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.