By: Carona S.B. No. 889
(S. Davis of Harris)
A BILL TO BE ENTITLED
AN ACT
relating to assignment of rents to holders of certain security
interests in real property.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subsection (d), Section 9.109, Business &
Commerce Code, is amended to read as follows:
(d) This chapter does not apply to:
(1) a landlord's lien, other than an agricultural
lien;
(2) a lien, other than an agricultural lien, given by
statute or other rule of law for services or materials, but Section
9.333 applies with respect to priority of the lien;
(3) an assignment of a claim for wages, salary, or
other compensation of an employee;
(4) a sale of accounts, chattel paper, payment
intangibles, or promissory notes as part of a sale of the business
out of which they arose;
(5) an assignment of accounts, chattel paper, payment
intangibles, or promissory notes that is for the purpose of
collection only;
(6) an assignment of a right to payment under a
contract to an assignee that is also obligated to perform under the
contract;
(7) an assignment of a single account, payment
intangible, or promissory note to an assignee in full or partial
satisfaction of a preexisting indebtedness;
(8) a transfer of an interest in or an assignment of a
claim under a policy of insurance, other than an assignment by or to
a health care provider of a health-care-insurance receivable and
any subsequent assignment of the right to payment, but Sections
9.315 and 9.322 apply with respect to proceeds and priorities in
proceeds;
(9) an assignment of a right represented by a
judgment, other than a judgment taken on a right to payment that was
collateral;
(10) a right of recoupment or set-off, but:
(A) Section 9.340 applies with respect to the
effectiveness of rights of recoupment or set-off against deposit
accounts; and
(B) Section 9.404 applies with respect to
defenses or claims of an account debtor;
(11) the creation or transfer of an interest in or lien
on real property, including a lease or rents, as defined by Section
64.001, Property Code [thereunder], the interest of a vendor or
vendee in a contract for deed to purchase an interest in real
property, or the interest of an optionor or optionee in an option to
purchase an interest in real property, except to the extent that
provision is made for:
(A) liens on real property in Sections 9.203 and
9.308;
(B) fixtures in Section 9.334;
(C) fixture filings in Sections 9.501, 9.502,
9.512, 9.516, and 9.519; and
(D) security agreements covering personal and
real property in Section 9.604;
(12) an assignment of a claim arising in tort, other
than a commercial tort claim, but Sections 9.315 and 9.322 apply
with respect to proceeds and priorities in proceeds; or
(13) an assignment of a deposit account, other than a
nonnegotiable certificate of deposit, in a consumer transaction,
but Sections 9.315 and 9.322 apply with respect to proceeds and
priorities in proceeds.
SECTION 2. Subtitle B, Title 5, Property Code, is amended by
adding Chapter 64 to read as follows:
CHAPTER 64. ASSIGNMENT OF RENTS TO LIENHOLDER
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 64.001. DEFINITIONS. In this chapter:
(1) "Assignee" means a person entitled to enforce an
assignment of rents.
(2) "Assignment of rents" means a transfer of an
interest in rents in connection with an obligation secured by real
property from which the rents arise. The term does not include a
contract for a charge authorized by Section 306.101, Finance Code,
or a true sale of rents.
(3) "Assignor" means an owner of real property who
makes an assignment of rents arising from the property or that
owner's successor in interest.
(4) "Cash proceeds" means proceeds that are money,
checks, deposit accounts, or similar legal tender.
(5) "Day" means a calendar day.
(6) "Deposit account" means a demand, time, savings,
passbook, escrow, or similar account maintained with a bank,
savings bank, savings and loan association, credit union, trust
company, or other person.
(7) "Document" means information that is inscribed on
a tangible medium or that is stored on an electronic or other medium
and is retrievable in perceivable form.
(8) "Proceeds" means personal property that is
received, collected, or distributed on account of an obligation to
pay rents.
(9) "Rents" means:
(A) consideration payable for the right to
possess or occupy, or for possessing or occupying, real property;
(B) consideration payable to an assignor under a
policy of rental interruption insurance covering real property;
(C) claims arising out of a default in the
payment of consideration payable for the right to possess or occupy
real property;
(D) consideration payable to terminate an
agreement to possess or occupy real property;
(E) consideration payable to an assignor for
payment or reimbursement of expenses incurred in owning, operating,
and maintaining, or constructing or installing improvements on,
real property; or
(F) any other consideration payable under an
agreement relating to the real property that constitutes rents
under a law of this state other than this chapter.
(10) "Secured obligation" means an obligation secured
by an assignment of rents.
