Bill Text: TX SB42 | 2019-2020 | 86th Legislature | Engrossed


Bill Title: Relating to residential mortgage loans, including the financing of residential real estate purchases by means of a wrap mortgage loan; providing licensing and registration requirements; authorizing an administrative penalty.

Spectrum: Partisan Bill (Democrat 2-0)

Status: (Engrossed) 2019-05-16 - Left pending in committee [SB42 Detail]

Download: Texas-2019-SB42-Engrossed.html
 
 
  By: Zaffirini S.B. No. 42
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to residential mortgage loans, including the financing of
  residential real estate purchases by means of a wrap mortgage loan;
  providing licensing and registration requirements; authorizing an
  administrative penalty.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 156.202, Finance Code, is amended by
  amending Subsection (a-1) and adding Subsection (b) to read as
  follows:
         (a-1)  The following entities are exempt from this chapter:
               (1)  a nonprofit organization:
                     (A)  providing self-help housing that originates
  zero interest residential mortgage loans for borrowers who have
  provided part of the labor to construct the dwelling securing the
  loan; or
                     (B)  that has designation as a Section 501(c)(3)
  organization by the Internal Revenue Service and originates
  residential mortgage loans for borrowers who, through a self-help
  program, have provided at least 200 labor hours or 65 percent of the
  labor to construct the dwelling securing the loan;
               (2)  a mortgage banker registered under Chapter 157;
               (3)  subject to Subsection (b), any owner of
  residential real estate who in any 12-consecutive-month period
  makes no more than five residential mortgage loans to purchasers of
  the property for all or part of the purchase price of the
  residential real estate against which the mortgage is secured; and
               (4)  an entity that is:
                     (A)  a depository institution;
                     (B)  a subsidiary of a depository institution that
  is:
                           (i)  owned and controlled by the depository
  institution; and
                           (ii)  regulated by a federal banking agency;
  or
                     (C)  an institution regulated by the Farm Credit
  Administration.
         (b)  In determining eligibility for an exemption under
  Subsection (a-1)(3), two or more owners of residential real estate
  are considered a single owner for the purpose of computing the
  number of mortgage loans made within the period specified by that
  subdivision if any of the owners are affiliates, as defined by
  Section 1.002(1), Business Organizations Code, or if any of the
  owners have substantially common ownership, as determined by the
  commissioner.
         SECTION 2.  Section 157.0121, Finance Code, is amended by
  amending Subsection (c) and adding Subsection (f) to read as
  follows:
         (c)  Employees of the following entities, when acting for the
  benefit of those entities, are exempt from the licensing and other
  requirements of this chapter applicable to residential mortgage
  loan originators:
               (1)  a nonprofit organization:
                     (A)  providing self-help housing that originates
  zero interest residential mortgage loans for borrowers who have
  provided part of the labor to construct the dwelling securing the
  loan; or
                     (B)  that has designation as a Section 501(c)(3)
  organization by the Internal Revenue Service and originates
  residential mortgage loans for borrowers who, through a self-help
  program, have provided at least 200 labor hours or 65 percent of the
  labor to construct the dwelling securing the loan;
               (2)  subject to Subsection (f), any owner of
  residential real estate who in any 12-consecutive-month period
  makes no more than five residential mortgage loans to purchasers of
  the property for all or part of the purchase price of the
  residential real estate against which the mortgage is secured; and
               (3)  an entity that is:
                     (A)  a depository institution;
                     (B)  a subsidiary of a depository institution that
  is:
                           (i)  owned and controlled by the depository
  institution; and
                           (ii)  regulated by a federal banking agency;
  or
                     (C)  an institution regulated by the Farm Credit
  Administration.
         (f)  In determining eligibility for an exemption under
  Subsection (c)(2), two or more owners of residential real estate
  are considered a single owner for the purpose of computing the
  number of mortgage loans made within the period specified by that
  subdivision if any of the owners are affiliates, as defined by
  Section 1.002(1), Business Organizations Code, or if any of the
  owners have substantially common ownership, as determined by the
  commissioner.
