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A BILL TO BE ENTITLED
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AN ACT
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relating to the financing of residential real estate purchases by |
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means of a wrap mortgage loan; creating an offense. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Section 156.002, Finance Code, is amended by |
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adding Subdivision (16) to read as follows: |
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(16) "Wrap mortgage loan" has the meaning assigned by |
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Section 159.001. |
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SECTION 2. Section 156.202(a-1), Finance Code, is amended |
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to read as follows: |
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(a-1) The following entities are exempt from this chapter: |
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(1) a nonprofit organization: |
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(A) providing self-help housing that originates |
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zero interest residential mortgage loans for borrowers who have |
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provided part of the labor to construct the dwelling securing the |
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loan; or |
|
(B) that has designation as a Section 501(c)(3) |
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organization by the Internal Revenue Service and originates |
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residential mortgage loans for borrowers who, through a self-help |
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program, have provided at least 200 labor hours or 65 percent of the |
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labor to construct the dwelling securing the loan; |
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(2) a mortgage banker registered under Chapter 157; |
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(3) any owner of residential real estate who in any |
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12-consecutive-month period makes no more than five residential |
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mortgage loans, none of which is a wrap mortgage loan, to purchasers |
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of the property for all or part of the purchase price of the |
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residential real estate against which the mortgage is secured; and |
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(4) an entity that is: |
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(A) a depository institution; |
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(B) a subsidiary of a depository institution that |
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is: |
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(i) owned and controlled by the depository |
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institution; and |
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(ii) regulated by a federal banking agency; |
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or |
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(C) an institution regulated by the Farm Credit |
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Administration. |
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SECTION 3. Section 157.002, Finance Code, is amended by |
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adding Subdivision (7) to read as follows: |
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(7) "Wrap mortgage loan" has the meaning assigned by |
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Section 159.001. |
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SECTION 4. Sections 157.0121(b) and (c), Finance Code, are |
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amended to read as follows: |
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(b) The following individuals are exempt from this chapter: |
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(1) a registered mortgage loan originator when acting |
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for: |
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(A) a depository institution; |
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(B) a subsidiary of a depository institution that |
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is: |
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(i) owned and controlled by the depository |
|
institution; and |
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(ii) regulated by a federal banking agency; |
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or |
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(C) an institution regulated by the Farm Credit |
|
Administration; |
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(2) an individual who offers or negotiates the terms |
|
of a residential mortgage loan with or on behalf of an immediate |
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family member of the individual; |
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(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: |
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(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; |
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(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 |
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(6) an individual who is exempt as provided by Section |
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180.003(b). |
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(c) Employees of the following entities, when acting for the |
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benefit of those entities, are exempt from the licensing and other |
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requirements of this chapter applicable to residential mortgage |
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loan originators: |
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(1) a nonprofit organization: |
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(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 |
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(3) an entity that is: |
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(A) a depository institution; |
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(B) a subsidiary of a depository institution that |
|
is: |
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(i) owned and controlled by the depository |
|
institution; and |
|
(ii) regulated by a federal banking agency; |
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or |
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(C) an institution regulated by the Farm Credit |
|
Administration. |
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SECTION 5. Section 158.002, Finance Code, is amended by |
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adding Subdivisions (8) and (9) to read as follows: |
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(8) "Wrap lender" has the meaning assigned by Section |
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159.001. |
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(9) "Wrap mortgage loan" has the meaning assigned by |
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Section 159.001. |
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SECTION 6. Section 158.052, Finance Code, is amended by |
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amending Subsection (a) and adding Subsection (d) to read as |
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follows: |
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(a) This chapter does not require registration by: |
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(1) a federal or state depository institution, or a |
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subsidiary or affiliate of a federal or state depository |
