BILL ANALYSIS



C.S.S.B. 336
By: Rosson (Oliveira)
5-10-95
Committee Report (Substituted)


BACKGROUND

Colonias are substandard, generally impoverished, rural
subdivisions that typically lack one or more of the basic amenities
of water, wastewater service, paved streets, drainage or electric
service.  The lack of these services has been implicated in a
variety of social and health problems, including an incidence of
tuberculosis and hepatitis not usually found outside third world
countries.  Although it is generally assumed that colonias exist
only along the U.S.-Mexico border, there are, in fact, similarly
substandard subdivisions in virtually every area of Texas. 
Nevertheless, the greatest concentration of colonias is along the
Texas-Mexico border, particularly in the lower Rio Grande Valley
and El Paso County.

Colonias residents almost always acquire their lots by means of an
executory contract, generally known as a "contract for deed" or
"contract for sale."  This type of conveyance is unlike a typical
deed of trust transaction in several notable respects:  first, the
property being conveyed generally is only land, with no house,
structure or improvements; second, under a contract for deed, legal
title does not transfer until all payments are made, and the
purchaser may not accrue any equity in a tract even though
substantial payments may have been; third, contracts for deed are
not required to be recorded; and fourth, virtually none of the
state and federal protections afforded conventional home buyers are
provided to a purchaser under a contract for deed.

The fact that a purchaser has very few rights or remedies under a
contract for deed has led to a number of abusive practices by
sellers of colonia lots.  Sellers have sold individual lots to two
or more buyers, sold lots without a written contract, and placed
liens on lots subsequent to the sale without informing the
purchaser.  Colonias residents also suggest that sellers frequently
misrepresent the availability of water, sewer service and other
utilities, and that they are often not informed that the property
being sold lies in a flood plain or is otherwise unsuitable for
habitation.

The magnitude of problems resulting from colonias development and
the role that contracts for deed play in allowing these problems to
develop have led some parties to call for an outright prohibition
on this type of conveyance.  However, low income families needing
housing currently have no other alternatives, as few, if any, banks
or other conventional financial institutions are willing to lend,
and few insurers will provide coverage for this type of property.

PURPOSE

As proposed, C.S.S.B. 336 requires, in certain counties, recording
of contracts for deed and specific notice as to the availability of
water, wastewater, electric service, and flood plain status.

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. Sets forth the findings of the legislature.

SECTION 2. Amends Subchapter D, Chapter 5, Property Code, as
follows:

         SUBCHAPTER D.  EXECUTORY CONTRACT FOR CONVEYANCE

     Sec. 5.061.  New title: AVOIDANCE OF FORFEITURE, ACCELERATION,
     OR OF RESCISSION.  Authorizes a seller to enforce the remedy
     of rescission or forfeiture and acceleration against a
     purchaser in default under an executory contract (contract)
     for conveyance of real property used or to be used as the
     purchaser's residence if the seller notifies the purchaser of
     certain conditions.

     Sec. 5.062.  NOTICE.  Sets forth the requirements, language,
     and conditions of a notice under Section 5.061 of this code.

     Sec. 5.063.  RIGHT TO CURE DEFAULT.  Authorizes a purchaser in
     default of a contract to avoid the enforcement of a remedy
     described by Section 5.061 by complying with the terms of the
     contract up to the date of compliance.

     Sec. 5.064.  PLACEMENT OF LIEN FOR UTILITY SERVICE.  Makes no
     change.

Sec. 5.065.  DEFAULT.  Defines "default."

SECTION 3.  Amends Chapter 5, Property Code, by adding Subchapter
E, as follows:

      SUBCHAPTER E. REQUIREMENTS FOR EXECUTORY CONTRACT FOR CONVEYANCE APPLICABLE TO CERTAIN COUNTIES

     Sec. 5.091.  APPLICABILITY.  Establishes the required
     demographics a county must meet in order for this subsection
     to be applicable to that county, and limits the application of
     this subchapter to purchases of residential property.

