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.