2009S0676-1 03/11/09
By: Estes S.B. No. 2127
A BILL TO BE ENTITLED
AN ACT
relating to consumer protections for clients of exchange
facilitators for tax-deferred exchanges of real property.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle C, Title 5, Business & Commerce Code, is
amended by adding Chapter 106 to read as follows:
CHAPTER 106. CONSUMER PROTECTIONS FOR CLIENTS OF EXCHANGE
FACILITATORS
Sec. 106.001. LEGISLATIVE PURPOSE. The legislature finds
that ensuring the integrity, trustworthiness, and capacity of
persons holding themselves out as, or performing or contracting to
perform the activities of, exchange facilitators is vital to the
consummation of transactions involving exchange of and
reinvestment in property located in this state and is in the public
interest. The purpose of this chapter is to provide consumer
protections for clients of persons that engage in the activities of
an exchange facilitator in order to ensure the integrity,
trustworthiness, and capacity of such persons to engage in those
activities.
Sec. 106.002. DEFINITIONS. In this chapter:
(1)(A) "Exchange facilitator" means a person, other
than a person described by Paragraph (B), that:
(i) for a fee facilitates an exchange of
like kind property by entering into an agreement with a taxpayer by
which the person acquires from the taxpayer the contractual rights
to sell the taxpayer's relinquished property located in this state
and transfers a replacement property to the taxpayer as a qualified
intermediary, as that term is defined under Treasury Regulation
Section 1.1031(k)-1(g)(4), or that enters into an agreement with
the taxpayer to take title to a property in this state as an
exchange accommodation titleholder, as that term is defined in
Internal Revenue Service Procedure 2000-37, or that enters into an
agreement with a taxpayer to act as trustee of a qualified trust or
as a holder of a qualified escrow as those terms are defined under
Treasury Regulation Section 1.1031(k)-1(g)(3);
(ii) maintains an office in this state for
the purpose of soliciting business to perform any of the activities
described by Subparagraph (i); or
(iii) advertises to the public in this
state the ability or willingness of the person to provide, or
solicits customers to whom to sell, the services of the person
described by Subparagraph (i) or services as a qualified
intermediary, as that term is defined under Treasury Regulation
Section 1.1031(k)-1(g)(4), in printed publications, direct mail,
television or radio advertisements, telephone calls, facsimile
transmissions, electronic mail and messaging, or other electronic
communications, whether active or passive.
(B) "Exchange facilitator" does not include any
of the following persons:
(i) the taxpayer or a disqualified person,
as that term is defined under Treasury Regulation Section
1.1031(k)-1(k), seeking to qualify for the nonrecognition
provisions of Section 1031 Internal Revenue Code of 1986;
(ii) a financial institution that is acting
only as a depository for exchange funds and that is not facilitating
exchanges;
(iii) a person that advertises for and
teaches seminars or classes or otherwise makes presentations to
attorneys, accountants, real estate professionals, tax
professionals, or other professionals, when the primary purpose is
to teach the professionals about tax-deferred exchanges or to train
them to act as exchange facilitators; or
(iv) a person licensed as an attorney at law
by this state.
(2) "Fee" means compensation of any nature, direct or
indirect, monetary or in kind, that is received by a person or
related person as defined by Section 267(b) or 707(b), Internal
Revenue Code of 1986, for any services relating to or incidental to
the exchange of like kind property.
(3) "Financial institution" means any entity the
operations of which are regulated by an agency of the United States
Department of the Treasury or the United States Department of
Housing and Urban Development, a finance agency as defined by
Chapter 11, Finance Code, the Texas Credit Union Commission and
credit union department, the Texas Real Estate Commission, or the
Texas Department of Insurance.
Sec. 106.003. FINANCIAL ASSURANCES. (a) An exchange
facilitator must obtain, maintain, and provide to the clients of
the exchange facilitator the following financial assurances:
(1) a fidelity bond or fidelity bonds in an amount not
less than $1 million, executed by a surety company authorized to do
business in this state and approved by the commissioner of
insurance for the purpose of issuing bonds under this chapter, or a
deposit of cash or securities or letters of credit in an amount not
less than $1 million, with financial institutions; and
(2) a policy of errors and omissions insurance in an
amount not less than $250,000, or a deposit of cash or securities or
letters of credit in an amount not less than $250,000, with
financial institutions and issuers, as applicable.
Sec. 106.004. NATURE AND DUTIES OF AN EXCHANGE FACILITATOR.
A person that engages in the business of providing the services of
an exchange facilitator is a fiduciary with respect to the parties
with whom the person contracts to provide services as an exchange
facilitator. An exchange facilitator has a duty of loyalty and of
good faith and fair dealing with such parties. A breach of the
duties or of either duty is actionable by the parties with whom the
exchange facilitator contracted that suffered a loss due to the
breach of duty. This section is a clarification of existing law and
does not create a separate cause of action.
SECTION 2. This Act applies only to exchange facilitators
acting under agreements entered into on or after the effective date
of this Act or under agreements entered into before the effective
date of this Act that do not become effective as to all other
parties until on or after that date. Exchange facilitators acting
under agreements that became effective as to all parties before the
effective date of this Act are covered by the law in effect on the
date the agreements became effective, and the former law is
continued in effect for that purpose.
SECTION 3. This Act takes effect January 1, 2010.