By Rosson S.B. No. 336
74R610 PAM-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to notice and cure provisions required for a defaulting
1-3 purchaser under a contract for deed; and to requirements for a
1-4 contract for deed transaction in certain counties.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. The legislature finds that:
1-7 (1) the proliferation of colonias and substandard
1-8 housing developments that lack adequate infrastructure creates
1-9 serious and unacceptable health risks for the residents in these
1-10 areas;
1-11 (2) many residents building homes in these areas do
1-12 not have access to traditional financing and the assistance of a
1-13 professional builder, which promotes expansion of substandard
1-14 housing;
1-15 (3) the contract-for-deed arrangement allows
1-16 low-income persons to purchase property and build homes on the
1-17 property;
1-18 (4) statutory law in this state does not ensure that:
1-19 (A) information about the property, including
1-20 whether utility service is available, whether the property is
1-21 located in a flood-prone area, or whether the title to the property
1-22 is encumbered by a lien, is disclosed to the purchaser;
1-23 (B) the contract is recorded to notify
1-24 subsequent creditors of the purchaser's interest in the property;
2-1 (C) legal title to the property is transferred
2-2 to the purchaser by the seller when the purchaser has paid all
2-3 amounts due under the contract; or
2-4 (D) the purchaser's equity in the property is
2-5 protected; and
2-6 (5) a purchaser under a contract-for-deed arrangement
2-7 is faced with significant problems requiring statutory protection
2-8 because of:
2-9 (A) the inadequacy of infrastructure in areas
2-10 where this arrangement is commonly used; and
2-11 (B) the unregulated status of the
2-12 contract-for-deed arrangement.
2-13 SECTION 2. Subchapter D, Chapter 5, Property Code, is
2-14 amended to read as follows:
2-15 SUBCHAPTER D. EXECUTORY CONTRACT FOR CONVEYANCE
2-16 Sec. 5.061. Avoidance of Forfeiture and Acceleration OR
2-17 RESCISSION. A seller may enforce the remedy of rescission or <a>
2-18 forfeiture <of interest> and <the> acceleration against <of the
2-19 indebtedness of> a purchaser in default under an executory contract
2-20 for conveyance of real property used or to be used as the
2-21 purchaser's residence only if the seller notifies <after notifying>
2-22 the purchaser of:
2-23 (1) the seller's intent to enforce a remedy under this
2-24 section; <the forfeiture and acceleration> and
2-25 (2) the expiration of the following periods:
2-26 (A) <(1)> if the purchaser has paid less than 10
2-27 percent of the purchase price, 15 days after the date notice is
3-1 given;
3-2 (B) <(2)> if the purchaser has paid 10 percent
3-3 or more but less than 20 percent of the purchase price, 30 days
3-4 after the date notice is given; and
3-5 (C) <(3)> if the purchaser has paid 20 percent
3-6 or more of the purchase price, 60 days after the date notice is
3-7 given.
3-8 Sec. 5.062. NOTICE. (a) Notice under Section 5.061 of this
3-9 code must be in writing. If the notice is mailed, it must be by
3-10 registered or certified mail. The notice must be conspicuous and
3-11 printed in 14-point bold-faced <10-point boldfaced> type or
3-12 uppercase typewritten letters, and must include on a separate page
3-13 the statement:
3-14 NOTICE
3-15 YOU ARE NOT COMPLYING WITH THE TERMS OF <LATE IN MAKING
3-16 YOUR PAYMENT UNDER> THE CONTRACT TO BUY YOUR HOME.
3-17 UNLESS YOU TAKE THE ACTION SPECIFIED IN THIS NOTICE
3-18 <MAKE THE PAYMENT> BY (date) THE SELLER HAS THE RIGHT
3-19 TO TAKE POSSESSION OF YOUR HOME <AND TO KEEP ALL
3-20 PAYMENTS YOU HAVE MADE TO DATE>.
3-21 (b) The notice must also:
3-22 (1) identify and explain the remedy the seller intends
3-23 to enforce;
3-24 (2) if the purchaser has failed to make a timely
3-25 payment, specify:
3-26 (A) <(1)> the delinquent amount, itemized into
3-27 principal and interest;
4-1 (B) <(2)> any additional charges claimed, such
4-2 as late charges or attorney's fees; and
4-3 (C) <(3)> the period to which the delinquency
4-4 and additional charges relate; and
4-5 (3) if the purchaser has failed to comply with a term
4-6 of the contract, identify the term violated and the action required
4-7 to cure the violation.