(11) "Security instrument" means:
(A) a security instrument, as that term is
defined by Section 51.0001; or
(B) an agreement containing an assignment of
rents.
(12) "Security interest" means an interest in property
that arises by agreement and secures an obligation.
(13) "Sign" includes to sign by an electronic
signature, as defined by Section 15.002.
(14) "Tenant" means a person who has an obligation to
pay for the right to possess or occupy, or for possessing or
occupying, real property.
Sec. 64.002. MANNER OF PROVIDING NOTICE. (a) A person may
provide a notice under this chapter:
(1) by transmitting the notice in the manner described
by Section 51.002(e);
(2) by depositing the notice with the United States
Postal Service or a commercially reasonable delivery service,
properly addressed to the intended recipient's address in
accordance with this section, with first class postage or other
cost of delivery paid; or
(3) by transmitting the notice to the intended
recipient by any means agreed to by the intended recipient.
(b) Except as agreed under Subsection (a)(3), notice to an
assignee must be sent to the assignee's address as provided in the
relevant security instrument or another document entered into for
the purposes of this section by the assignee and the person sending
the notice, unless a more recent address for notice has been given
in a manner provided by Subsection (a) by the assignee to the person
sending the notice or in a security instrument or other document
signed by the assignee.
(c) Except as agreed under Subsection (a)(3), notice to an
assignor must be sent to the assignor's address as provided in the
relevant security instrument or another document entered into for
the purposes of this section by the assignor and the person sending
the notice or an address for the assignor to which a notice of
default under Section 51.002 is properly sent, unless a more recent
address for notice has been given in a manner provided by Subsection
(a) by the assignor to the person sending the notice or in a
security instrument or other document signed by the assignor.
(d) Except as agreed under Subsection (a)(3), notice to a
tenant must be sent to:
(1) an address for notice to the tenant provided in a
signed document entered into by the tenant and the person providing
the notice, unless a more recent address for notice has been given
by the tenant in accordance with that document;
(2) if an address for notice described by Subdivision
(1) does not exist, the address provided in a written agreement
between the tenant and the assignor for notices to the tenant if the
person sending the notice has received a copy of that agreement or
has actual knowledge of the address for notice specified in that
agreement; or
(3) if an address for notice described by Subdivision
(1) or (2) does not exist, the tenant's address at the real property
covered by the security instrument.
(e) Notice provided in accordance with this section is
considered received on the earliest of:
(1) the date the notice is received by the person to
whom the notice is provided;
(2) the fifth day after the date the notice is provided
in accordance with Subsection(a)(2); or
(3) the date on which notice is considered provided in
accordance with an agreement made by the person to whom the notice
is provided for the purposes of this section.
[Sections 64.003-64.050 reserved for expansion]
SUBCHAPTER B. ASSIGNMENT OF RENTS
Sec. 64.051. SECURITY INSTRUMENT CREATES ASSIGNMENT OF
RENTS; ASSIGNMENT OF RENTS CREATES SECURITY INTEREST. (a) An
enforceable security instrument creates an assignment of rents
arising from real property securing an obligation under the
security instrument, unless the security instrument provides
otherwise or the security instrument is governed by Section
50(a)(6), (7), or (8), Article XVI, Texas Constitution.
(b) An assignment of rents creates a presently effective
security interest in all accrued and unaccrued rents arising from
the real property described in the document creating the
assignment, regardless of whether the document is in the form of an
absolute assignment, an absolute assignment conditioned on default
or another event, an assignment as additional security, or any
other form. The security interest in rents is separate and distinct
from any security interest held by the assignee in the real property
from which the rents arise.
(c) An assignment of rents does not reduce the secured
obligation except to the extent the assignee collects rents and
applies, or is obligated to apply, the collected rents to payment of
the secured obligation.
Sec. 64.052. RECORDATION AND PERFECTION OF SECURITY
INTEREST IN RENTS; PRIORITY OF INTERESTS IN RENTS. (a) A document
creating an assignment of rents may be recorded in the county in
which any part of the real property is located.
(b) On recordation of a document creating an assignment of
rents, the security interest in the rents is perfected. This
subsection prevails over a conflicting provision in the document
creating the assignment of rents or a law of this state other than
this chapter that prohibits or defers enforcement of the security
interest until the occurrence of a subsequent event, such as a
subsequent default of the assignor, the assignee's obtaining
possession of the real property, or the appointment of a receiver.
(c) Except as provided by Subsection (d), a perfected
security interest in rents has priority over the rights of a person
who, after the security interest is perfected, acquires:
(1) a lien on or other security interest in the rents
or the real property from which the rents arise; or
(2) an interest in the rents or the real property from
which the rents arise.
