BILL ANALYSIS C.S.H.B. 333 By: Uher 4-11-95 Committee Report (Substituted) BACKGROUND Many land purchases are financed by loans made by the purchaser using the land as collateral to secure a loan. Should a purchaser default on a loan, Chapter 51 of the Property Code prescribes the procedures for foreclosures, but does not provide procedures when the purchaser and holder of the loan agree to cancel the debt upon the purchaser conveying the land to the holder by deed in lieu of foreclosure. Court rulings have held that the holder of the loan, by taking a deed in lieu of foreclosure, accepts the land subject to any liens against the purchaser. A first lien holder is left in a worse financial condition than before the purchaser's default, in that any judgement lien or tax lien against the purchaser or subsequent mortgage on the land by the purchaser either places a cloud on the title, or takes precedence over the title of the holder of the loan, accepting of a deed in lieu of foreclosure. It is unlikely that a loan holder intends to waive his first lien priority to the subsequent lien holders of the purchaser. Generally in transactions involving a deed in lieu of foreclosure, the parties are simply trying to restore each party to their prior position at the lowest possible cost. PURPOSE HB 333 attempts to provide a remedy for a person accepting a deed in lieu of foreclosure having no personal knowledge of any subsequent liens against the purchaser. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 51, Property Code. Adds Section 51.006. DEED-OF-TRUST FORECLOSURE AFTER DEED IN LIEU OF FORECLOSURE. (a) Allows any debt holder under a deed of trust to accept from a debtor a deed conveying real property to the deed of trust in satisfaction of the debt. (b) States that the debt holder may void the deed in satisfaction of the debt before the fourth anniversary of the date the deed was administered and foreclosed under the original deed of trust if: (1) the debtor does not disclose to the debt holder liens or encumbrances before executing the deed and (2) the debt holder is not personally aware of the undisclosed liens or encumbrances on the property. (c) Allows a third party to conclusively rely upon an affidavit from a debt holder stating that the deed has been voided by the debtholder. (d) Stipulates that if a debt holder decides to void a deed in lieu of a foreclosure, the priority of its deed of trust shall not be affected or impaired by the execution of the deed. (e) Specifies that if a debtholder accepts a deed in lieu of foreclosure, the debtholder may foreclose its deed of trust as provided in said deed of trust without electing to void the deed. The priority of this deed shall not be affected or impaired by the deed in lieu of a foreclosure. SECTION 2. This Act only applies to a holder of a debt who accepts a deed conveying property in satisfaction of a debt on or after the effective date of this Act. SECTION 3. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE In the Committee substitute to House Bill 333, under SECTION 1(b)(2), the term "personal" is added before knowledge. Also added under SECTION 1 are Subsections (c) (d) (e). Subsection (c) allows the third party to conclusively rely upon a debtholders' affidavit stating that the debtholder has voided the deed. Under Subsection (d), it provides that if a debtholder elects to void a deed in lieu of foreclosure, the priority of its deed of trust shall not be affected or impaired by the execution of the deed. Furthermore, subsection (e) provides that a debtholder who accepts a deed in lieu of foreclosure, the holder may foreclose its deed of trust as provided in the deed of trust without electing to void the deed. Such a deed will not be affected or impaired by the deed in lieu of foreclosure. SUMMARY OF COMMITTEE ACTION House Bill 333 was considered in a public hearing on March 21, 1995. Testifying in support of the bill was Robert Sneed, representing Texas Land Title Association. The Business and Industry Committee considered a committee substitute to House Bill 333. A motion to report HB 333 as substituted to the full House with the recommendation that it do pass and be printed carried with a record vote of 7 (seven) ayes, 1 (one) nay, 0 (zero) present-not-voting, and 1 (one) absent. H.B. 333 was reconsidered in a public hearing on April 11, 1995. A motion was made to reconsider the vote by which H.B. 333 was reported favorably. The vote by which H.B. 333 was reconsidered by a record vote of 8 (eight) ayes, 0 (zero) nays, 0 (zero) present-not-voting, and 1 (one) absent. A motion was made to adopt the complete committee substitute to H.B. 333. Without objection, the complete committee substitute to H.B. 333 was adopted. A motion to report H.B. 333 as substituted with the recommendation that it do pass and be printed carried with a record vote of 8 (eight) ayes, O (zero) nays, 0 (zero) present-not-voting, and 1 (one) absent.