4-8 (c) Notice by mail is given when it is mailed to the
4-9 purchaser's residence or place of business. Notice by other
4-10 writing is given when it is delivered to the purchaser at the
4-11 purchaser's residence or place of business. The affidavit of a
4-12 person knowledgeable of the facts to the effect that notice was
4-13 given is prima facie evidence of notice in an action involving a
4-14 subsequent bona fide purchaser for value if the purchaser is not in
4-15 possession of the real property and if the stated time to avoid the
4-16 forfeiture has expired. A bona fide subsequent purchaser for value
4-17 who relies upon the affidavit under this subsection shall take
4-18 title free and clear of the contract.
4-19 Sec. 5.063. Right to Cure Default. Notwithstanding an
4-20 agreement to the contrary, a purchaser in default under an
4-21 executory contract for the conveyance of real property used or to
4-22 be used as the purchaser's residence may, at any time before
4-23 expiration of the applicable period provided by Section 5.061 of
4-24 this code, avoid the enforcement of a remedy described by that
4-25 section <forfeiture of interest and acceleration of indebtedness>
4-26 by complying with the terms of the contract up to the date of
4-27 compliance.
5-1 Sec. 5.064. Placement of Lien for Utility Service.
5-2 Notwithstanding any terms of a contract to the contrary, the
5-3 placement of a lien for the reasonable value of improvements to
5-4 residential real estate for purposes of providing utility service
5-5 to the property shall not constitute a default under the terms of
5-6 an executory contract for the purchase of the real property.
5-7 Sec. 5.065. DEFAULT. In this subchapter, "default" means
5-8 the failure to:
5-9 (1) make a timely payment; or
5-10 (2) comply with a term of an executory contract.
5-11 SECTION 3. Chapter 5, Property Code, is amended by adding
5-12 Subchapter E to read as follows:
5-13 SUBCHAPTER E. REQUIREMENTS FOR EXECUTORY CONTRACT FOR CONVEYANCE
5-14 APPLICABLE TO CERTAIN COUNTIES
5-15 Sec. 5.091. APPLICABILITY. (a) This subchapter applies
5-16 only to an executory contract that covers real property located in
5-17 a county that, as determined by the Texas Department of Housing and
5-18 Community Affairs:
5-19 (1) has a per capita income that averaged 25 percent
5-20 below the state average for the most recent three consecutive years
5-21 for which statistics are available and an unemployment rate that
5-22 averaged 25 percent above the state average for the most recent
5-23 three consecutive years for which statistics are available; and
5-24 (2) is within 200 miles of an international border.
5-25 (b) This subchapter applies only to a transaction involving
5-26 an executory contract for conveyance of real property used or to be
5-27 used as the purchaser's residence. For purposes of this
6-1 subchapter, a lot measuring five acres or less is presumed to be
6-2 residential property.
6-3 Sec. 5.092. DETERMINATION AND NOTICE OF APPLICABILITY. (a)
6-4 The Texas Department of Housing and Community Affairs shall
6-5 annually determine the counties in which this subchapter applies.
6-6 (b) The department shall:
6-7 (1) publish in the Texas Register a list of the
6-8 counties in which this subchapter applies; and
6-9 (2) notify the county clerk of each county to which
6-10 this subchapter applies.
6-11 (c) The notice required by Subsection (b) must state that
6-12 Subchapter E, Chapter 5, Property Code, regulates executory
6-13 contract transactions involving residential property located in the
6-14 county.
6-15 (d) The department shall make its determination not later
6-16 than May 1 of each year, based on consideration of statistics
6-17 excluding the year in which the determination is made. The
6-18 determination is effective beginning June 1 following the
6-19 determination.
6-20 (e) Immediately after receiving notice from the department,
6-21 the county clerk shall publish a copy of the notice on three
6-22 separate days in a newspaper of general circulation in the county.
6-23 If no newspaper is published in the county, the clerk shall post a
6-24 copy of the notice on three separate days on a bulletin board at a
6-25 place convenient to the public in the county courthouse.
6-26 Sec. 5.093. SPANISH LANGUAGE REQUIREMENT. If the
6-27 negotiations that precede the execution of an executory contract
7-1 are conducted primarily in Spanish, the seller shall provide a copy
7-2 in Spanish of all written documents relating to the transaction,
7-3 including the contract, disclosure notice, and annual accounting
7-4 statements required by this subchapter and a notice of default
7-5 required by Subchapter D.