(d) An assignee of a perfected security interest in rents
has the same priority over the rights of a person described by
Subsection (c) with respect to future advances as the assignee has
with respect to the assignee's security interest in the real
property from which the rents arise.
Sec. 64.053. ENFORCEMENT OF SECURITY INTEREST IN RENTS
GENERALLY. (a) An assignee may enforce an assignment of rents
using one or more of the methods provided by Section 64.054 or
64.055 or another method sufficient to enforce the assignment under
a law of this state other than this chapter.
(b) On and after the date on which an assignee begins to
enforce an assignment of rents, the assignee is entitled to collect
all rents that:
(1) accrued before but remain unpaid on that date; and
(2) accrue on or after that date.
Sec. 64.054. ENFORCEMENT BY NOTICE TO ASSIGNOR. (a) After
default, or as otherwise agreed by the assignor, the assignee may
provide the assignor a notice demanding that the assignor pay the
assignee the proceeds of any rents that the assignee is entitled to
collect under Section 64.053.
(b) For the purposes of Section 64.053, the assignee begins
enforcement under this section on the date on which the assignee
provides notice to the assignor in accordance with Section 64.002.
(c) An assignee may not enforce an assignment of rents under
this section if, on the date the security instrument was signed and
the date of prospective enforcement, the real property constitutes
the assignor's homestead on which is located a one-family to
four-family dwelling.
Sec. 64.055. ENFORCEMENT BY NOTICE TO TENANT. (a) After
default, or as otherwise agreed by the assignor, the assignee may
provide to a tenant of real property that is subject to an
assignment of rents a notice demanding that the tenant pay to the
assignee all unpaid accrued rents and all unaccrued rents as they
accrue. The assignee shall provide a copy of the notice to the
assignor in the manner provided by Section 64.002. The notice must
substantially comply with the form prescribed by Section 64.056 and
be signed by the assignee or the assignee's authorized agent or
representative.
(b) For the purposes of Section 64.053(b), the assignee
begins enforcement under this section on the date on which the
tenant receives a notice complying with Subsection (a).
(c) Subject to Subsection (d) and any other claim or defense
that a tenant has under a law of this state other than this chapter,
after a tenant receives a notice under Subsection (a):
(1) the tenant is obligated to pay to the assignee all
unpaid accrued rents and all unaccrued rents as they accrue, unless
the tenant has previously received a notice under this section from
another assignee of rents provided by that assignee in accordance
with this section and the other assignee has not canceled that
notice;
(2) except as otherwise provided by a document signed
by the tenant, the tenant is not obligated to pay to an assignee
rent that was prepaid to the assignor before the tenant received the
notice under Subsection (a);
(3) unless the tenant occupies the premises as the
tenant's primary residence, the tenant is not discharged from the
obligation to pay rents to the assignee if the tenant pays rents to
the assignor;
(4) the tenant's payment to the assignee of rents then
due satisfies the tenant's obligation under the tenant's agreement
with the assignor to the extent of the payment made; and
(5) the tenant's obligation to pay rents to the
assignee continues until the earliest date on which the tenant
receives:
(A) a court order directing the tenant to pay the
rents in a different manner;
(B) a signed notice that a perfected security
instrument that has priority over the assignee's security interest
has been foreclosed; or
(C) a signed document from the assignee canceling
the assignee's notice.
(d) Except as otherwise provided by a document signed by the
tenant, a tenant who has received a notice under Subsection (a) is
not in default for nonpayment of rents that accrue during the 30
days after the date the tenant receives the notice until the earlier
of:
(1) the 10th day after the date the next regularly
scheduled rental payment would be due; or
(2) the 30th day after the date the tenant receives the
notice.
(e) On receiving a notice from another creditor who has
priority under Section 64.052(c) that the creditor with priority
has conducted a foreclosure sale of the real property from which the
rents arise or is enforcing the creditor's interest in rents by
notice to the tenant, an assignee that has provided a notice to a
tenant under Subsection (a) shall immediately provide another
notice to the tenant canceling the earlier notice.