         SECTION 3.  Subtitle E, Title 3, Finance Code, is amended by
  adding Chapter 159 to read as follows:
  CHAPTER 159. WRAP MORTGAGE LOAN FINANCING
  SUBCHAPTER A. GENERAL PROVISIONS
  Sec. 159.001.  DEFINITIONS. In this chapter:
               (1)  "Commissioner" means the savings and mortgage
  lending commissioner.
               (2)  "Finance commission" means the Finance Commission
  of Texas.
               (3)  "Residential mortgage loan" has the meaning
  assigned by Section 180.002.
               (4)  "Residential real estate" has the meaning assigned
  by Section 180.002.
               (5)  "Wrap borrower" means a person obligated to pay a
  wrap mortgage loan.
               (6)  "Wrap lender" means:
                     (A)  a person who makes a wrap mortgage loan; or
                     (B)  an owner of residential real estate who
  contracts with another person to make a wrap mortgage loan to a wrap
  borrower on the owner's behalf to finance the purchase of the
  owner's residential real estate.
               (7)  "Wrap mortgage loan" means a residential mortgage
  loan:
                     (A)  made to finance the purchase of residential
  real estate that will continue to be subject to an unreleased lien
  that:
                           (i)  attached to the residential real estate
  before the loan was made; and
                           (ii)  secures a debt incurred by a person
  other than the wrap borrower that was not paid off at the time the
  loan was made; and
                     (B)  obligating the wrap borrower to the wrap
  lender for payment of a debt the principal amount of which includes:
                           (i)  the outstanding balance of the debt
  described by Paragraph (A)(ii); and
                           (ii)  any remaining amount of the purchase
  price financed by the wrap lender.
         Sec. 159.002.  INAPPLICABILITY OF CHAPTER. (a)  In this
  section, "unimproved residential real estate" means residential
  real estate on which a dwelling has not been constructed.
         (b)  Notwithstanding any other provision of this chapter,
  this chapter does not apply to a wrap mortgage loan:
               (1)  made by or on behalf of an owner of unimproved
  residential real estate to a purchaser of that residential real
  estate if:
                     (A)  the residential real estate purchased will
  not continue to be subject to any unreleased lien described by
  Section 159.001(7)(A) that secures a debt that is subject to a
  due-on-sale clause in connection with which the lienholder may
  foreclose the lien; or
                     (B)  the residential real estate purchased will
  continue to be subject to an unreleased lien described by Paragraph
  (A) and the holder of that unreleased lien has consented to the sale
  of the residential real estate; or
               (2)  for a sale of residential real estate that is the
  wrap lender's homestead.
         Sec. 159.003.  EXEMPTIONS. (a)  The following persons are
  exempt from this chapter:
               (1)  a federally insured bank, savings bank, savings
  and loan association, Farm Credit System Institution, or credit
  union;
               (2)  a subsidiary of a federally insured bank, savings
  bank, savings and loan association, Farm Credit System Institution,
  or credit union;
               (3)  the state or a governmental agency, political
  subdivision, or other instrumentality of the state, or an employee
  of the state or a governmental agency, political subdivision, or
  instrumentality of the state who is acting within the scope of the
  person's employment; or
               (4)  subject to Subsection (b), an owner of residential
  real estate if the owner does not in any 12-consecutive-month
  period make, or contract with another person to make, more than five
  wrap mortgage loans to purchasers of the property for all or part of
  the purchase price of the residential real estate against which the
  mortgage is secured.
         (b)  In determining eligibility for an exemption under
  Subsection (a)(4), two or more owners of residential real estate
  are considered a single owner for the purpose of computing the
  number of wrap mortgage loans made within the period specified by
  that subdivision if any of the owners are affiliates, as defined by
  Section 1.002(1), Business Organizations Code, or if any of the
  owners have substantially common ownership, as determined by the
  commissioner.
