1-1 By: Rosson, Truan S.B. No. 336
1-2 (In the Senate - Filed January 26, 1995; January 30, 1995,
1-3 read first time and referred to Committee on International
1-4 Relations, Trade, and Technology; March 1, 1995, reported
1-5 adversely, with favorable Committee Substitute by the following
1-6 vote: Yeas 8, Nays 0; March 1, 1995, sent to printer.)
1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 336 By: Rosson
1-8 A BILL TO BE ENTITLED
1-9 AN ACT
1-10 relating to notice and cure provisions required for a defaulting
1-11 purchaser under a contract for deed; and to requirements for and
1-12 loans associated with a contract for deed transaction in certain
1-13 counties.
1-14 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-15 SECTION 1. The legislature finds that:
1-16 (1) the proliferation of colonias and substandard
1-17 housing developments that lack adequate infrastructure creates
1-18 serious and unacceptable health risks for the residents in these
1-19 areas;
1-20 (2) many residents building homes in these areas do
1-21 not have access to traditional financing and the assistance of a
1-22 professional builder, which promotes expansion of substandard
1-23 housing;
1-24 (3) the contract-for-deed arrangement allows
1-25 low-income persons to purchase property and build homes on the
1-26 property;
1-27 (4) statutory law in this state does not ensure that:
1-28 (A) information about the property, including
1-29 whether utility service is available, whether the property is
1-30 located in a flood-prone area, or whether the title to the property
1-31 is encumbered by a lien, is disclosed to the purchaser;
1-32 (B) the contract is recorded to notify
1-33 subsequent creditors of the purchaser's interest in the property;
1-34 (C) legal title to the property is transferred
1-35 to the purchaser by the seller when the purchaser has paid all
1-36 amounts due under the contract; or
1-37 (D) the purchaser's equity in the property is
1-38 protected; and
1-39 (5) a purchaser under a contract-for-deed arrangement
1-40 is faced with significant problems requiring statutory protection
1-41 because of:
1-42 (A) the inadequacy of infrastructure in areas
1-43 where this arrangement is commonly used; and
1-44 (B) the unregulated status of the
1-45 contract-for-deed arrangement.
1-46 SECTION 2. Subchapter D, Chapter 5, Property Code, is
1-47 amended to read as follows:
1-48 SUBCHAPTER D. EXECUTORY CONTRACT FOR CONVEYANCE
1-49 Sec. 5.061. AVOIDANCE OF FORFEITURE, <AND> ACCELERATION, OR
1-50 RESCISSION. A seller may enforce the remedy of rescission, <a>
1-51 forfeiture, or <of interest and the> acceleration of the
1-52 indebtedness against <of> a purchaser in default under an executory
1-53 contract for conveyance of real property used or to be used as the
1-54 purchaser's residence only if the seller notifies <after notifying>
1-55 the purchaser of:
1-56 (1) the seller's intent to enforce a remedy under this
1-57 section; <the forfeiture and acceleration> and
1-58 (2) the expiration of the following periods:
1-59 (A) <(1)> if the purchaser has paid less than 10
1-60 percent of the purchase price, 15 days after the date notice is
1-61 given;
1-62 (B) <(2)> if the purchaser has paid 10 percent
1-63 or more but less than 20 percent of the purchase price, 30 days
1-64 after the date notice is given; and
1-65 (C) <(3)> if the purchaser has paid 20 percent
1-66 or more of the purchase price, 60 days after the date notice is
1-67 given.
1-68 Sec. 5.062. NOTICE. (a) Notice under Section 5.061 of this
2-1 code must be in writing. If the notice is mailed, it must be by
2-2 registered or certified mail. The notice must be conspicuous and
2-3 printed in 14-point boldface <10-point boldfaced> type or 14-point
2-4 uppercase typewritten letters, and must include on a separate page
2-5 the statement:
2-6 NOTICE
2-7 YOU ARE NOT COMPLYING WITH THE TERMS OF <LATE IN MAKING
2-8 YOUR PAYMENT UNDER> THE CONTRACT TO BUY YOUR PROPERTY
2-9 <HOME>. UNLESS YOU TAKE THE ACTION SPECIFIED IN THIS
2-10 NOTICE <MAKE THE PAYMENT> BY (date) THE SELLER HAS THE
2-11 RIGHT TO TAKE POSSESSION OF YOUR PROPERTY <HOME AND TO
2-12 KEEP ALL PAYMENTS YOU HAVE MADE TO DATE>.
2-13 (b) The notice must also:
2-14 (1) identify and explain the remedy the seller intends
2-15 to enforce;
2-16 (2) if the purchaser has failed to make a timely
2-17 payment, specify:
2-18 (A) <(1)> the delinquent amount, itemized into
2-19 principal and interest;
2-20 (B) <(2)> any additional charges claimed, such
2-21 as late charges or attorney's fees; and
2-22 (C) <(3)> the period to which the delinquency
2-23 and additional charges relate; and
2-24 (3) if the purchaser has failed to comply with a term
2-25 of the contract, identify the term violated and the action required
2-26 to cure the violation.