7-6 Sec. 5.094. SELLER'S DISCLOSURE OF PROPERTY CONDITION. (a)
7-7 Before an executory contract is signed by the purchaser, the seller
7-8 shall provide the purchaser with:
7-9 (1) a survey or plat of the real property; and
7-10 (2) a written notice informing the purchaser of the
7-11 condition of the property that must, at a minimum, be executed by
7-12 the seller and purchaser and read substantially similar to the
7-13 following:
7-14 WARNING
7-15 IF ANY OF THE ITEMS BELOW HAVE NOT BEEN CHECKED, YOU
7-16 MAY NOT BE ABLE TO LIVE ON THE PROPERTY.
7-17 SELLER'S DISCLOSURE NOTICE
7-18 CONCERNING THE PROPERTY AT (street address or legal
7-19 description and city)
7-20 THIS DOCUMENT STATES THE TRUE FACTS ABOUT THE LAND YOU
7-21 ARE CONSIDERING PURCHASING.
7-22 CHECK OFF THE ITEMS THAT ARE TRUE:
7-23 ___ The property is in a recorded subdivision.
7-24 ___ The property has water service that provides
7-25 potable water.
7-26 ___ The property has sewer service.
7-27 ___ The property has been approved for installation of
8-1 a septic system.
8-2 ___ The property has electric service.
8-3 ___ The property is not in a flood-prone area.
8-4 ___ The roads are paved.
8-5 ___ No person other than the seller:
8-6 (1) owns the property;
8-7 (2) has a claim of ownership to the property; or
8-8 (3) has an interest in the property.
8-9 ___ No person has a lien filed against the property.
8-10 ___ There are no back taxes owed on the property.
8-11 ____________________ ____________________
8-12 (Date) (Signature of Seller)
8-13 ____________________ ____________________
8-14 (Date) (Signature of Purchaser)
8-15 (b) If the property is not located in a recorded
8-16 subdivision, the seller shall provide the purchaser with a separate
8-17 disclosure form stating that utilities may not be available to the
8-18 property until the subdivision is recorded as required by law.
8-19 (c) If the seller advertises property for sale under an
8-20 executory contract, the advertisement must disclose information
8-21 regarding the availability of water, sewer, and electric service.
8-22 (d) The seller's failure to disclose information required by
8-23 this section:
8-24 (1) is a false, misleading, or deceptive act or
8-25 practice within the meaning of Section 17.46, Business & Commerce
8-26 Code, and is actionable in a public or private suit brought under
8-27 Subchapter E, Chapter 17, Business & Commerce Code; and
9-1 (2) entitles the purchaser to cancel and rescind the
9-2 executory contract and receive a full refund of all payments made
9-3 to the seller.
9-4 (e) Subsection (d) does not limit the purchaser's remedy
9-5 against the seller for other false, misleading, or deceptive acts
9-6 or practices actionable in a suit brought under Subchapter E,
9-7 Chapter 17, Business & Commerce Code.
9-8 Sec. 5.095. SELLER'S DISCLOSURE OF FINANCING TERMS. Before
9-9 an executory contract is signed by the purchaser, the seller shall
9-10 provide to the purchaser a written statement that specifies:
9-11 (1) the purchase price of the property;
9-12 (2) the interest rate charged under the contract;
9-13 (3) the dollar amount, or an estimate of the dollar
9-14 amount if the interest rate is variable, of the interest charged
9-15 for the term of the contract; and
9-16 (4) the total amount of principal and interest to be
9-17 paid under the contract.
9-18 Sec. 5.096. CONTRACT TERMS PROHIBITED. A seller may not
9-19 include as a term of the executory contract a provision that:
9-20 (1) imposes an additional late-payment fee that
9-21 exceeds the lesser of:
9-22 (A) five percent of the monthly payment under
9-23 the contract; or
9-24 (B) the actual administrative cost of processing
9-25 the late payment; or
9-26 (2) prohibits the purchaser from:
9-27 (A) placing improvements on the property that
10-1 are not otherwise prohibited by law; or
10-2 (B) pledging the purchaser's interest in the
10-3 property as security to obtain a loan to place improvements on the
10-4 property.
10-5 Sec. 5.097. PURCHASER'S RIGHT TO CANCEL CONTRACT WITHOUT
10-6 CAUSE. (a) In addition to other rights or remedies provided by
10-7 law, the purchaser may cancel and rescind an executory contract for
10-8 any reason not later than the 14th day after the date of the
10-9 contract.