  SUBCHAPTER B. LICENSING OR REGISTRATION
         Sec. 159.051.  LICENSE OR REGISTRATION REQUIRED. A person
  may not originate or make a wrap mortgage loan unless the person is
  licensed or registered to originate or make residential mortgage
  loans under Chapter 156, 157, or 342 or is exempt from licensing or
  registration as provided under an applicable provision of those
  chapters.
  SUBCHAPTER C. TRANSACTION REQUIREMENTS; REMEDIES
         Sec. 159.101.  DISCLOSURE STATEMENT; OPTION TO RESCIND.
  (a)  A wrap lender must, on or before the seventh day before the
  wrap mortgage loan agreement is entered into, provide to the wrap
  borrower a separate written disclosure statement in at least
  12-point type that:
               (1)  contains the information required for a written
  disclosure statement under Section 5.016, Property Code; and
               (2)  includes a statement in a form substantially
  similar to the following:
  NOTICE REGARDING PROPERTY INSURANCE: ANY INSURANCE MAINTAINED BY A
  SELLER, LENDER, OR OTHER PERSON WHO IS NOT THE BUYER OF THIS
  PROPERTY MAY NOT PROVIDE COVERAGE TO THE BUYER IF THE BUYER SUFFERS
  A LOSS OR INCURS LIABILITY IN CONNECTION WITH THE PROPERTY. TO
  ENSURE THE BUYER'S INTERESTS ARE PROTECTED, THE BUYER SHOULD
  PURCHASE THE BUYER'S OWN PROPERTY INSURANCE. BEFORE PURCHASING
  THIS PROPERTY, YOU MAY WISH TO CONSULT AN INSURANCE AGENT REGARDING
  THE INSURANCE COVERAGE AVAILABLE TO YOU AS A BUYER OF THE PROPERTY.
         (b)  The disclosure statement required under Subsection (a)
  must be dated and signed by the wrap borrower when the wrap borrower
  receives the statement.
         (c)  The finance commission by rule shall adopt a model
  disclosure statement that satisfies the requirements of Subsection
  (a).
         (d)  If the disclosure statement required under Subsection
  (a) and any disclosure required by Section 159.102 are received by
  the wrap borrower on or before the closing date of the wrap mortgage
  loan, the wrap borrower may rescind the wrap mortgage loan
  agreement and any related purchase agreement or other agreement
  relating to the loan transaction not later than the seventh day
  after the date of receipt of the disclosure statement, regardless
  of whether the disclosure is timely made. On rescission under this
  subsection, the wrap borrower is entitled to a return of any earnest
  money, escrow amounts, down payment, or other fees or charges paid
  in connection with the wrap mortgage loan, the related purchase
  transaction, and any other related transaction.
         Sec. 159.102.  FOREIGN LANGUAGE REQUIREMENT. If the
  negotiations that precede the execution of the wrap mortgage loan
  agreement are conducted primarily in a language other than English,
  the wrap lender shall provide a copy of a written disclosure
  statement required under Section 159.101 of this code or Section  
  5.016, Property Code, in that language to the wrap borrower.
         Sec. 159.103.  FAILURE TO PROVIDE DISCLOSURE:  TOLLING OF
  LIMITATIONS. If a wrap lender fails to provide the disclosure
  statement as required by Section 159.101 or fails to provide the
  disclosure statement in the language required by Section 159.102,
  the limitations period applicable to any cause of action of the wrap
  borrower against the wrap lender arising out of the wrap lender's
  violation of a law of this state in connection with the wrap
  mortgage loan transaction is tolled until the 120th day after the
  date the required disclosure statement is provided.