     Sec. 5.092.  DETERMINATION AND NOTICE OF APPLICABILITY.  (a) 
     Requires the Texas Department of Housing and Community Affairs
     (department) to determine annually in which counties this
     subchapter applies.

     (b)  Requires the department to publish a list of the counties
     in which this subchapter applies in the Texas Register, and to
     notify the county clerk of each county.

     (c)  Sets forth the required contents of the notice.

     (d)  Requires the department to make its determination not
     later than May 1 of each year.  Provides that the
     determination becomes effective June 1.

     (e)  Requires the county clerk to publish a copy of the notice
     on three separate days in a newspaper of general circulation
     immediately following receipt of the notice.  Requires the
     clerk to post a copy of the notice on three separate days on
     a bulletin board at a place convenient to the public in the
     county courthouse.

     Sec. 5.093.  SPANISH LANGUAGE REQUIREMENT.  Requires the
     seller to provide a copy of all written documents in Spanish
     if the negotiations that precede the execution of a contract
     are conducted primarily in Spanish.

     Sec. 5.094.  SELLER'S DISCLOSURE OF PROPERTY CONDITION.  (a) 
     Requires the seller to provide the purchaser with a survey or
     plat of the real property, copies of all restrictive
     covenants, easements, and other documents which encumber or
     affect title to the real property, and a specific written
     notice.

     (b)  Requires the seller in unrecorded subdivisions to provide
     the purchaser with a separate disclosure form stating that
     utilities may not be available to the property until the
     subdivision is recorded by law.

     (c)  Requires an advertisement by the seller to disclose
     information regarding the availability of water, sewer, and
     electric service.

     (d)  Sets forth the options for a seller's failure to disclose
     information required by this section.

     (e)  Provides that Subsection (d) does not limit the
     purchaser's remedy against the seller for other false,
     misleading, or deceptive acts or practices actionable in a
     suit brought under Chapter 17E, Business & Commerce Code.

     Sec. 5.095.  SELLER'S DISCLOSURE OF FINANCING TERMS.  Sets
     forth the information the seller is required to provide the
     purchaser before a contract is signed.

     Sec. 5.096.  CONTRACT TERMS PROHIBITED.  Prohibits a seller
     from including certain provisions as terms of the contract.

     Sec. 5.097.  PURCHASER'S RIGHT TO CANCEL CONTRACT WITHOUT
     CAUSE.  (a)  Authorizes the purchaser to cancel and rescind a
     contract for any reason within 14 days of the contract.

     (b)  Sets forth a statement the seller is required to include
     in the contract.

     (c)  Sets forth the language of a notice of cancellation the
     seller is required to provide a purchaser at the time the
     purchaser signs the contract.

     (d) Prohibits the seller to request the purchaser to sign a
     waiver of receipt of the notice of required cancellation form.

     Sec.  5.098.  PURCHASER'S RIGHT TO PLEDGE INTEREST IN PROPERTY
     ON CONTRACTS ENTERED INTO BEFORE SEPTEMBER 1, 1995.

     (a)  Allows the purchaser to pledge the interest which accrues
     on the property in an executory contract entered into before
     September 1, 1995, to obtain a loan only for improving the
     safety of the property or any improvements on the property.

     (b) Provides that loans improving the safety of the property
     and improvements on the property include loans for water
     service; wastewater system; septic system; structural
     improvements to the residence; fire protection.

     Sec. 5.099.  RECORDING REQUIREMENTS.  (a)  Requires the seller
     to record the contract as prescribed by Title 3.

     (b)  Provides that Section 12.002(c) does not apply to a
     contract filed for record under this section.

     (c)  Requires the seller to record the instrument that
     terminates the contract if the contract is terminated for any
     reason.

     (d)  Requires the county clerk to collect a filing fee
     prescribed by Section 118.011, Local Government Code.

     Sec. 5.100.  ANNUAL ACCOUNTING STATEMENT.  (a)  Requires the
     seller to provide the purchaser with an annual statement in
     January of each year for the term of the contract.