10-10 (b) The seller shall include in immediate proximity to the
10-11 space reserved in the executory contract for the purchaser's
10-12 signature a statement printed in 14-point bold-faced type or
10-13 uppercase typewritten letters that reads substantially similar to
10-14 the following:
10-15 YOU, THE PURCHASER, MAY CANCEL THIS CONTRACT AT ANY
10-16 TIME DURING THE NEXT TWO WEEKS. THE DEADLINE FOR
10-17 CANCELING THE CONTRACT IS (date). THE ATTACHED NOTICE
10-18 OF CANCELLATION EXPLAINS THIS RIGHT.
10-19 (c) The seller shall provide a notice of cancellation form
10-20 to the purchaser at the time the purchaser signs the executory
10-21 contract that is printed in 14-point bold-faced type or uppercase
10-22 typewritten letters and that reads substantially similar to the
10-23 following:
10-24 NOTICE OF CANCELLATION
10-25 (date of contract)
10-26 YOU MAY CANCEL THE EXECUTORY CONTRACT FOR ANY
10-27 REASON WITHOUT ANY PENALTY OR OBLIGATION BY (date).
11-1 (1) YOU MUST SEND A TELEGRAM OR MAIL OR DELIVER
11-2 A SIGNED AND DATED COPY OF THIS CANCELLATION NOTICE OR
11-3 ANY OTHER WRITTEN NOTICE TO (Name of Seller) AT
11-4 (Seller's Address) BY (date).
11-5 (2) THE SELLER SHALL, NOT LATER THAN THE 10TH
11-6 DAY AFTER THE DATE THE SELLER RECEIVES YOUR
11-7 CANCELLATION NOTICE:
11-8 (A) RETURN THE EXECUTED CONTRACT AND ANY
11-9 PROPERTY EXCHANGED OR PAYMENTS MADE BY YOU UNDER THE
11-10 CONTRACT; AND
11-11 (B) CANCEL ANY SECURITY INTEREST ARISING OUT OF
11-12 THE CONTRACT.
11-13 I HEREBY CANCEL THIS CONTRACT.
11-14 ____________________ __________________
11-15 (Date) (Purchaser's Signature)
11-16 Sec. 5.098. RECORDING REQUIREMENTS. (a) Except as provided
11-17 by Subsection (b), the seller shall record the executory contract
11-18 as prescribed by Title 3.
11-19 (b) Section 12.002(c) does not apply to an executory
11-20 contract filed for record under this section.
11-21 (c) If the executory contract is terminated for any reason,
11-22 the seller shall record the instrument that terminates the
11-23 contract.
11-24 (d) The county clerk shall collect the filing fee prescribed
11-25 by Section 118.011, Local Government Code.
11-26 Sec. 5.099. ANNUAL ACCOUNTING STATEMENT. (a) The seller
11-27 shall provide the purchaser with an annual statement in January of
12-1 each year for the term of the executory contract.
12-2 (b) The statement must include the following information:
12-3 (1) the amount paid under the contract;
12-4 (2) the remaining amount owed under the contract; and
12-5 (3) the number of payments remaining under the
12-6 contract.
12-7 Sec. 5.100. EQUITY PROTECTION; SALE OF PROPERTY. (a) If a
12-8 purchaser defaults after the purchaser has paid 40 percent or more
12-9 of the amount due or the equivalent of 48 monthly payments under
12-10 the executory contract, the seller is granted the power to sell, as
12-11 trustee for the purchaser, the purchaser's interest in the property
12-12 as provided by this section. The seller may not enforce the remedy
12-13 of rescission or forfeiture and acceleration.
12-14 (b) The seller shall notify a purchaser of a default under
12-15 the contract and allow the purchaser at least 60 days after the
12-16 date notice is given to cure the default. The notice must be
12-17 provided as prescribed by Section 5.062 except that the notice must
12-18 substitute the following statement:
12-19 NOTICE
12-20 YOU ARE NOT COMPLYING WITH THE TERMS OF THE CONTRACT TO
12-21 BUY YOUR HOME. UNLESS YOU TAKE THE ACTION SPECIFIED IN
12-22 THIS NOTICE BY (date) THE SELLER HAS THE RIGHT TO SELL
12-23 YOUR HOME AT A PUBLIC AUCTION.
12-24 (c) The seller must post, file, and serve a notice of sale
12-25 and the county clerk shall record and maintain the notice of sale
12-26 as prescribed by Section 51.002. A notice of sale is not valid
12-27 unless it is given after the period to cure has expired.
