national security risks. A lawsuit filed July 3, 2025, by the Chinese American Legal Defense Alliance (CALDA) seeks to block SB 17.

Affected Persons and Entities

Individuals or entities associated with designated countries may face criminal or civil penalties if they purchase or otherwise acquire interest in real estate within the state of Texas.

The Act defines “designated country” as a country identified by the U.S. director of national intelligence as posing a national security risk in at least one of the three most recent Annual Threat Assessments of the U.S. Intelligence Community, or as designated by the Texas governor after consultation with the public safety director of the Department of Public Safety (DPS). Currently, the Act lists China, Russia, Iran and North Korea as designated countries.

Affected Persons

The Act prohibits the following individuals from purchasing or otherwise acquiring an interest in real property by affected parties: foreign nationals who are domiciled in a designated country; foreign nationals who only hold citizenship in the designated country whether or not they are domiciled in the designated country; and individuals who are agents of the designated country or members of its ruling party.

Nonimmigrant visa holders (including students and temporary workers), asylees, refugees, parolees, undocumented individuals and other foreign nationals who do not hold lawful permanent residence or U.S. citizenship are affected by SB 17, provided the foreign national has an association with a designated country.

Affected Entities

The Act prohibits the following entities from purchasing or otherwise acquiring an interest in real property: entities headquartered in or controlled by a designated country; entities owned, directly or indirectly, by affected persons; and entities designated as national security threats by the governor.

Entities include both companies and organizations. “Companies” is defined in the Act to include a sole proprietorship, organization, association, corporation, partnership, joint venture, limited partnership, limited liability partnership or limited liability company, including a wholly owned subsidiary, majority-owned subsidiary, parent company or affiliate of those entities or business associations, that exists to make a profit. The definition of “organizations,” via reference to the Texas Business Organizations Code, includes a business trust, real estate investment trust, joint stock company, cooperative, association, bank, insurance company, credit union, savings and loan association or “other organization,” whether the organization is for-profit or nonprofit.

“Transnational criminal organizations” are also affected, and are defined as a group of two or more persons who are citizens of or domiciled in a designated country and who engage in serious cross-border criminal activities, such as trafficking or smuggling. The governor, after consulting with DPS and the U.S. Homeland Security Council, may designate a transnational criminal organization.

Affected Transactions

SB 17 prohibits the acquisition of “an interest in real property” in Texas. Real property includes:

• Agricultural land and improvements located on agricultural land
• Commercial property
• Industrial property
• Groundwater
• Residential property
• Mine or quarry
• Mineral in place
• Standing timber
• Water rights

While the term “interest” is not defined, an interest may include acquisition of real property, easements, licenses, mineral interests, water rights, leases and life estates.

Exemptions and Exceptions

The Act does not apply to:

• U.S. citizens and lawful permanent residents;
• Individuals who are domiciled in a nondesignated country and who hold citizenship in the nondesignated country;
• Entities owned or controlled exclusively by U.S. citizens or lawful permanent residents;
• Leaseholds that are less than one year; and
• Individuals who are lawfully present and residing in the U.S. may acquire a residential property intended for use as their primary residence (the residential homestead exception).

Penalties

Following the effective date of SB 17, the Texas attorney general will have the authority to investigate and direct the enforcement of suspected violations of the law. The attorney general can bring in rem actions against real property acquired in violation of the Act, refer violations to the appropriate law enforcement agency, and seek the appointment of a receiver by a district court. The appointed receiver will be directed to divest the interest and manage control of the real property until the divestment of the interest is finalized.

SB 17 prescribes civil penalties equal to the greater of $250,000 or 50 percent of the market value of the property for entities found to be in violation of the Act. Individuals who intentionally or knowingly violate the Act may face state jail felony charges. The Act also provides for forced divestiture, with sale proceeds remitted to the violator, following the satisfying of liens and reasonable costs of enforcement by the state.

Real estate purchase and sale transactions that violate SB 17 are not automatically void. However, leasehold interests that violate the Act are void and unenforceable. Affected leasehold interests are leaseholds for one year or more and that are acquired by an affected person or entity.