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institution; |
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(2) a person registered under Chapter 157; |
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(3) a person licensed under Chapter 342 or regulated |
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under Chapter 343, if the person does not act as a residential |
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mortgage loan servicer servicing first-lien secured loans; or |
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(4) except as provided by Subsection (d), a person |
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making a residential mortgage loan with the person's own funds, or |
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to secure all or a portion of the purchase price of real property |
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sold by that person. |
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(d) This chapter applies to a wrap lender who services a |
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wrap mortgage loan. |
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SECTION 7. Subtitle E, Title 3, Finance Code, is amended by |
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adding Chapter 159 to read as follows: |
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CHAPTER 159. WRAP MORTGAGE LOAN FINANCING |
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SUBCHAPTER A. GENERAL PROVISIONS |
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Sec. 159.001. DEFINITIONS. In this chapter: |
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(1) "Commissioner" means the savings and mortgage |
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lending commissioner. |
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(2) "Finance commission" means the Finance Commission |
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of Texas. |
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(3) "Residential mortgage loan" has the meaning |
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assigned by Section 180.002. |
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(4) "Residential real estate" has the meaning assigned |
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by Section 180.002. |
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(5) "Wrap borrower" means a person obligated to pay a |
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wrap mortgage loan. |
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(6) "Wrap lender" means a person who makes a wrap |
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mortgage loan. |
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(7) "Wrap mortgage loan" means a residential mortgage |
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loan: |
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(A) made to finance the purchase of residential |
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real estate that will continue to be subject to an unreleased lien |
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that: |
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(i) attached to the residential real estate |
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before the loan was made; and |
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(ii) secures a debt incurred by a person |
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other than the wrap borrower that was not paid off at the time the |
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loan was made; and |
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(B) obligating the wrap borrower to the wrap |
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lender for payment of a debt the principal amount of which includes: |
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(i) the outstanding balance of the debt |
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described by Paragraph (A)(ii); and |
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(ii) any remaining amount of the purchase |
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price financed by the wrap lender. |
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SUBCHAPTER B. LICENSING |
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Sec. 159.051. LICENSE REQUIRED. (a) An individual may not |
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make a wrap mortgage loan unless the individual: |
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(1) is licensed as a residential mortgage loan |
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originator under Chapter 157; |
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(2) is sponsored by an appropriate entity; |
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(3) is enrolled with the Nationwide Mortgage Licensing |
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System and Registry as required by Section 180.052; and |
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(4) complies with other requirements of Chapter 180 |
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applicable to residential mortgage loan originators required to be |
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licensed under Chapter 157 and with rules adopted by the finance |
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commission under Chapter 180. |
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(b) An entity may not make a wrap mortgage loan unless the |
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entity holds an active residential mortgage loan company license |
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under Subchapter C, Chapter 156. The entity must apply for and be |
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issued a mortgage company license as provided by Section 156.2041. |
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(c) The requirement to obtain a license under Subsection (a) |
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or (b) applies to an individual or entity making a wrap mortgage |
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loan regardless of whether the person engages in a specific |
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activity for which a license is required under Chapter 156 or 157 in |
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connection with the making of the loan. |
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SUBCHAPTER C. DISCLOSURES AND CONSENT |
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Sec. 159.101. FOREIGN LANGUAGE REQUIREMENT; OFFENSE. (a) |
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If the negotiations that precede the execution of a wrap mortgage |
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loan agreement are conducted primarily in a language other than |
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English, the wrap lender shall provide a copy to the wrap borrower |
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in that language of all written documents relating to the |
|
transaction, including: |
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(1) the agreement; |
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(2) any disclosure notice required in connection with: |
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(A) the making of the wrap mortgage loan; or |
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(B) the conveyance of the residential real estate |
|
securing the loan; |
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(3) any annual accounting statements regarding the |
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loan; and |
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(4) any notice of default under the agreement. |
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(b) A person who violates this section commits an offense. |
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An offense under this subsection is a Class A misdemeanor. |
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Sec. 159.102. ENFORCEABILITY OF WRAP LIEN. A lien securing |