13-1 (d) The seller must conduct the sale as prescribed by
13-2 Section 51.002.
13-3 Sec. 5.101. TITLE TRANSFER. (a) Title to the property
13-4 subject to the executory contract vests in the purchaser when all
13-5 amounts due under the contract are paid.
13-6 (b) The seller shall transfer title of the property covered
13-7 by the executory contract to the purchaser not later than the 30th
13-8 day after the date the seller receives the purchaser's final
13-9 payment due under the contract.
13-10 (c) A seller who violates Subsection (b) is subject for each
13-11 day of the violation to a penalty that is equivalent to a daily
13-12 payment under the executory contract.
13-13 Sec. 5.102. LIABILITY FOR DISCLOSURES. For purposes of this
13-14 subchapter, a disclosure required by this subchapter that is made
13-15 by a seller's agent is a disclosure made by the seller.
13-16 SECTION 4. Section 2306.092, Government Code, is amended to
13-17 read as follows:
13-18 Sec. 2306.092. Duties. The department, through the
13-19 community affairs division, shall:
13-20 (1) maintain communication with local governments and
13-21 act as an advocate for local governments at the state and federal
13-22 levels;
13-23 (2) assist local governments with advisory and
13-24 technical services;
13-25 (3) provide financial aid to local governments and
13-26 combinations of local governments for programs that are authorized
13-27 to receive assistance;
14-1 (4) provide information about and referrals for state
14-2 and federal programs and services that affect local governments;
14-3 (5) administer, conduct, or jointly sponsor
14-4 educational and training programs for local government officials;
14-5 (6) conduct research on problems of general concern to
14-6 local governments;
14-7 (7) collect, publish, and distribute information
14-8 useful to local governments, including information on:
14-9 (A) local government finances and employment;
14-10 (B) housing;
14-11 (C) population characteristics; and
14-12 (D) land-use patterns;
14-13 (8) encourage cooperation among local governments as
14-14 appropriate;
14-15 (9) advise and inform the governor and the legislature
14-16 about the affairs of local governments and recommend necessary
14-17 action;
14-18 (10) assist the governor in coordinating federal and
14-19 state activities affecting local governments;
14-20 (11) administer, as appropriate:
14-21 (A) state responsibilities for programs created
14-22 under the federal Economic Opportunity Act of 1964 (42 U.S.C.
14-23 Section 2701 et seq.);
14-24 (B) programs assigned to the department under
14-25 the Omnibus Budget Reconciliation Act of 1981 (Pub.L. No. 97-35);
14-26 and
14-27 (C) other federal acts creating economic
15-1 opportunity programs assigned to the department;
15-2 (12) develop a consumer education program to educate
15-3 consumers on executory contract transactions for conveyance of real
15-4 property used or to be used as the consumer's residence;
15-5 (13) adopt rules that are necessary and proper to
15-6 carry out programs and responsibilities assigned by the legislature
15-7 or the governor; and
15-8 (14) <(13)> perform other duties relating to local
15-9 government that are assigned by the legislature or the governor.
15-10 SECTION 5. The change in law made by Section 2 of this Act
15-11 applies to enforcement, cancellation, or rescission of executory
15-12 contracts on which the purchaser defaults on or after the effective
15-13 date of this Act regardless of when the contract was entered. A
15-14 purchaser who is in default before the effective date of this Act
15-15 is covered by the law in effect when the default occurred, and the
15-16 former law is continued in effect for that purpose.
15-17 SECTION 6. This Act takes effect September 1, 1995, except
15-18 that:
15-19 (1) Subchapter E, Chapter 5, Property Code, as added
15-20 by this Act, applies in a county beginning on a date designated by
15-21 the Texas Department of Housing and Community Affairs, which date
15-22 must be at least 30 days after the date on which notice is given to
15-23 the county clerk under that subchapter, but not later than November
15-24 1, 1995; and
15-25 (2) the Texas Department of Housing and Community
15-26 Affairs shall act as soon as practicable to make the initial
15-27 determinations under Subchapter E, Chapter 5, Property Code, as
16-1 added by this Act, and shall publish and give notice of those
16-2 determinations not later than October 1, 1995.
16-3 SECTION 7. The importance of this legislation and the
16-4 crowded condition of the calendars in both houses create an
16-5 emergency and an imperative public necessity that the
16-6 constitutional rule requiring bills to be read on three several
16-7 days in each house be suspended, and this rule is hereby suspended.