     (b)  Sets forth the required contents of the statement.

     Sec. 5.101.  EQUITY PROTECTION; SALE OF PROPERTY.  (a)  Grants
     the seller the power to sell the purchaser's interest in the
     property if the purchaser defaults after paying 40 percent or
     more of the amount due or the equivalent of 48 monthly
     payments under the contract.  Prohibits the seller from
     enforcing the remedy of rescission or forfeiture and
     acceleration.

     (b)  Requires the seller to notify a purchaser of a default
     under the contract and allow the purchaser at least 60 days
     after the date notice is given to cure the default. Sets forth
     the language of the notice.

     (c)  Requires the seller to post, file, and serve a notice of
     sale and the county clerk to record and maintain the notice of
     sale.  Provides that a notice of sale is not valid unless it
     is given after the period to cure has expired.

     (d)  Requires the trustee or a substitute trustee of the
     seller to conduct the sale as prescribed by Section 51.002. 
     Requires the seller to tell a purchaser of a sale conducted
     under this section fee simple title to the real property.

     (e)  States that the remaining balance of the amount due is
     the debt for purposes of a sale under this section.  Requires
     the seller to disburse the excess funds to the purchaser if
     the proceeds of the sale exceed the debt amount.  Set that the
     seller's right to recover the resulting deficiency is subject
     to Sections 51.003, 51.004, and 51.005 unless a provision of
     the executory contract releases the purchaser under the
     contract from liability.

     (f)  Sets forth that a affidavit that states that the notice
     was given and the sale was conducted as provided by this
     section is evidence of those facts.  A bona fide purchaser for
     value who relies on an affidavit under this subsection
     acquires title to the property free and clear of the executory
     contract.

     (g)  Sets forth that a seller may enforce the remedy of
     rescission or of forfeiture and acceleration of the
     indebtedness if the seller complies with the notice
     requirements of Sections 5.061 and 5.062.

     Sec. 5.102.  TITLE TRANSFER.  (a)  Requires the seller to
     transfer title of the property covered by the contract to the
     purchaser not later than the 30th day after the date the
     seller receives the purchaser's final payment.

     (b)  Provides specific penalties imposed on a seller that
     violates Subsection (a).

     (c)  Explains "seller" under this section to include a
     successor, assignee, personal representative, executor, or
     administrator of the seller.

     Sec. 5.103.  LIABILITY FOR DISCLOSURES.  Provides that a
     disclosure required by this subchapter that is made by a
     seller's agent is a disclosure.

SECTION 4. Amends Section 2306.092, (12), Government Code, to add
developing a consumer education program to educate consumers on
contract transactions for conveyance of real property used or to be
used as the consumer's residence to the duties the community
affairs division is required to perform.

SECTION 5. Makes application of Section 2 of this Act prospective.

SECTION 6. Effective date: September 1, 1995.  Provides that
Chapter 5E, Property Code, applies in a county on a date designated
by the department, but not later than November 1, 1995; and
requires the department to act as soon as a practicable to make the
initial determination under Chapter 5E, Property Code, as added by
this Act, and to publish and give notice of those determinations by
October 1, 1995.

SECTION 7. Emergency clause.

COMPARISON OF ORIGINAL TO SUBSTITUTE

The original bill under Sec. 5.061 changed the title to Avoidance
of Forfeiture, Acceleration, or Rescission.  The substitute changes
it further to Avoidance of Forfeiture and Acceleration or of
Rescission.  The original bill required the seller to provide the
purchaser with copies of all restrictive covenants, easements, and
other documents which encumber or affect title to the real
property; and a written notice informing the purchaser of the
condition of the property that must, at a minimum, be executed by
the seller and purchaser and sets guidelines for the way it should
read.  The substitute changes the requirements so that a seller has
to provide a legible copy of any document that describes an
encumbrance or other claim, including a restrictive covenant or
easement, that affects title to the real property; and a written
notice, which must be attached to the contract, informing the
purchaser of the condition of the property that must, at a minimum,
be executed by the seller and purchaser and changes the guidelines
for the way it should read.

