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.