         Sec. 159.104.  FAILURE TO PROVIDE DISCLOSURE BEFORE CLOSING;
  RIGHT OF RESCISSION. (a)  Subject to Subsection (b), if a wrap
  mortgage loan is closed without the wrap lender providing the
  disclosure statement required by Section 159.101 or any disclosure
  required by Section 159.102, the wrap borrower may rescind the wrap
  mortgage loan agreement and the related purchase agreement at any
  time by providing the wrap lender notice of rescission in writing.
         (b)  If the wrap borrower receives a required disclosure
  statement under Section 159.101 or 159.102 after the date the wrap
  mortgage loan is closed but before the wrap borrower provides
  notice of rescission, the wrap borrower may rescind the wrap
  mortgage loan agreement and the related purchase agreement in
  writing on or before the 21st day after the date of receipt of the
  disclosure statement.
         (c)  Not later than the 30th day after the date the wrap
  borrower provides notice of rescission under this section, the wrap
  lender shall return to the wrap borrower:
               (1)  all principal and interest payments made by the
  wrap borrower on the wrap mortgage loan;
               (2)  any money or property given as earnest money, a
  down payment, or otherwise in connection with the wrap mortgage
  loan or related purchase transaction; and
               (3)  any escrow amounts for the wrap mortgage loan or
  related purchase transaction.
         (d)  On the date on which all of the returned money or
  property described by Subsection (c) is received by the wrap
  borrower, the wrap borrower shall convey to the wrap lender or the
  wrap lender's designee the residential real estate described by
  Section 159.001(7)(A). The wrap borrower shall surrender
  possession of the residential real estate not later than the 30th
  day after the date of the wrap borrower's receipt of the money or
  property returned as described by this subsection.
         (e)  Notwithstanding Subsection (a) or (b), the wrap lender
  may avoid rescission if not later than the 30th day after the date
  of receipt of notice of rescission under Subsection (a), the wrap
  lender:
               (1)  pays the outstanding balance due on any debt
  described by Section 159.001(7)(A)(ii);
               (2)  pays any due and unpaid taxes or other government
  assessment on the residential real estate described by Section
  159.001(7)(A);
               (3)  pays to the wrap borrower as damages for
  noncompliance the sum of $1,000 and any reasonable attorney's fees
  incurred by the wrap borrower; and
               (4)  provides to the wrap borrower evidence of
  compliance with Subdivisions (1) and (2).
         Sec. 159.105.  ENFORCEABILITY OF WRAP LIEN. A lien securing
  a wrap mortgage loan is void unless the wrap mortgage loan and the
  conveyance of the residential real estate securing the loan are
  closed by an attorney or a title company.
         Sec. 159.106.  BORROWER'S RIGHT OF ACTION. (a)  A wrap
  borrower may bring an action to:
               (1)  obtain declaratory or injunctive relief to enforce
  this subchapter;
               (2)  recover any actual damages suffered by the wrap
  borrower as a result of a violation of this subchapter; or
               (3)  obtain other remedies available under this
  subchapter or in an action under Section 17.50, Business & Commerce
  Code, as otherwise authorized under this subchapter.
         (b)  A wrap borrower who prevails in an action under this
  section may recover court costs and reasonable attorney's fees.
         Sec. 159.107.  WAIVER OR AVOIDANCE PROHIBITED. (a)  Any
  purported waiver of a right of a wrap borrower under this subchapter
  or purported exemption of a person from liability for a violation of
  this subchapter is void.
         (b)  A person who is a party to a residential real estate
  transaction may not evade the application of this subchapter by any
  device, subterfuge, or pretense, and any attempt to do so is void
  and a deceptive trade practice under Subchapter E, Chapter 17,
  Business & Commerce Code, and is actionable under that subchapter.
         Sec. 159.108.  RULEMAKING AUTHORITY. The finance commission
  may adopt and enforce rules necessary for the intent of or to ensure
  compliance with this subchapter.
  SUBCHAPTER D. DUTIES OWED TO WRAP BORROWER
         Sec. 159.151.  MONEY HELD IN TRUST. A person who collects or
  receives a payment from a wrap borrower under the terms of a wrap
  mortgage loan holds the money in trust for the benefit of the
  borrower.
