BILL ANALYSIS


                                                     C.S.S.B. 336
                                                       By: Rosson
                                   Int'l Relations, Trade & Tech.
                                                         03-02-95
                                   Committee Report (Substituted)
BACKGROUND

Colonias are substandard, generally impoverished, rural
subdivisions that typically lack one or more of the basic amenities
of water, wastewater service, paved streets, drainage or electric
service.  The lack of these services has been implicated in a
variety of social and health problems, including an incidence of
tuberculosis and hepatitis not usually found outside third world
countries.  Although it is generally assumed that colonias exist
only along the U.S.-Mexico border, there are, in fact, similarly
substandard subdivisions in virtually every area of Texas. 
Nevertheless, the greatest concentration of colonias is along the
Texas-Mexico border, particularly in the lower Rio Grande Valley
and El Paso County.

Colonias residents almost always acquire their lots by means of an
executory contract, generally known as a "contract for deed" or
"contract for sale."  This type of conveyance is unlike a typical
deed of trust transaction in several notable respects:  first, the
property being conveyed generally is only land, with no house,
structure or improvements; second, under a contract for deed, legal
title does not transfer until all payments are made, and the
purchaser may not accrue any equity in a tract even though
substantial payments may have been; third, contracts for deed are
not required to be recorded; and fourth, virtually none of the
state and federal protections afforded conventional home buyers are
provided to a purchaser under a contract for deed.

The fact that a purchaser has very few rights or remedies under a
contract for deed has led to a number of abusive practices by
sellers of colonia lots.  Sellers have sold individual lots to two
or more buyers, sold lots without a written contract, and placed
liens on lots subsequent to the sale without informing the
purchaser.  Colonia residents also suggest that sellers frequently
misrepresent the availability of water, sewer service and other
utilities, and that they are often not informed that the property
being sold lies in a flood plain or is otherwise unsuitable for
habitation.

The magnitude of problems resulting from colonia development and
the role that contracts for deed play in allowing these problems to
develop have led some parties to call for an outright prohibition
on this type of conveyance.  However, low income families needing
housing currently have no other alternatives, as few, if any, banks
or other conventional financial institutions are willing to lend,
and few insurers will provide coverage for this type of property.

PURPOSE

As proposed, C.S.S.B. 336 requires, in certain counties, recording
of contracts for deed and specific notice as to the availability of
water, wastewater, electric service, and flood plain status.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not grant any
additional rulemaking authority to a state officer, institution, or
agency.

SECTION BY SECTION ANALYSIS

SECTION 1. Sets forth the findings of the legislature.

SECTION 2. Amends Chapter 5D, Property Code, as follows:

         SUBCHAPTER D.  EXECUTORY CONTRACT FOR CONVEYANCE

     Sec. 5.061.  New title: AVOIDANCE OF FORFEITURE AND
     ACCELERATION OR RESCISSION.  Authorizes a seller to enforce
     the remedy of rescission or forfeiture and acceleration
     against a purchaser in default under an executory contract
     (contract) for conveyance of real property used or to be used
     as the purchaser's residence if the seller notifies the
     purchaser of certain conditions.
     
     Sec. 5.062.  NOTICE.  Sets forth the requirements, language,
     and conditions of a notice under Section 5.061 of this code.
     
     Sec. 5.063.  RIGHT TO CURE DEFAULT.  Authorizes a purchaser in
     default of a contract to avoid the enforcement of a remedy
     described by Section 5.061 by complying with the terms of the
     contract up to the date of compliance.
     
     Sec. 5.064.  PLACEMENT OF LIEN FOR UTILITY SERVICE.  Makes no
     change.
     
     Sec. 5.065.  DEFAULT.  Defines "default."
     
SECTION 3.  Amends Chapter 5, Property Code, by adding Subchapter
E, as follows:

     SUBCHAPTER E. REQUIREMENTS FOR EXECUTORY CONTRACT FOR CONVEYANCE APPLICABLE TO CERTAIN COUNTIES
                                 
     Sec. 5.091.  APPLICABILITY.  Establishes the required
     demographics a county must meet in order for this subsection
     to be applicable to that county.
     
     Sec. 5.092.  DETERMINATION AND NOTICE OF APPLICABILITY.  (a) 
     Requires the Texas Department of Housing and Community Affairs
     (department) to determine annually in which counties this
     subchapter applies.
     
     (b)  Requires the department to publish a list of the
       counties in which this subchapter applies in the Texas
       Register, and to notify the county clerk of each county.
       
       (c)  Sets forth the required contents of the notice.
       
       (d)  Requires the department to make its determination not
       later than May 1 of each year.  Provides that the
       determination becomes effective June 1.
       
       (e)  Requires the county clerk to publish a copy of the
       notice on three separate days in a newspaper of general
       circulation immediately following receipt of the notice. 
       Requires the clerk to post a copy of the notice on three
       separate days on a bulletin board at a place convenient to
       the public in the county courthouse.
       
     Sec. 5.093.  SPANISH LANGUAGE REQUIREMENT.  Requires the
     seller to provide a copy of all written documents in Spanish
     if the negotiations that precede the execution of a contract
     are conducted primarily in Spanish.
     