The CALDA Litigation

The CALDA litigation asserts that SB 17 is unconstitutional and oversteps several federal statutes:

Equal Protection and Due Process Clauses of the Constitution

The Act “targets plaintiffs… based on their race, ethnicity, color, and national origin,” is enacted with intent to discriminate and is neither narrowly tailored nor justified by compelling state interest.

Federal Preemption

The Act clashes with federal authority under Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) and Committee on Foreign Investment in the United States (CFIUS) rules, which regulate foreign real estate purchases involving national security. "Congress did not intend to give Texas the same power as the [p]resident," reads the complaint.

Fair Housing Act Violations

The Act constitutes a “discriminatory housing practice” explicitly banned by the Fair Housing Act (42 U.S.C.§3601 et seq.).

Vagueness

The term “domicile” is undefined and arbitrary, violating due process.

Requested Relief

The CALDA litigation alleges that the three named plaintiffs will be unable to rent, study, work and purchase investment properties in Texas, and requests the following relief:

• A declaratory judgment that SB 17 violates the U.S. Constitution and is preempted by federal law.
• Temporary and permanent injunctions to block Texas officials, including Attorney General Ken Paxton, who is a named party in the litigation, from enforcing the Act.
• Recovery of attorneys’ fees and legal costs.

Similar State and Federal Laws

SB 17 may interact with federal regulations, including those enforced by CFIUS. CFIUS is authorized to review any transaction that could result in a foreign person obtaining the ability to control a U.S. business for potential threats to U.S. national security. In addition, pursuant to the FIRRMA, CFIUS has the authority to review noncontrolling investments in U.S. businesses involving certain critical technology, critical infrastructure or sensitive personal data (i.e., TID U.S. businesses) and transactions involving certain strategically sensitive real estate in the United States. Significantly, FIRRMA also provides CFIUS with authority to review pending or completed transactions even absent a voluntary filing by the parties (known as non-notified and nondeclared transactions).

On November 1, 2024, the Treasury Department issued a final rule that expanded CFIUS’ jurisdiction over foreign real estate transactions involving certain real estate that is located within:

1. A 1-mile radius of 40 additional military installations;
2. A 100-mile radius of 19 additional military installations; and
3. A 100-mile radius of eight military installations that were already listed in the regulations.

On September 11, 2024, the U.S. House of Representatives passed the Protecting American Agriculture from Foreign Adversaries Act of 2024 (HR 9456). This bill seeks to increase oversight and restrict foreign investment in U.S. agriculture. The bill would mandate that CFIUS review transactions involving foreign investments in U.S. agriculture, including farmland. While this bill was not ultimately passed by Congress, it was reintroduced in the House in February 25, 2025 (HR 1576).

CFIUS and SB 17 overlap in the regulation of foreign national ownership of property. However, SB 17 applies to all real property within the state of Texas, while CFIUS enforcement is mostly limited to real estate transactions that have national security implications.

The passage of SB 17 comes after the earlier SB 147, which was ultimately defeated in the Texas legislature. Similar to SB 17, SB 147 had proposed a ban on land ownership by citizens and businesses of China, Iran, North Korea and Russia.

In addition to Texas, several other states have passed their own laws that restrict foreign investment in real property. Furthermore, a number of states have had restrictions on foreign ownership of real property dating back decades. These state laws were discussed in our earlier Alert.

About Duane Morris

Attorneys in the firm’s Immigration Law Group, Real Estate Practice Group and International Practice Group have considerable experience in assisting clients on a wide range of matters, including assisting in determining the applicability of foreign direct investment control laws and its effects on foreign nationals.

For More Information

If you have any questions about this Alert, please contact Geoffrey M. Goodale, Amelia (Amy) H. Huskins, Ted J. Chiappari, Joel N. Ephross, Isabella Castellon Lebron, any of the attorneys in our International Practice Group, and of the attorneys in our Real Estate Practice Group, any of the attorneys in our Immigration Law Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.