Texas joins the patchwork of states enacting legislation restricting foreign investment in real property with the enactment of the 2025 Texas Senate Bill No. 17, highlighting the growing state interest in national security. The expansive law is set to become effective on September 1, 2025, but is not without its constitutional challenges. Meanwhile, the federal government has shown a renewed interest in protecting national security from the foreign acquisition of agricultural property, further complicating the web of state and federal regulation.
On June 20, Texas enacted 2025 Texas Senate Bill No. 17 (S.B. 17), a law restricting land ownership by certain foreign entities. The legislation comes after a similar Florida law was passed in 2023.
Both state laws present more aggressive forms of this trend toward state-level security and both face constitutional challenges. The Florida law is currently enjoined by a motions panel of the Eleventh Circuit on the grounds of preemption while the merits panel decision is still pending. Similarly, opponents have already filed suit against S.B. 17 claiming constitutional violations of preemption and equal protection, advancing similar arguments as in the Florida litigation.
S.B. 17 represents the latest piece of enacted legislation in a complex and growing web of federal- and state-level restrictions on foreign investment. Historically, foreign investment was primarily regulated at the federal level by the Committee on Foreign Investment in the United States (CFIUS), and over the last few years CFIUS has continued to expand its jurisdiction over real estate transactions.
Recently, 30 states have passed laws with some additional restriction of foreign ownership of property in the state. These laws can vary in a myriad of ways. While some apply only to certain types of land ownership, others may relate exclusively to agriculture land or land near military bases. Simultaneously, while some laws apply only to specific foreign nations, others may apply to all foreigners. Finally, some laws impose reporting requirements rather than outright prohibitions. [1]
Texas’s Lone Star Infrastructure Protection Act is the current state-level restriction of foreign ownership of real property. This law prevents entities from restricted countries from controlling critical infrastructure. 2025 S.B. 17, signed by Governor Greg Abbott on June 20, 2025 and effective September 1, 2025, presents a much more sweeping restriction.
This expansive Texas law prohibits certain foreign investors from directly owning real property, indirectly owning real property through even partial interest, or holding leases of one year or longer. The law includes an exception allowing the purchase of a primary residence, yet other purchases or leases of real property are broadly defined. “Real property” includes commercial, agricultural, and residential properties as well as water, ground water, and mineral rights. The statute uses further broad language to include purchasing “or otherwise acquir[ing]” real property. Furthermore, it also covers investments in significant improvements to land such as building additional infrastructure or utilities.
S.B. 17 presents restrictions for only foreign individuals, entities, and governments from designated countries. “Individuals” covers both those domiciled in or who hold citizenship from a designated country. The law covers such a comprehensive range of entities (including corporations, partnerships, limited liability partnerships, wholly owned subsidiaries, affiliates, business trusts, joint stock companies, and credit unions, to name a few) that foreign entities will likely fail to avoid coverage even through creative structuring.
“Designated countries” are those identified by the US Director of National Intelligence (DNI) as posing a national security risk in the three most recent Annual Threat Assessments or as designated by the Texas governor. Currently, the only countries designated by the DNI are China, Russia, Iran, and North Korea. The Texas governor has yet to designate additional countries. Even for countries named to this list, the law creates an exception for individual US citizens and lawful permanent residents as well as companies exclusively owned by US citizens and lawful permanent residents.
In terms of enforcement, S.B. 17 authorizes the Texas attorney general to review property transactions for potential investigation. Beyond conducting investigations, the attorney general may also refer cases to local, state, or federal law enforcement agencies for further action. S.B. 17 relies exclusively on attorney general monitoring since there is no mention of a reporting requirement from either party in a property transaction. However, the law allows for the attorney general to require the production of documents, answer written questions (interrogatories), and give oral testimony under oath (depositions). The same provision also authorizes the attorney general to require the Texas Secretary of State to procure and provide various ownership data.
As the penalty for violations, the Texas attorney general can order disposition of the real property, such as through divestiture through sale or termination of the lease. If the property is sold, the proceeds first go to liens, then payment for enforcement, before finally being remitted to the violator. Violators face a civil penalty of either $250,000 or 50% of the property’s market value, whichever is higher. Purchasers who intentionally or knowingly violate may also face state jail time between 180 days to two years and a fine of $10,000. There are no penalties for sellers or lessors.
S.B. 17 has already been challenged in a class action lawsuit alleging constitutional violations related to preemption and equal protection. Multiple Chinese national plaintiffs filed the suit on July 3, 2025 in the Southern District of Texas. The plaintiffs are seeking a preliminary injunction ahead of the September 1 effective date.
