By: Zaffirini, et al. S.B. No. 1994
(Ortega)
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 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 made by or on
behalf of an owner of unimproved residential real estate to a
purchaser of that residential real estate if:
(1) 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
(2) the residential real estate purchased will
continue to be subject to an unreleased lien described by
Subdivision (1) and the holder of that unreleased lien has
consented to the sale of the residential real estate.
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) an authorized lender licensed under Chapter 342;
(4) 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
(5) 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)(5), 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
Sec. 159.051. LICENSE REQUIRED. (a) A person may not
originate or make a wrap mortgage loan unless the person is licensed
to originate or make residential mortgage loans under Chapter 156
or 157 or is exempt from licensing as provided under an applicable
provision of those chapters.
(b) The requirement to hold a license under Subsection (a)
applies to a person originating or making a wrap mortgage loan
regardless of whether the person engages in a specific activity for
which a license is required under Chapter 156 or 157 in connection
with the originating or making of the loan.
SUBCHAPTER C. TRANSACTION REQUIREMENTS; REMEDIES
Sec. 159.101. DISCLOSURE STATEMENT. (a) A wrap lender not
otherwise required to provide a written disclosure statement to the
wrap borrower under Section 5.016, Property Code, 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 contains the
information required for a written disclosure statement under
Section 5.016, Property Code.
(b) Regardless of whether the wrap lender provides a written
disclosure statement under Subsection (a) or under Section 5.016,
Property Code, the wrap lender's disclosure statement to the wrap
borrower must include 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.
Sec. 159.102. FOREIGN LANGUAGE REQUIREMENT. Regardless of
whether the wrap lender provides a written disclosure statement
under Section 159.101 or under Section 5.016, Property Code, 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 the required disclosure
statement 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. ENFORCEABILITY OF WRAP LIEN. A lien securing
a wrap mortgage loan is void unless:
(1) the residential real estate was conveyed to the
purchaser with the written consent of each holder of an unreleased
lien described by Section 159.001(7)(A) and a copy of each
lienholder's written consent is attached to the recorded instrument
conveying the residential real estate; and
(2) the wrap mortgage loan and the conveyance of the
residential real estate securing the loan are closed by an attorney
or a title company and an affidavit of a person knowledgeable of the
facts regarding the closing location that confirms the closing
location is attached to the recorded instrument conveying the
residential real estate.
Sec. 159.105. 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 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. 159.106. 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. 159.107. 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 wrap lender's
obligations under each debt described by Section 159.001(7)(A)(ii)
and any other obligation affecting the residential real estate for
which the wrap lender is responsible.
SUBCHAPTER E. WRAP BORROWER'S RIGHTS
Sec. 159.201. APPLICABILITY OF SUBCHAPTER. (a) Subject to
Subsection (b), 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.
(b) This subchapter does not apply to a wrap mortgage loan
for a sale of residential real estate that is the wrap lender's
homestead.
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) not
later than 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 September 1, 2017.