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 - Dead) 2019-05-16 - Left pending in committee [SB42 Detail]
Download: Texas-2019-SB42-Engrossed.html
By: Zaffirini | S.B. No. 42 |
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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. |