2-27 (c) Notice by mail is given when it is mailed to the
2-28 purchaser's residence or place of business. Notice by other
2-29 writing is given when it is delivered to the purchaser at the
2-30 purchaser's residence or place of business. The affidavit of a
2-31 person knowledgeable of the facts to the effect that notice was
2-32 given is prima facie evidence of notice in an action involving a
2-33 subsequent bona fide purchaser for value if the purchaser is not in
2-34 possession of the real property and if the stated time to avoid the
2-35 forfeiture has expired. A bona fide subsequent purchaser for value
2-36 who relies upon the affidavit under this subsection shall take
2-37 title free and clear of the contract.
2-38 Sec. 5.063. Right to Cure Default. Notwithstanding an
2-39 agreement to the contrary, a purchaser in default under an
2-40 executory contract for the conveyance of real property used or to
2-41 be used as the purchaser's residence may, at any time before
2-42 expiration of the applicable period provided by Section 5.061 of
2-43 this code, avoid the enforcement of a remedy described by that
2-44 section <forfeiture of interest and acceleration of indebtedness>
2-45 by complying with the terms of the contract up to the date of
2-46 compliance.
2-47 Sec. 5.064. Placement of Lien for Utility Service.
2-48 Notwithstanding any terms of a contract to the contrary, the
2-49 placement of a lien for the reasonable value of improvements to
2-50 residential real estate for purposes of providing utility service
2-51 to the property shall not constitute a default under the terms of
2-52 an executory contract for the purchase of the real property.
2-53 Sec. 5.065. DEFAULT. In this subchapter, "default" means
2-54 the failure to:
2-55 (1) make a timely payment; or
2-56 (2) comply with a term of an executory contract.
2-57 SECTION 3. Chapter 5, Property Code, is amended by adding
2-58 Subchapter E to read as follows:
2-59 SUBCHAPTER E. REQUIREMENTS FOR EXECUTORY CONTRACT FOR
2-60 CONVEYANCE APPLICABLE TO CERTAIN COUNTIES
2-61 Sec. 5.091. APPLICABILITY. (a) This subchapter applies
2-62 only to an executory contract that covers real property located in
2-63 a county that, as determined by the Texas Department of Housing and
2-64 Community Affairs:
2-65 (1) has a per capita income that averaged 25 percent
2-66 below the state average for the most recent three consecutive years
2-67 for which statistics are available and an unemployment rate that
2-68 averaged 25 percent above the state average for the most recent
2-69 three consecutive years for which statistics are available; and
2-70 (2) is within 200 miles of an international border.
3-1 (b) This subchapter applies only to a transaction involving
3-2 an executory contract for conveyance of real property used or to be
3-3 used as the purchaser's residence. For purposes of this
3-4 subchapter, a lot measuring five acres or less is presumed to be
3-5 residential property.
3-6 Sec. 5.092. DETERMINATION AND NOTICE OF APPLICABILITY.
3-7 (a) The Texas Department of Housing and Community Affairs shall
3-8 annually determine the counties in which this subchapter applies.
3-9 (b) The department shall:
3-10 (1) publish in the Texas Register a list of the
3-11 counties in which this subchapter applies; and
3-12 (2) notify the county clerk of each county to which
3-13 this subchapter applies.
3-14 (c) The notice required by Subsection (b) must state that
3-15 Subchapter E, Chapter 5, Property Code, regulates executory
3-16 contract transactions involving residential property located in the
3-17 county.
3-18 (d) The department shall make its determination not later
3-19 than May 1 of each year, based on consideration of statistics
3-20 excluding the year in which the determination is made. The
3-21 determination is effective beginning June 1 following the
3-22 determination.
3-23 (e) Immediately after receiving notice from the department,
3-24 the county clerk shall publish a copy of the notice on three
3-25 separate days in a newspaper of general circulation in the county.
3-26 If no newspaper is published in the county, the clerk shall post a
3-27 copy of the notice on three separate days on a bulletin board at a
3-28 place convenient to the public in the county courthouse.
3-29 Sec. 5.093. SPANISH LANGUAGE REQUIREMENT. If the
3-30 negotiations that precede the execution of an executory contract
3-31 are conducted primarily in Spanish, the seller shall provide a copy
3-32 in Spanish of all written documents relating to the transaction,
3-33 including the contract, disclosure notice, and annual accounting
3-34 statements required by this subchapter and a notice of default
3-35 required by Subchapter D.
3-36 Sec. 5.094. SELLER'S DISCLOSURE OF PROPERTY CONDITION.
3-37 (a) Before an executory contract is signed by the purchaser, the
3-38 seller shall provide the purchaser with:
3-39 (1) a survey or plat of the real property;
3-40 (2) a list of title exceptions and copies of documents
3-41 which list title exceptions; and
3-42 (3) a written notice informing the purchaser of the
3-43 condition of the property that must, at a minimum, be executed by
3-44 the seller and purchaser and read substantially similar to the
3-45 following:
3-46 WARNING
3-47 IF ANY OF THE ITEMS BELOW HAVE NOT BEEN CHECKED, YOU
3-48 MAY NOT BE ABLE TO LIVE ON THE PROPERTY.
