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 and registration 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:

(1) made by or on behalf of an owner of unimproved

residential real estate to a purchaser of that residential real

estate if:

(A) 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

(B) the residential real estate purchased will

continue to be subject to an unreleased lien described by Paragraph

(A) and the holder of that unreleased lien has consented to the sale

of the residential real estate; or

(2) for a sale of residential real estate that is the

wrap lender's homestead.

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) 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

(4) 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)(4), 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 OR REGISTRATION

Sec. 159.051. LICENSE OR REGISTRATION REQUIRED. A person

may not originate or make a wrap mortgage loan unless the person is

licensed or registered to originate or make residential mortgage

loans under Chapter 156, 157, or 342 or is exempt from licensing or

registration as provided under an applicable provision of those

chapters.

SUBCHAPTER C. TRANSACTION REQUIREMENTS; REMEDIES

Sec. 159.101. DISCLOSURE STATEMENT; OPTION TO RESCIND.

(a) A wrap lender 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:

(1) contains the information required for a written

disclosure statement under Section 5.016, Property Code; and

(2) includes 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.

(b) The disclosure statement required under Subsection (a)

must be dated and signed by the wrap borrower when the wrap borrower

receives the statement.

(c) The finance commission by rule shall adopt a model

disclosure statement that satisfies the requirements of Subsection

(a).

(d) If the disclosure statement required under Subsection

(a) and any disclosure required by Section 159.102 are received by

the wrap borrower on or before the closing date of the wrap mortgage

loan, the wrap borrower may rescind the wrap mortgage loan

agreement and any related purchase agreement or other agreement

relating to the loan transaction not later than the seventh day

after the date of receipt of the disclosure statement, regardless

of whether the disclosure is timely made. On rescission under this

subsection, the wrap borrower is entitled to a return of any earnest

money, escrow amounts, down payment, or other fees or charges paid

in connection with the wrap mortgage loan, the related purchase

transaction, and any other related transaction.

Sec. 159.102. FOREIGN LANGUAGE REQUIREMENT. 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 a written disclosure

statement required under Section 159.101 of this code or Section

5.016, Property Code, 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. FAILURE TO PROVIDE DISCLOSURE BEFORE CLOSING;

RIGHT OF RESCISSION. (a) Subject to Subsection (b), if a wrap

mortgage loan is closed without the wrap lender providing the

disclosure statement required by Section 159.101 or any disclosure

required by Section 159.102, the wrap borrower may rescind the wrap

mortgage loan agreement and the related purchase agreement at any

time by providing the wrap lender notice of rescission in writing.

(b) If the wrap borrower receives a required disclosure

statement under Section 159.101 or 159.102 after the date the wrap

mortgage loan is closed but before the wrap borrower provides

notice of rescission, the wrap borrower may rescind the wrap

mortgage loan agreement and the related purchase agreement in

writing on or before the 21st day after the date of receipt of the

disclosure statement.

(c) Not later than the 30th day after the date the wrap

borrower provides notice of rescission under this section, the wrap

lender shall return to the wrap borrower:

(1) all principal and interest payments made by the

wrap borrower on the wrap mortgage loan;

(2) any money or property given as earnest money, a

down payment, or otherwise in connection with the wrap mortgage

loan or related purchase transaction; and

(3) any escrow amounts for the wrap mortgage loan or

related purchase transaction.

(d) On the date on which all of the returned money or

property described by Subsection (c) is received by the wrap

borrower, the wrap borrower shall convey to the wrap lender or the

wrap lender's designee the residential real estate described by

Section 159.001(7)(A). The wrap borrower shall surrender

possession of the residential real estate not later than the 30th

day after the date of the wrap borrower's receipt of the money or

property returned as described by this subsection.

(e) Notwithstanding Subsection (a) or (b), the wrap lender

may avoid rescission if not later than the 30th day after the date

of receipt of notice of rescission under Subsection (a), the wrap

lender:

(1) pays the outstanding balance due on any debt

described by Section 159.001(7)(A)(ii);

(2) pays any due and unpaid taxes or other government

assessment on the residential real estate described by Section

159.001(7)(A);

(3) pays to the wrap borrower as damages for

noncompliance the sum of $1,000 and any reasonable attorney's fees

incurred by the wrap borrower; and

(4) provides to the wrap borrower evidence of

compliance with Subdivisions (1) and (2).

Sec. 159.105. ENFORCEABILITY OF WRAP LIEN. A lien securing

a wrap mortgage loan is void unless the wrap mortgage loan and the

conveyance of the residential real estate securing the loan are

closed by an attorney or a title company.

Sec. 159.106. 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 under this

subchapter or 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. 159.107. 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. 159.108. 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 obligations of the

obligee under each debt described by Section 159.001(7)(A)(ii) and

the payment of taxes and insurance for which the wrap lender has

received any payments from the wrap borrower.

SUBCHAPTER E. WRAP BORROWER'S RIGHTS

Sec. 159.201. APPLICABILITY OF SUBCHAPTER. 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.

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) on or

before 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.