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

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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 - Dead) 2019-05-16 - Left pending in committee [SB42 Detail]

Download: Texas-2019-SB42-Engrossed.html

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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.