BILL ANALYSIS


                                                         H.B. 333
                                                 By: Uher (Brown)
                                                    Jurisprudence
                                                          5-17-95
                              Senate Committee Report (Unamended)
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 loan holder, 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 judgment
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 loan holder who accepts a
deed in lieu of foreclosure.  It is unlikely that a loan holder
intends to waiver the holder's first lien priority to the
subsequent lien holders of the purchaser.  Generally, in
transactions involving a deed in lieu of foreclosure, the parties
are trying to restore each party to their prior position at the
lowest possible cost.

PURPOSE

As proposed, H.B. 333 provides 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 grant any
additional rulemaking authority to a state officer, institution, or
agency.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Chapter 51, Property Code, by adding Section
51.006, as follows:

     Sec. 51.006.  DEED-OF-TRUST FORECLOSURE AFTER DEED IN LIEU OF
     FORECLOSURE.  (a) Applies this section to a holder of a debt
     (holder) under a deed of trust who accepts from the debtor a
     deed conveying real property subject to the deed of trust in
     satisfaction of the debt.
     
     (b) Authorizes the holder to void a deed conveying real
       property in satisfaction of a debt before the fourth
       anniversary of the deed's execution and foreclosed under the
       original deed of trust if the debtor fails to disclose to
       the holder a lien or encumbrance on the property before
       executing the deed conveying the property to the holder and
       the holder has no knowledge of the undisclosed lien or
       encumbrance.
       
       (c) Authorizes a third party to conclusively rely upon the
       affidavit of the holder stating that the holder has voided
       the deed as provided in this section.
       
       (d) Prohibits the priority of a deed of trust, if the holder
       elects to void a deed in lieu of foreclosure from being
       affected or impaired by the execution of the deed.
       
       (e) Authorizes the holder to foreclose its deed of trust
       without electing to void the deed if a holder accepts a deed
       in lieu of foreclosure.  Prohibits the priority of such deed
       from being affected or impaired by the deed in lieu of
       foreclosure.
SECTION 2. Makes application of this Act prospective.

SECTION 3. Emergency clause.
           Effective date: 90 days after adjournment.