74R10397 DWS-F By Combs, et al. H.B. No. 725 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to the transfer of servicing of certain residential real 1-3 estate loans; providing a penalty. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. Title 132, Revised Statutes, is amended by adding 1-6 Article 9029 to read as follows: 1-7 Art. 9029. TRANSFER OF SERVICING OF REAL ESTATE LOAN 1-8 Sec. 1. DEFINITIONS. In this article: 1-9 (1) "Effective date of transfer" means the date on 1-10 which the mortgage payment of a borrower is first due to the 1-11 transferee servicer of a loan pursuant to the transfer of the 1-12 servicing of the loan. 1-13 (2) "Person" means an individual, firm, corporation, 1-14 or other legal entity. 1-15 (3) "Servicer" means the person responsible for 1-16 servicing of a loan, including the person who makes or holds a loan 1-17 if the person also services the loan. The term does not include: 1-18 (A) the Federal Deposit Insurance Corporation or 1-19 the Resolution Trust Corporation, in connection with assets 1-20 acquired, assigned, sold, or transferred under 12 U.S.C. Section 1-21 1823(c), as amended, or as receiver or conservator of an insured 1-22 depository institution; and 1-23 (B) the Government National Mortgage 1-24 Association, the Federal National Mortgage Association, the Federal 2-1 Home Loan Mortgage Corporation, the Resolution Trust Corporation, 2-2 or the Federal Deposit Insurance Corporation, if the transfer of 2-3 the servicing of the loan is preceded by: 2-4 (i) termination of the contract for 2-5 servicing the loan for cause; 2-6 (ii) commencement of proceedings for 2-7 bankruptcy of the servicer; or 2-8 (iii) commencement of proceedings by the 2-9 Federal Deposit Insurance Corporation or the Resolution Trust 2-10 Corporation for conservatorship or receivership of the servicer or 2-11 an entity by which the servicer is owned or controlled. 2-12 (4) "Servicing" means receiving scheduled periodic 2-13 payments from a borrower under the terms of a loan, including 2-14 amounts for escrow accounts, and making the payments of principal 2-15 and interest and other payments with respect to the amounts 2-16 received from the borrower as may be required under the terms of 2-17 the loan. 2-18 Sec. 2. APPLICATION. This article applies only to a loan 2-19 that is: 2-20 (1) secured by residential real property; and 2-21 (2) not subject to 12 U.S.C. Section 2605, as amended. 2-22 Sec. 3. NOTICE BY TRANSFEROR OF LOAN SERVICING AT TIME OF 2-23 TRANSFER. (a) Each servicer of a loan shall notify the borrower 2-24 in writing of any transfer of the servicing of the loan to any 2-25 other person. 2-26 (b) Except as provided by Subsections (c) and (d), the 2-27 notice required under Subsection (a) must be made to the borrower 3-1 not later than the 15th day before the effective date of transfer 3-2 of the servicing of the loan with respect to which the notice is 3-3 made. 3-4 (c) The notice required under Subsection (a) must be made to 3-5 the borrower not later than the 30th day after the effective date 3-6 of transfer of the servicing of the loan with respect to which the 3-7 notice is made if the transfer of the servicing of the loan is 3-8 preceded by: 3-9 (1) termination of the contract for servicing the loan 3-10 for cause; 3-11 (2) commencement of proceedings for bankruptcy of the 3-12 servicer; or 3-13 (3) commencement of proceedings by the Federal Deposit 3-14 Insurance Corporation or the Resolution Trust Corporation for 3-15 conservatorship or receivership of the servicer or an entity by 3-16 which the servicer is owned or controlled. 3-17 (d) Subsections (b) and (c) do not apply to a transfer of 3-18 the servicing of a loan if the person who makes the loan provides 3-19 to the borrower, at settlement with respect to the property for 3-20 which the loan is made, written notice of the transfer. 