Sec. 64.056. FORM OF NOTICE TO TENANT. The following form
of notice, when properly completed, satisfies the requirements of
Section 64.055(a):
NOTICE TO PAY RENTS TO PERSON OTHER THAN LANDLORD
Tenant: [Name of tenant]
Property Occupied by Tenant (the "Premises"): [Address]
Landlord: [Name of landlord]
Assignee: [Name of assignee]
Address of Assignee and Telephone Number of Contact Person:
[Address of assignee] [Telephone number of person to contact]
1. Assignee is entitled to collect rents on the Premises
under [Name of Document] (the "Assignment of Rents") dated [Date of
Assignment of Rents], and recorded at [Recording Data] of [Name of
County] County, Texas. You may obtain additional information about
the Assignment of Rents and the Assignee's right to enforce it at
the address of the Assignee.
2. A default exists under the Assignment of Rents or related
documents between the Landlord and the Assignee. The Assignee is
entitled to collect rents from the Premises.
3. This notice affects your rights and obligations under the
agreement under which you occupy the Premises (your "Lease
Agreement"). Unless you have otherwise agreed in a document signed
by you, if your next scheduled rental payment is due within 30 days
after you receive this notice, you will not be in default under your
Lease Agreement for nonpayment of that rental payment until the
10th day after the due date of that payment or the 30th day
following the date you receive this notice, whichever occurs first.
4. You may consult a lawyer at your expense concerning your
rights and obligations under your Lease Agreement and the effect of
this notice.
5. You must pay to the Assignee at the Address of the
Assignee all rents under your Lease Agreement that are due and
payable on the date you receive this notice and all rents accruing
under your Lease Agreement after you receive this notice.
6. If you pay rents to the Assignee after receiving this
notice, the payment will satisfy your rental obligation to the
extent of that payment.
7. If you pay any rents to the Landlord after receiving this
notice, your payment to the Landlord will not discharge your rental
obligation, and the Assignee may hold you liable for that rental
obligation notwithstanding your payment to the Landlord unless you
occupy the Premises as your primary residence.
8. If you have previously received a notice from another
person who also holds an assignment of the rents due under your
Lease Agreement, you should continue paying your rents to the
person that sent that notice until that person cancels that notice.
Once that notice is canceled, you must begin paying rents to the
Assignee in accordance with this notice.
Name of assignee: __________
By: [Officer/authorized agent of assignee]
Sec. 64.057. EFFECT OF ENFORCEMENT. The enforcement of an
assignment of rents by a method provided by Section 64.054 or
64.055, the application of proceeds by the assignee under Section
64.059 after enforcement, the payment of expenses under Section
64.058, or an action under Section 64.060 does not:
(1) make the assignee a mortgagee in possession of the
real property from which the rents arise;
(2) make the assignee an agent of the assignor;
(3) constitute an election of remedies that precludes
a later action to enforce the secured obligation;
(4) make the secured obligation unenforceable;
(5) limit any right available to the assignee with
respect to the secured obligation; or
(6) bar a deficiency judgment under any law of this
state governing or relating to deficiency judgments following the
enforcement of any encumbrance, lien, or security interest.
Sec. 64.058. APPLICATION OF PROCEEDS GENERALLY. Unless
otherwise agreed by the assignor, an assignee who collects rents
under this chapter or collects on a judgment in an action under
Section 64.060 shall apply the sums collected in the following
order to:
(1) reimbursement of the assignee's expenses of
enforcing the assignee's assignment of rents, including, to the
extent provided for by agreement by the assignor and not prohibited
by a law of this state other than this chapter, reasonable
attorney's fees and costs incurred by the assignee;
(2) reimbursement of any expenses incurred by the
assignee to protect or maintain the real property that is subject to
the assignment of rents if the assignee elects or is required to
apply the proceeds to those expenses under Section 64.059;
(3) payment of the secured obligation;
(4) payment of any obligation secured by a subordinate
security interest or other lien on the rents if, before
distribution of the proceeds, the assignee receives a signed notice
from the holder of the interest or lien demanding payment of the
proceeds; and
(5) payment of any excess proceeds to the assignor.
Sec. 64.059. APPLICATION OF PROCEEDS TO EXPENSES OF
PROTECTING REAL PROPERTY; CLAIMS AND DEFENSES OF TENANT.
(a) Unless otherwise agreed by the assignee, an assignee that
collects rents following enforcement under Section 64.054 or 64.055
is not obligated to apply the collected rents to the payment of
expenses of protecting or maintaining the real property subject to
an assignment of rents.
(b) Unless otherwise agreed by a tenant, the right of the
assignee to collect rents from the tenant is subject to the terms of
any agreement between the assignor and tenant and any claim or
defense of the tenant arising from the assignor's nonperformance of
that agreement.
Sec. 64.060. TURNOVER OF RENTS; LIABILITY OF ASSIGNOR.