         Sec. 159.152.  FIDUCIARY DUTY. A person who collects or
  receives a payment from a wrap borrower under the terms of or in
  connection with a wrap mortgage loan owes a fiduciary duty to the
  wrap borrower to use the payment to satisfy the obligations of the
  obligee under each debt described by Section 159.001(7)(A)(ii) and
  the payment of taxes and insurance for which the wrap lender has
  received any payments from the wrap borrower.
  SUBCHAPTER E. WRAP BORROWER'S RIGHTS
         Sec. 159.201.  APPLICABILITY OF SUBCHAPTER. This subchapter
  applies only to a wrap mortgage loan for a purchase of residential
  real estate to be used as the wrap borrower's residence.
         Sec. 159.202.  WRAP BORROWER'S RIGHT TO DEDUCT. The wrap
  borrower, without taking judicial action, may deduct from any
  amount owed to the wrap lender under the terms of the wrap mortgage
  loan:
               (1)  the amount of any payment made by the wrap borrower
  to an obligee of a debt described by Section 159.001(7)(A)(ii) to
  cure a default by the wrap lender caused by the lender's failure to
  make payments for which the lender is responsible under the terms of
  the wrap mortgage loan; or
               (2)  any other amount for which the wrap lender is
  liable to the wrap borrower under the terms of the wrap mortgage
  loan.
  SUBCHAPTER F. ENFORCEMENT OF CERTAIN REGISTRATION REQUIREMENTS
         Sec. 159.251.  APPLICABILITY OF SUBCHAPTER. This subchapter
  applies only to a wrap lender who is required to register as a
  residential mortgage loan servicer under Chapter 158.
         Sec. 159.252.  INSPECTION; INVESTIGATION. (a)  The
  commissioner may conduct an inspection of a wrap lender registered
  under Chapter 158 as the commissioner determines necessary to
  determine whether the wrap lender is complying with that chapter
  and applicable rules. The inspection may include an inspection of
  the books, records, documents, operations, and facilities of the
  wrap lender. The commissioner may share evidence of criminal
  activity gathered during an inspection or investigation with any
  state or federal law enforcement agency.
         (b)  For reasonable cause, the commissioner at any time may
  investigate a wrap lender registered under Chapter 158 to determine
  whether the lender is complying with that chapter and applicable
  rules.
         (c)  The commissioner may conduct an undercover or covert
  investigation only if the commissioner, after due consideration of
  the circumstances, determines that the investigation is necessary
  to prevent immediate harm and to carry out the purposes of Chapter
  158.
         (d)  The finance commission by rule shall provide guidelines
  to govern an inspection or investigation under this section,
  including rules to:
               (1)  determine the information and records of the wrap
  lender to which the commissioner may demand access during an
  inspection or investigation; and
               (2)  establish what constitutes reasonable cause for an
  investigation.
         (e)  Information obtained by the commissioner during an
  inspection or investigation under this section is confidential
  unless disclosure of the information is permitted or required by
  other law.
         (f)  The commissioner may share information gathered during
  an investigation under this section with a state or federal agency.
  The commissioner may share information gathered during an
  inspection with a state or federal agency only if the commissioner
  determines there is a valid reason for the sharing.
         (g)  The commissioner may require reimbursement of expenses
  for each examiner for an on-site examination or inspection of a
  registered wrap lender under this section if records are located
  out of state and are not made available for examination or
  inspection by the examiner in this state. The finance commission by
  rule shall set the maximum amount for the reimbursement of expenses
  authorized under this subsection.
         Sec. 159.253.  ISSUANCE AND ENFORCEMENT OF SUBPOENA.
  (a)  During an investigation conducted under this subchapter, the
  commissioner may issue a subpoena that is addressed to a peace
  officer of this state or other person authorized by law to serve
  citation or perfect service. The subpoena may require a person to
  give a deposition, produce documents, or both.