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a wrap mortgage loan is void and considered released without the |
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necessity of a judicial determination unless: |
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(1) the residential real estate was conveyed to the |
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purchaser with the written consent of each holder of an unreleased |
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lien described by Section 159.001(7)(A) and a copy of each |
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lienholder's written consent is attached to the recorded instrument |
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conveying the residential real estate; and |
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(2) the wrap mortgage loan and the conveyance of the |
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residential real estate securing the loan are closed at the office |
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of a title company and an affidavit of a person knowledgeable of the |
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facts regarding the closing location that confirms the closing |
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location is attached to the recorded instrument conveying the |
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residential real estate. |
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Sec. 159.103. FAILURE TO OBTAIN CONSENT AS DECEPTIVE TRADE |
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PRACTICE. A wrap lender who makes a wrap mortgage loan without |
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obtaining the written consent of a lienholder necessary under |
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Section 159.102, or a person who knowingly assists a wrap lender in |
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making a wrap mortgage loan without obtaining that consent, engages |
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in a deceptive trade practice under Subchapter E, Chapter 17, |
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Business & Commerce Code, and that conduct is actionable under that |
|
subchapter. |
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Sec. 159.104. BUYER AS ATTORNEY IN FACT. (a) A wrap lender |
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is considered to have given irrevocable consent to the wrap |
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borrower as the lender's attorney in fact with respect to each |
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unreleased lien on the property described by Section 159.001(7)(A) |
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with respect to which the wrap lender: |
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(1) was the grantor of the security interest; or |
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(2) has assumed the debt secured by the lien. |
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(b) As the wrap lender's attorney in fact under this |
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section, the wrap borrower may: |
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(1) authorize the release of information, negotiate, |
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and enter into a binding settlement or other agreement with the |
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lienholder regarding the unreleased lien; and |
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(2) exercise any and all powers granted to an attorney |
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in fact or agent under Section 752.102, Estates Code, for a real |
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property transaction under a statutory durable power of attorney |
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with respect to the residential real estate securing the wrap |
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mortgage loan. |
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Sec. 159.105. BORROWER'S RIGHT OF ACTION. (a) A wrap |
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borrower may bring an action to: |
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(1) obtain declaratory or injunctive relief to enforce |
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this subchapter; |
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(2) recover any actual damages suffered by the wrap |
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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. |
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(b) A wrap borrower who prevails in an action under this |
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section may recover court costs and reasonable attorney's fees. |
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Sec. 159.106. WAIVER OR AVOIDANCE PROHIBITED. (a) Any |
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purported waiver of a right of a wrap borrower under this subchapter |
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or purported exemption of a person from liability for a violation of |
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this subchapter is void. |
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(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 |
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and a deceptive trade practice under Subchapter E, Chapter 17, |
|
Business & Commerce Code, and is actionable under that subchapter. |
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SUBCHAPTER D. DUTIES OWED TO WRAP BORROWER |
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Sec. 159.151. MONEY HELD IN TRUST. A person who collects or |
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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. |
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Sec. 159.152. FIDUCIARY DUTY. A person who collects or |
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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) |
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and any other obligation affecting the residential real estate for |
|
which the wrap lender is responsible. |
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Sec. 159.153. DECEPTIVE TRADE PRACTICE. In addition to any |
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other penalties or remedies provided by law, a breach of a duty |
|
created by this subchapter is a deceptive trade practice under |
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Subchapter E, Chapter 17, Business & Commerce Code, and is |
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actionable under that subchapter. |
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SUBCHAPTER E. WRAP BORROWER'S RIGHTS |
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Sec. 159.201. APPLICABILITY OF SUBCHAPTER. (a) Subject to |
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Subsection (b), this subchapter applies only to a wrap mortgage |
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loan for a purchase of residential real estate to be used as the |
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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. |
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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. |
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SUBCHAPTER F. ENFORCEMENT OF CERTAIN REGISTRATION REQUIREMENTS |
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Sec. 159.251. APPLICABILITY OF SUBCHAPTER. This subchapter |
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applies only to a wrap lender who is required to register as a |
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residential mortgage loan servicer under Chapter 158. |
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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. |
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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. |