85R6359 CLG-F
 
  By: Zaffirini, Rodríguez, Watson S.B. No. 1994
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the financing of residential real estate purchases by
  means of a wrap mortgage loan; creating an offense.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 156.002, Finance Code, is amended by
  adding Subdivision (16) to read as follows:
               (16)  "Wrap mortgage loan" has the meaning assigned by
  Section 159.001.
         SECTION 2.  Section 156.202(a-1), Finance Code, is amended
  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)  any owner of residential real estate who in any
  12-consecutive-month period makes no more than five residential
  mortgage loans, none of which is a wrap mortgage loan, 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.
         SECTION 3.  Section 157.002, Finance Code, is amended by
  adding Subdivision (7) to read as follows:
               (7)  "Wrap mortgage loan" has the meaning assigned by
  Section 159.001.
         SECTION 4.  Sections 157.0121(b) and (c), Finance Code, are
  amended to read as follows:
         (b)  The following individuals are exempt from this chapter:
               (1)  a registered mortgage loan originator when acting
  for:
                     (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;
               (2)  an individual who offers or negotiates the 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)  any owner of residential real estate who in any
  12-consecutive-month period makes no more than five residential
  mortgage loans, none of which is a wrap mortgage loan, 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)  an individual who is exempt as provided by Section
  180.003(b).
         (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)  any owner of residential real estate who in any
  12-consecutive-month period makes no more than five residential
  mortgage loans, none of which is a wrap mortgage loan, 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.
         SECTION 5.  Section 158.002, Finance Code, is amended by
  adding Subdivisions (8) and (9) to read as follows:
               (8)  "Wrap lender" has the meaning assigned by Section
  159.001.
               (9)  "Wrap mortgage loan" has the meaning assigned by
  Section 159.001.
         SECTION 6.  Section 158.052, Finance Code, is amended by
  amending Subsection (a) and adding Subsection (d) to read as
  follows:
         (a)  This chapter does not require registration by:
               (1)  a federal or state depository institution, or a
  subsidiary or affiliate of a federal or state depository
  institution;
               (2)  a person registered under Chapter 157;
               (3)  a person licensed under Chapter 342 or regulated
  under Chapter 343, if the person does not act as a residential
  mortgage loan servicer servicing first-lien secured loans; or
               (4)  except as provided by Subsection (d), a person
  making a residential mortgage loan with the person's own funds, or
  to secure all or a portion of the purchase price of real property
  sold by that person.
         (d)  This chapter applies to a wrap lender who services a
  wrap mortgage loan.
         SECTION 7.  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 person who makes a wrap
  mortgage loan.
               (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.
  SUBCHAPTER B. LICENSING
         Sec. 159.051.  LICENSE REQUIRED. (a) An individual may not
  make a wrap mortgage loan unless the individual:
               (1)  is licensed as a residential mortgage loan
  originator under Chapter 157;
               (2)  is sponsored by an appropriate entity;
               (3)  is enrolled with the Nationwide Mortgage Licensing
  System and Registry as required by Section 180.052; and
               (4)  complies with other requirements of Chapter 180
  applicable to residential mortgage loan originators required to be
  licensed under Chapter 157 and with rules adopted by the finance
  commission under Chapter 180.
         (b)  An entity may not make a wrap mortgage loan unless the
  entity holds an active residential mortgage loan company license
  under Subchapter C, Chapter 156. The entity must apply for and be
  issued a mortgage company license as provided by Section 156.2041.
         (c)  The requirement to obtain a license under Subsection (a)
  or (b) applies to an individual or entity 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 making of the loan.
  SUBCHAPTER C.  DISCLOSURES AND CONSENT
         Sec. 159.101.  FOREIGN LANGUAGE REQUIREMENT; OFFENSE. (a)
  If the negotiations that precede the execution of a wrap mortgage
  loan agreement are conducted primarily in a language other than
  English, the wrap lender shall provide a copy to the wrap borrower
  in that language of all written documents relating to the
  transaction, including:
               (1)  the agreement;
               (2)  any disclosure notice required in connection with:
                     (A)  the making of the wrap mortgage loan; or
                     (B)  the conveyance of the residential real estate
  securing the loan;
               (3)  any annual accounting statements regarding the
  loan; and
               (4)  any notice of default under the agreement.
         (b)  A person who violates this section commits an offense.
  An offense under this subsection is a Class A misdemeanor.
         Sec. 159.102.  ENFORCEABILITY OF WRAP LIEN. A lien securing
  a wrap mortgage loan is void and considered released without the
  necessity of a judicial determination 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 at the office
  of 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. 159.103.  FAILURE TO OBTAIN CONSENT AS DECEPTIVE TRADE
  PRACTICE. A wrap lender who makes a wrap mortgage loan without
  obtaining the written consent of a lienholder necessary under
  Section 159.102, or a person who knowingly assists a wrap lender in
  making a wrap mortgage loan without obtaining that consent, engages
  in a deceptive trade practice under Subchapter E, Chapter 17,
  Business & Commerce Code, and that conduct is actionable under that
  subchapter.
         Sec. 159.104.  BUYER AS ATTORNEY IN FACT. (a)  A wrap lender
  is considered to have given irrevocable consent to the wrap
  borrower as the lender's attorney in fact with respect to each
  unreleased lien on the property described by Section 159.001(7)(A)
  with respect to which the wrap lender:
               (1)  was the grantor of the security interest; or
               (2)  has assumed the debt secured by the lien.
         (b)  As the wrap lender's attorney in fact under this
  section, the wrap borrower may:
               (1)  authorize the release of information, negotiate,
  and enter into a binding settlement or other agreement with the
  lienholder regarding the unreleased lien; and
               (2)  exercise any and all powers granted to an attorney
  in fact or agent under Section 752.102, Estates Code, for a real
  property transaction under a statutory durable power of attorney
  with respect to the residential real estate securing the wrap
  mortgage loan.
         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.
  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.
         Sec. 159.153.  DECEPTIVE TRADE PRACTICE. In addition to any
  other penalties or remedies provided by law, a breach of a duty
  created by this subchapter is a deceptive trade practice under
  Subchapter E, Chapter 17, Business & Commerce Code, and is
  actionable under that subchapter.
  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.
         SECTION 8.  Section 180.002, Finance Code, is amended by
  adding Subdivision (24) to read as follows:
               (24)  "Wrap mortgage loan" has the meaning assigned by
  Section 159.001.
         SECTION 9.  Section 180.003(a), Finance Code, is amended 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)  an owner of residential real estate who in any
  12-consecutive-month period makes no more than five residential
  mortgage loans, none of which is a wrap mortgage loan, 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)  an owner of a dwelling who in any
  12-consecutive-month period makes no more than five residential
  mortgage loans, none of which is a wrap mortgage loan, 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.
         SECTION 10.  This Act takes effect September 1, 2017.