     Sec. 5.094.  SELLER'S DISCLOSURE OF PROPERTY CONDITION.  (a) 
     Requires the seller to provide the purchaser with a survey or
     plat of the real property, a list of title exceptions and
     copies of documents which list title exceptions, and a
     specific written notice.
     
     (b)  Requires the seller to provide the purchaser with a
       separate disclosure form stating that utilities may not be
       available to the property until the subdivision is recorded
       by law.
       
       (c)  Requires an advertisement by the seller to disclose
       information regarding the availability of water, sewer, and
       electric service.
       
       (d)  Sets forth the options for a seller's failure to
       disclose information required by this section.
       
       (e)  Provides that Subsection (d) does not limit the
       purchaser's remedy against the seller for other false,
       misleading, or deceptive acts or practices actionable in a
       suit brought under Chapter 17E, Business & Commerce Code.
     Sec. 5.095.  SELLER'S DISCLOSURE OF FINANCING TERMS.  Sets
     forth the information the seller is required to provide the
     purchaser before a contract is signed.
     
     Sec. 5.096.  CONTRACT TERMS PROHIBITED.  Prohibits a seller
     from including certain provisions as terms of the contract.
     
     Sec. 5.097.  PURCHASER'S RIGHT TO CANCEL CONTRACT WITHOUT
     CAUSE.  (a)  Authorizes the purchaser to cancel and rescind a
     contract for any reason within 14 days of the contract.
     
     (b)  Sets forth a statement the seller is required to
       include in the contract.
       
       (c)  Sets forth the language of a notice of cancellation the
       seller is required to provide a purchaser at the time the
       purchaser signs the contract.
       
     Sec. 5.098.  PURCHASER'S RIGHT TO PLEDGE INTEREST IN PROPERTY
     ON CONTRACTS ENTERED INTO BEFORE SEPTEMBER 1, 1995.  (a) 
     Authorizes a purchaser to pledge the interest in the property,
     which accrues pursuant to Section 5.100, only to obtain a loan
     for improving the safety of the property or any improvements
     on the property, on a contract entered into before September
     1, 1995.
     
     (b)  Establishes the criteria for loans that improve the
       safety of the property and improvements on the property.
       
     Sec. 5.099.  RECORDING REQUIREMENTS.  (a)  Requires the seller
     to record the contract as prescribed by Title 3.
     
     (b)  Provides that Section 12.002(c) does not apply to a
       contract filed for record under this section.
       
       (c)  Requires the seller to record the instrument that
       terminates the contract if the contract is terminated for
       any reason.
       
       (d)  Requires the county clerk to collect a filing fee
       prescribed by Section 118.011, Local Government Code.
     Sec. 5.100.  ANNUAL ACCOUNTING STATEMENT.  (a)  Requires the
     seller to provide the purchaser with an annual statement in
     January of each year for the term of the contract.
     
     (b)  Sets forth the required contents of the statement.
       
     Sec. 5.101.  EQUITY PROTECTION; SALE OF PROPERTY.  (a)  Grants
     the seller the power to sell the purchaser's interest in the
     property if the purchaser defaults after paying 40 percent or
     more of the amount due or the equivalent of 48 monthly
     payments under the contract.  Prohibits the seller from
     enforcing the remedy of rescission or forfeiture and
     acceleration.
     
     (b)  Requires the seller to notify a purchaser of a default
       under the contact and allow the purchaser at least 60 days
       after the date notice is given to cure the default. Sets
       forth the language of the notice.
       
       (c)  Requires the seller to post, file, and serve a notice
       of sale and the county clerk to record and maintain the
       notice of sale.  Provides that a notice of sale is not valid
       unless it is given after the period to cure has expired.
       
       (d)  Requires the seller to conduct the sale as prescribed
       by Section 51.002.
       
     Sec. 5.102.  TITLE TRANSFER.  (a)  Requires the seller to
     transfer title of the property covered by the contract to the
     purchaser not later than the 30th day after the date the
     seller receives the purchaser's final payment.
     
     (b)  Provides that a seller who violates Subsection (a) is
       subject for each day of the violation to a penalty that is
       equivalent to a daily payment under the contract.
       
     Sec. 5.103.  LIABILITY FOR DISCLOSURES.  Provides that a
     disclosure required by this subchapter that is made by a
     seller's agent is a disclosure.
     
     SECTION 4.     Amends Section 2306.092, Government Code, to add
developing a consumer education program to educate consumers on
contract transactions for conveyance of real property used or to be
used as the consumer's residence to the duties the community
affairs division is required to perform.

SECTION 5. Makes application of Section 2 of this Act prospective.

SECTION 6. Effective date: September 1, 1995.  Provides that
Chapter 5E, Property Code, applies in a county on a date designated
by the department, but not later than November 1, 1995; and
requires the department to act as soon as a practicable to make the
initial determination under Chapter 5E, Property Code, as added by
this Act, and to publish and give notice of those determinations by
October 1, 1995.

SECTION 7. Emergency clause.