3-21 (e) The notice must include: 3-22 (1) the effective date of transfer of the servicing; 3-23 (2) the name, address, and toll-free or collect call 3-24 telephone number of the transferee servicer; 3-25 (3) a toll-free or collect call telephone number for: 3-26 (A) an individual employed by the transferor 3-27 servicer; or 4-1 (B) the department of the transferor servicer 4-2 that can be contacted by the borrower to answer inquiries relating 4-3 to the transfer of servicing; 4-4 (4) the name and toll-free or collect call telephone 4-5 number of: 4-6 (A) an individual employed by the transferee 4-7 servicer; or 4-8 (B) the department of the transferee servicer 4-9 that can be contacted by the borrower to answer inquiries relating 4-10 to the transfer of servicing; 4-11 (5) the date on which the transferor servicer who is 4-12 servicing the loan before the transfer will cease to accept 4-13 payments relating to the loan and the date on which the transferee 4-14 servicer will begin to accept the payments; 4-15 (6) information concerning the effect the transfer may 4-16 have, if any, on the terms of or the continued availability of 4-17 mortgage life or disability insurance or any other type of optional 4-18 insurance and the action, if any, the borrower must take to 4-19 maintain coverage; and 4-20 (7) a statement that the transfer of the servicing of 4-21 the loan does not affect any term or condition of the security 4-22 instruments other than terms directly related to the servicing of 4-23 the loan. 4-24 Sec. 4. NOTICE BY TRANSFEREE OF LOAN SERVICING AT TIME OF 4-25 TRANSFER. (a) Each transferee servicer to whom the servicing of a 4-26 loan is transferred shall notify the borrower of the transfer. 4-27 (b) Except as provided by Subsections (c) and (d), the 5-1 notice required under Subsection (a) must be made to the borrower 5-2 not later than the 15th day after the effective date of transfer of 5-3 the servicing of the loan with respect to which the notice is made. 5-4 (c) The notice required under Subsection (a) must be made to 5-5 the borrower not later than the 30th day after the effective date 5-6 of transfer of the servicing of the loan with respect to which the 5-7 notice is made if the transfer of the servicing of the loan is 5-8 preceded by: 5-9 (1) termination of the contract for servicing the loan 5-10 for cause; 5-11 (2) commencement of proceedings for bankruptcy of the 5-12 servicer; or 5-13 (3) commencement of proceedings by the Federal Deposit 5-14 Insurance Corporation or the Resolution Trust Corporation for 5-15 conservatorship or receivership of the servicer or an entity by 5-16 which the servicer is owned or controlled. 5-17 (d) Subsections (b) and (c) do not apply to a transfer of 5-18 the servicing of a loan if the person who makes the loan provides 5-19 to the borrower, at settlement with respect to the property for 5-20 which the loan is made, written notice of the transfer. 5-21 (e) The notice must include the information described by 5-22 Section 3(e). 5-23 Sec. 5. TREATMENT OF LOAN PAYMENTS DURING TRANSFER PERIOD. 5-24 During the 60-day period beginning on the effective date of 5-25 transfer of the servicing of a loan, a late fee may not be imposed 5-26 on the borrower with respect to a payment on the loan, and a 5-27 payment may not be treated as late for any other purposes, if the 6-1 payment is received by the transferor servicer before the due date 6-2 applicable to the payment. 6-3 Sec. 6. NOTE EVIDENCING LOAN. (a) This article applies 6-4 only to the transfer of the servicing of a loan and does not 6-5 require a person to give notice of the transfer of a note 6-6 evidencing the loan to another holder. 6-7 (b) On request of the borrower, a servicer shall notify the 6-8 borrower of the name and address of the person who is holder of the 6-9 note that evidences the loan. The servicer shall give the notice 6-10 not later than the 10th day after the date the borrower makes the 6-11 request. 6-12 Sec. 7. OFFENSE. (a) A person who violates this article 6-13 commits an offense. 6-14 (b) An offense under this section is punishable by a fine 6-15 not to exceed $1,000. 6-16 SECTION 2. This Act takes effect September 1, 1995, and 6-17 applies only to a transfer of servicing of a loan occurring on or 6-18 after that date. 6-19 SECTION 3. The importance of this legislation and the 6-20 crowded condition of the calendars in both houses create an 6-21 emergency and an imperative public necessity that the 6-22 constitutional rule requiring bills to be read on three several 6-23 days in each house be suspended, and this rule is hereby suspended.