(a) If an assignor collects rents that the assignee is entitled to
collect under this chapter, the assignor shall turn over the
proceeds to the assignee not later than the 30th day after the date
the assignor receives notice from the assignee under Section 64.054
or within another period prescribed by a security instrument or
other document signed by the assignor and approved by the assignee,
less any amount representing payment of expenses authorized by a
security instrument or other document signed by the assignee.
(b) In addition to any other remedy available to the
assignee under a law of this state other than this chapter, if an
assignor does not turn over proceeds to the assignee as required by
Subsection (a), the assignee may recover from the assignor in a
civil action:
(1) the proceeds, or an amount equal to the proceeds,
that the assignor was obligated to turn over under Subsection (a);
and
(2) reasonable attorney's fees and costs incurred by
the assignee to the extent provided for by an agreement between the
assignor and assignee and not prohibited by a law of this state
other than this chapter.
(c) The assignee may maintain an action under Subsection (b)
with or without taking action to foreclose any security interest
that the assignee has in the real property.
(d) Unless otherwise agreed by an assignee that has priority
under Section 64.052, a subordinate creditor that has enforced the
subordinate creditor's interest under Section 64.054 or 64.055
before the priority assignee enforces the priority assignee's
interests in rents is not obligated to turn over any proceeds that
the subordinate creditor collects before the subordinate creditor
receives a signed notice from the priority assignee informing the
subordinate creditor that the priority assignee is enforcing the
priority assignee's interest in rents. The subordinate creditor
shall turn over to a priority assignee any proceeds that the
subordinate creditor collects after the subordinate creditor
receives the notice from the priority assignee that the priority
assignee is enforcing the priority assignee's interest in rents not
later than the 30th day after the date the subordinate creditor
receives the notice or as otherwise agreed between the priority
assignee and the subordinate creditor. Any proceeds subsequently
collected by the subordinate creditor shall be turned over to the
priority assignee not later than the 10th day after the date the
proceeds are collected or as otherwise agreed between the priority
assignee and the subordinate creditor.
Sec. 64.061. ATTACHMENT, PERFECTION, AND PRIORITY OF
ASSIGNEE'S SECURITY INTEREST IN PROCEEDS. (a) An assignee's
security interest in rents attaches to identifiable proceeds.
(b) If an assignee's security interest in rents is
perfected, the assignee's security interest in identifiable cash
proceeds is perfected.
(c) Except as provided by Subsection (b), the provisions of
Chapter 9, Business & Commerce Code, or the comparable Uniform
Commercial Code provisions of another applicable jurisdiction,
determine:
(1) whether an assignee's security interest in
proceeds is perfected;
(2) the effect of perfection or nonperfection;
(3) the priority of an interest in proceeds; and
(4) the law governing perfection, the effect of
perfection or nonperfection, and the priority of an interest in
proceeds.
(d) For purposes of this chapter, cash proceeds are
identifiable if they are maintained in a segregated deposit account
or, if commingled with other funds, to the extent they can be
identified by a method of tracing, including application of
equitable principles, that is permitted under a law of this state
other than this chapter with respect to commingled funds.
Sec. 64.062. PRIORITY SUBJECT TO SUBORDINATION. This
chapter does not preclude subordination by agreement by a person
entitled to priority.
SECTION 3. (a) Except as otherwise provided by this
section, Chapter 64, Property Code, as added by this Act, governs
the enforcement of an assignment of rents, the perfection and
priority of a security interest in rents, and the attachment and
perfection of a security interest in proceeds regardless of whether
the document creating the assignment of rents was signed and
delivered before the effective date of this Act.
(b) Chapter 64, Property Code, as added by this Act, does
not affect an action or other proceeding commenced before the
effective date of this Act.
(c) Subsection (a), Section 64.051, Property Code, as added
by this Act, applies only to a security instrument signed and
delivered on or after the effective date of this Act. A security
instrument signed and delivered before the effective date of this
Act is governed by the law that applied to the instrument
immediately before that date, and the former law is continued in
effect for that purpose.
(d) Chapter 64, Property Code, as added by this Act, does
not affect:
(1) the enforceability of an assignee's security
interest in rents or proceeds if, immediately before the effective
date of this Act, that security interest was enforceable;
(2) the perfection of an assignee's security interest
in rents or proceeds if, immediately before the effective date of
this Act, that security interest was perfected; or
(3) the priority of an assignee's security interest in
rents or proceeds with respect to the interest of another person if,
immediately before the effective date of this Act, the interest of
the other person was enforceable and perfected and that priority
was established.
SECTION 4. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2011.