A similar injunction was obtained in the Florida litigation against a similar statute, but in the Texas case a hearing on the preliminary injunction has not been set and it remains to be seen how quickly the parties or district court will move the matter forward. It is unlikely that the State of Texas will agree to a preliminary injunction, thus likely necessitating a hearing and court ruling on the request. Under the Southern District’s local rules, the state has until July 24 to respond to the plaintiffs’ motion for preliminary injunction unless a different briefing schedule is set by the district court.
The recent challenge to S.B. 17 relies heavily on a previous challenge to the similar Florida law, Florida S.B. 264. Among other property restrictions, Florida S.B. 264 prohibits any Chinese foreign principals from acquiring any Florida real property. Chinese citizens and the ACLU have challenged this state law as impliedly preempted by federal law, including CFIUS’s process for federal review of foreign investment in real estate.
The Florida case is currently enjoined by a motions panel of the Eleventh Circuit as potentially unconstitutional on preemption grounds. The appeal on the merits has been briefed and argued, with the decision pending for more than a year. While the suit against Texas S.B. 17 makes similar arguments and cites the Florida case as potential precedent, the Florida case is currently before the Eleventh Circuit whereas the Texas case would be appealed to the Fifth Circuit; as such, the Florida decision is not binding precedent and there could be a split in the circuits, leading ultimately to US Supreme Court review.
Similar to the Florida case, the Texas suit claims federal preemption and violations of equal protection. The Supremacy Clause of the US Constitution establishes that federal law preempts, or supersedes, state laws if Congress has expressly or impliedly reserved exclusive authority. If federal law preempts a state law, the state law is unconstitutional and invalid.
Express preemption occurs when federal and state laws directly and explicitly oppose each other, with the federal statute often noting that any related state statute is preempted. Implied preemption occurs when the laws do not conflict on their face, yet either the state law creates an obstacle for full enactment of the federal law or there is clear legislative intent for federal law to control a specific field of law. In deciding preemption, courts typically analyze whether the state law aligns with the structure, purpose, and policy of the federal statute as a whole. If the state law conflicts with the federal law’s objectives or makes compliance with both laws impossible, a preemption ruling is expected.
The class action lawsuit claims that federal law preempts the Texas law in two ways. First, the lawsuit claims that the Fair Housing Act explicitly preempts S.B. 17 since it prevents any state from enacting discriminatory housing practices related to a person’s race, color, or national origin. The plaintiffs allege that S.B. 17 prevents Chinese people from purchasing or renting property because of their protected characteristics and it therefore explicitly conflicts with the Fair Housing Act.
Under Fifth Circuit jurisprudence, this claim may face resistance if the defining protected factor is only their nonimmigrant foreign citizenship. Among other things, the State of Texas is likely to emphasize the citizenship distinction as opposed to restrictions on race, color, or national origin, potentially removing it from the purview of the Fair Housing Act if the plaintiffs cannot show the regulation is tied to the protected classes. The State of Texas may also look to stand behind the 10th Amendment—which historically has been used to protect states’ rights and interest to property within their boundaries—to defend against the preemption claim.
Second, the lawsuit claims federal regimes impliedly preempt S.B. 17 since foreign relations, foreign threats to national security, immigration, and foreign commerce are all legal fields exclusively occupied by the federal government. Since federal regimes and agencies such as CFIUS and the Foreign Investment Risk Review Modernization Act already address when foreign individuals may purchase land in the United States because of their foreign citizenship, the plaintiffs allege that S.B. 17 unconstitutionally conflicts with and attempts to usurp federal law.
Conversely, Texas will potentially argue that S.B. 17 is not preempted by federal law because there is no federal law that directly regulates whether foreign citizens are permitted under US law to own property, and rather addresses only the requirements or circumstances of how to treat and report any ownership when it is allowed by states. The district court will have to grapple with whether S.B. 17 stands in the way of the federal regulations being enforced or enjoyed, or whether all laws can coexist without conflict.
In addition to the preemption violation, the plaintiffs allege that S.B. 17 violates the Equal Protection Clause of the 14th Amendment, which prohibits states from denying any person equal protection of the laws. An equal protection violation must include governmental discrimination based on a protected characteristic, that discrimination must be unjustifiable, and it must cause harm.