The substitute adds to the disclosure of financing terms that the
seller must provide to the purchaser a written statement that
specifies the late charge, if any, that may be assessed under the
contract and the fact that the seller may not charge a prepayment
penalty if the purchaser elects to pay the entire amount due under
the contract before the scheduled payment date under the contract.

The original bill prohibits the purchaser from pledging the
purchaser's interest in the property as security to obtain a loan
to place residential improvements, including without limitation
utility improvements and fire protection improvements, on the
property.  The substitute prohibits the purchaser from pledging the
purchaser's interest in the property as security to obtain a loan
to place improvements, including utility improvements or fire
protection improvements, on the property; or imposes a prepayment
penalty if the purchaser elects to pay the entire amount due under
the contract before the scheduled payment date under the contract.

The substitute adds to the notice of cancellation an acknowledge of
receipt statement.  The substitute also adds that the seller may
not request the purchaser to sign a waiver of receipt of the notice
of cancellation form.  The substitute adds a new Sec. 5.098 to set
out specification for purchaser's right to pledge interest in
property on contracts entered into before September 1, 1995.  The
substitute adds that a seller shall record the executory contract,
including the attached disclosure statement required by Section
5.094.  Under Section 5.100, the substitute adds that if the seller
mails the annual accounting statement to the purchaser, the
statement must be postmarked not later than January 31. The
substitute adds further that if the seller fails to comply with
this requirement, the purchaser may notify the seller that the
purchaser has not received the statement and will deduct 15 percent
of each monthly payment due until the statement is received, and
not earlier than the 25th day after the date the purchaser provides
the seller notice, deduct 15 percent of each monthly payment due
until the statement is received by the purchaser.  Additionally, a
purchaser who makes the 15 percent deduction is not required to
reimburse the seller for the amount deducted.  The substitute also
grants the seller the power to sell through a trustee designated by
the seller. The substitute changes from the original bill the
notice of default to the purchaser.  The substitute also adds
specifications to the recording requirements that the seller must
record.

The original bill provided that a seller who fails to transfer the
recorded legal property title covered under the executory contract
30 days after the seller received the purchasers final payment due
is subject for each day of the violation to a penalty that is
equivalent to a daily payment under the executory contract.  The
substitute further provides under Section 5.102 (formerly 5.101 of
the original), that a seller who fails to transfer the recorded
property title to the purchaser 30 days after the final payment was
made by purchaser is subject to a penalty of $250 a day for each
day the seller fails to transfer the title to the purchaser during
the period that begins the 31st day and ends on the 90th day after
the date the seller receives the purchaser's final payment due
under the contract and a $500 a day for each day the seller fails
to transfer title to the purchaser after the 90th day after the
date the seller receives the purchaser's final payment due under
the contract.  Additionally under this section (Section 5.102),
"seller" includes a successor, assignee, personal representative,
executor or administrator or the seller.


SUMMARY OF COMMITTEE ACTION

The Business and Industry Committee considered S.B. 336 in a public
hearing on May 2, 1995. The committee considered a complete
committee substitute to the bill. The substitute was withdrawn
without objection.  Testifying in support of the bill was John
Henneberger, representing Texas Low Income Housing Information
Service. Testifying against the bill were Pablo Munoz, representing
himself; J. Gary Frisby, representing himself; Robert J. Goodwin,
representing himself; Daniel Acevedo, representing himself.  No one
testified on the bill.  S.B. 336 was left pending before the
committee.  S.B. 336 was reconsidered by the committee in a formal
meeting on May 10, 1995.  The committee considered a complete
committee substitute to the bill. Without objection, the committee
substitute was adopted.  S.B. 336 was reported favorably, as
substituted, with the recommendation that it do pass and be
printed, by a record vote of 7 (seven) ayes, 0 (zero) nays, 0
(zero) present-not-voting, 2 (two) absent.