         (b)  If a person disobeys a subpoena or if a person appearing
  in a deposition in connection with the investigation refuses to
  testify, the commissioner may petition a district court in Travis
  County to issue an order requiring the person to obey the subpoena,
  testify, or produce documents relating to the matter. The court
  shall promptly set an application to enforce a subpoena issued
  under Subsection (a) for hearing and shall cause notice of the
  application and the hearing to be served on the person to whom the
  subpoena is directed.
  SUBCHAPTER G. ENFORCEMENT OF CHAPTER
         Sec. 159.301.  CEASE AND DESIST ORDER. (a)  The
  commissioner, if the commissioner has reasonable cause to believe
  that a wrap lender or wrap mortgage loan originator to whom this
  chapter applies has violated or is about to violate this chapter,
  may issue without notice and hearing an order to cease and desist
  from continuing a particular action or an order to take affirmative
  action, or both, to enforce compliance with this chapter.
         (b)  An order issued under Subsection (a) must contain a
  reasonably detailed statement of the facts on which the order is
  made. If a person against whom the order is made requests a
  hearing, the commissioner shall set and give notice of a hearing
  before the commissioner or a hearings officer. The hearing shall be
  governed by Chapter 2001, Government Code. Based on the findings of
  fact, conclusions of law, and recommendations of the hearings
  officer, the commissioner by order may find a violation has
  occurred or not occurred.
         (c)  If a hearing is not requested under Subsection (b) on or
  before the 30th day after the date on which an order is made, the
  order is considered final and not appealable.
         (d)  The commissioner, after giving notice and an
  opportunity for hearing, may impose against a person who violates a
  cease and desist order an administrative penalty in an amount not to
  exceed $1,000 for each day of the violation. In addition to any
  other remedy provided by law, the commissioner may institute in
  district court a suit for injunctive relief and to collect the
  administrative penalty. A bond is not required of the commissioner
  with respect to injunctive relief granted under this subsection.
         SECTION 4.  Section 180.003, Finance Code, is amended by
  amending Subsection (a) and adding Subsection (d) to read as
  follows:
         (a)  The following persons are exempt from this chapter:
               (1)  a registered mortgage loan originator when acting
  for an entity described by Section 180.002(16)(A)(i), (ii), or
  (iii);
               (2)  an individual who offers or negotiates terms of a
  residential mortgage loan with or on behalf of an immediate family
  member of the individual;
               (3)  a licensed attorney who negotiates the terms of a
  residential mortgage loan on behalf of a client as an ancillary
  matter to the attorney's representation of the client, unless the
  attorney:
                     (A)  takes a residential mortgage loan
  application; and
                     (B)  offers or negotiates the terms of a
  residential mortgage loan;
               (4)  an individual who offers or negotiates terms of a
  residential mortgage loan secured by a dwelling that serves as the
  individual's residence;
               (5)  subject to Subsection (d), an owner of residential
  real estate who in any 12-consecutive-month period makes no more
  than five residential mortgage loans to purchasers of the property
  for all or part of the purchase price of the residential real estate
  against which the mortgage is secured; and
               (6)  subject to Subsection (d), an owner of a dwelling
  who in any 12-consecutive-month period makes no more than five
  residential mortgage loans to purchasers of the property for all or
  part of the purchase price of the dwelling against which the
  mortgage or security interest is secured.
         (d)  In determining eligibility for an exemption under
  Subsection (a)(5) or (6), two or more owners of residential real
  estate or a dwelling, as applicable, are considered a single owner
  for the purpose of computing the number of mortgage loans made
  within the period specified by those subdivisions if any of the
  owners are affiliates, as defined by Section 1.002(1), Business
  Organizations Code, or if any of the owners have substantially
  common ownership, as determined by the savings and mortgage lending
  commissioner.
         SECTION 5.  This Act takes effect January 1, 2020.
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