The plaintiffs claim the Texas law impermissibly discriminates based on race, ethnicity, color, and nation of origin, all of which are protected characteristics. The plaintiffs also claim S.B. 17 is not narrowly tailored enough to any supposed justifiable purpose for the law, and claim the law causes irreparable harm. As noted, however, the state may argue that nonimmigrant foreign citizenship is not a protected class under Fifth Circuit precedent and that only a rational basis standard is required, lowering the constitutional threshold. Lastly, and depending on the enforcement mechanisms of S.B. 17, it would not be surprising for Texas to raise a sovereign immunity defense for defendant Ken Paxton in his capacity as attorney general for the State of Texas.
Other opponents of the law argue S.B. 17 also violates the Due Process Clause of the 14th Amendment. A violation of the Due Process Clause requires deprivation of life, liberty, or property and some procedural unfairness. Opponents argue S.B. 17 uses confusing, vague, and ambiguous terms that it fails to clearly define, which therefore provides insufficient notice. The plaintiffs may later attempt to inject these issues into the Texas case through pleading amendments, although it is unclear if the district court would allow them.
CFIUS has historically been responsible for assessing foreign investment for national security threats. CFIUS reviews transactions with foreign individuals or entities related to critical infrastructure, technologies, or sensitive personal data for national security risks. CFIUS also has authority to review covered real estate transactions with proximity to military bases and strategic ports, though foreign investors’ filing with CFIUS for real estate transactions remains voluntary.
On July 8, the current administration presented the National Farm Security Action Plan, recognizing agriculture as critical infrastructure and adding Agriculture Secretary Brooke Rollins to CFIUS on an ad hoc basis to help assess agricultural property transactions by foreign adversaries. In prior CFIUS reviews involving agricultural lands, the Secretary of Agriculture has also been included on an ad hoc basis, so it is unclear to what extent this announcement represents a material change. Only Congress can modify the statute to include the Secretary of Agriculture as a permanent member of CFIUS.
The action plan indicates strong support of collaboration between federal efforts and state, local, tribal, and territorial efforts to address agricultural security, using language such as “USDA will work alongside State and Congressional partners.” Such language in the USDA action plan may suggest the current administration would likely work alongside state authorities and not take the position that federal law preempts state law.
Recently, CFIUS expanded its jurisdiction to include a broader scope of real estate transactions. This more expansive scope may strengthen state-level claims of implied preemption since more comprehensive federal jurisdiction may indicate a stronger intent to occupy a field of law.
Beyond expanding jurisdiction as related to military installations, there has also been a legislative push for CFIUS jurisdiction to include review of foreign acquisition of agricultural lands. In a controversial decision in December 2022, CFIUS determined that it lacked jurisdiction to review a Chinese company’s purchase of a 370-acre plot for a wet corn milling plant despite its proximity to an Air Force base that was not categorized as a “military installation.”
Sparked by this determination, Congress has proposed various bills to expand CFIUS’s jurisdiction in the name of food security and the foreign purchase of US farmland.
Previous bills, such as the Protecting American Agriculture from Foreign Adversaries Act of 2024, passed in the House yet failed to pass in both chambers of Congress during the legislative session. Most recently, H.R. 1713, Agricultural Risk Review Act of 2025, passed in the House on June 23. While a version has yet to pass in the Senate, the bill as written would permanently add the Secretary of Agriculture to CFIUS and require CFIUS to determine whether to review any “reportable agricultural land transactions” referred by the US Department of Agriculture. This type of transaction includes acquisition of an interest in agricultural land by foreign persons from China, North Korea, Russia, or Iran.Notably, neither the CFIUS statute nor the proposed H.R. 1713 explicitly mention preemption of state laws, and the prior administration took no position in the Florida litigation as to whether the Florida statute was preempted by federal law. Consequently, any preemption arguments would be left to federal courts.
Foreign investors, whether looking to buy, lease, or otherwise acquire personal, agricultural, or commercial property interest in Texas and elsewhere, must navigate an oft-changing landscape of regulations. Foreign investors should therefore ensure they do the following:
Summer associate Emily Bellwoar Parmentier contributed to this LawFlash.
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[1] Texas has also made a recent push to be the first state with a state-level interagency committee to screen foreign investments. Texas Senate Bill 2117 passed in the Texas Senate with overwhelming support, but the corresponding House Bill 5007 failed to pass in the Texas House before the legislative session ended on June 2. If this bill had passed, it would have established the Texas Committee on Foreign Investments, seemingly modeled after CFIUS with a somewhat broader scope. It is unknown whether the Texas Legislature will pass a similar bill in the future and whether that bill would survive its own constitutional challenges. Such a bill could be more vulnerable to a challenge on the grounds of federal preemption because of existing federal CFIUS laws and regulation.