3-49 SELLER'S DISCLOSURE NOTICE
3-50 CONCERNING THE PROPERTY AT (street address or legal
3-51 description and city)
3-52 THIS DOCUMENT STATES THE TRUE FACTS ABOUT THE LAND YOU
3-53 ARE CONSIDERING PURCHASING.
3-54 CHECK OFF THE ITEMS THAT ARE TRUE:
3-55 ___ The property is in a recorded subdivision.
3-56 ___ The property has water service that provides
3-57 potable water.
3-58 ___ The property has sewer service.
3-59 ___ The property has been approved for installation of
3-60 a septic system.
3-61 ___ The property has electric service.
3-62 ___ The property is not in a flood-prone area.
3-63 ___ The roads to the boundaries of the property are
3-64 paved.
3-65 ___ No person other than the seller:
3-66 (1) owns the property;
3-67 (2) has a claim of ownership to the property; or
3-68 (3) has an interest in the property.
3-69 ___ No person has a lien filed against the property.
3-70 ___ There are no back taxes owed on the property.
4-1 ___ There are no restrictive covenants, easements, or
4-2 other title exceptions or encumbrances which prohibit
4-3 construction of a house on the property.
4-4 ____________________ ____________________
4-5 (Date) (Signature of Seller)
4-6 ____________________ ____________________
4-7 (Date) (Signature of Purchaser)
4-8 (b) If the property is not located in a recorded
4-9 subdivision, the seller shall provide the purchaser with a separate
4-10 disclosure form stating that utilities may not be available to the
4-11 property until the subdivision is recorded as required by law.
4-12 (c) If the seller advertises property for sale under an
4-13 executory contract, the advertisement must disclose information
4-14 regarding the availability of water, sewer, and electric service.
4-15 (d) The seller's failure to provide information required by
4-16 this section:
4-17 (1) is a false, misleading, or deceptive act or
4-18 practice within the meaning of Section 17.46, Business & Commerce
4-19 Code, and is actionable in a public or private suit brought under
4-20 Subchapter E, Chapter 17, Business & Commerce Code; and
4-21 (2) entitles the purchaser to cancel and rescind the
4-22 executory contract and receive a full refund of all payments made
4-23 to the seller.
4-24 (e) Subsection (d) does not limit the purchaser's remedy
4-25 against the seller for other false, misleading, or deceptive acts
4-26 or practices actionable in a suit brought under Subchapter E,
4-27 Chapter 17, Business & Commerce Code.
4-28 Sec. 5.095. SELLER'S DISCLOSURE OF FINANCING TERMS. Before
4-29 an executory contract is signed by the purchaser, the seller shall
4-30 provide to the purchaser a written statement that specifies:
4-31 (1) the purchase price of the property;
4-32 (2) the interest rate charged under the contract;
4-33 (3) the dollar amount, or an estimate of the dollar
4-34 amount if the interest rate is variable, of the interest charged
4-35 for the term of the contract; and
4-36 (4) the total amount of principal and interest to be
4-37 paid under the contract.
4-38 Sec. 5.096. CONTRACT TERMS PROHIBITED. A seller may not
4-39 include as a term of the executory contract a provision that:
4-40 (1) imposes an additional late-payment fee that
4-41 exceeds the lesser of:
4-42 (A) five percent of the monthly payment under
4-43 the contract; or
4-44 (B) the actual administrative cost of processing
4-45 the late payment; or
4-46 (2) prohibits the purchaser from:
4-47 (A) placing improvements on the property that
4-48 are not otherwise prohibited by law; or
4-49 (B) pledging the purchaser's interest in the
4-50 property as security to obtain a loan to place improvements on the
4-51 property.
4-52 Sec. 5.097. PURCHASER'S RIGHT TO CANCEL CONTRACT WITHOUT
4-53 CAUSE. (a) In addition to other rights or remedies provided by
4-54 law, the purchaser may cancel and rescind an executory contract for
4-55 any reason not later than the 14th day after the date of the
4-56 contract.
4-57 (b) The seller shall include in immediate proximity to the
4-58 space reserved in the executory contract for the purchaser's
4-59 signature a statement printed in 14-point boldface type or 14-point
4-60 uppercase typewritten letters that reads substantially similar to
4-61 the following:
4-62 YOU, THE PURCHASER, MAY CANCEL THIS CONTRACT AT ANY
4-63 TIME DURING THE NEXT TWO WEEKS. THE DEADLINE FOR
4-64 CANCELING THE CONTRACT IS (date). THE ATTACHED NOTICE
4-65 OF CANCELLATION EXPLAINS THIS RIGHT.
4-66 (c) The seller shall provide a notice of cancellation form
4-67 to the purchaser at the time the purchaser signs the executory
4-68 contract that is printed in 14-point boldface type or 14-point
4-69 uppercase typewritten letters and that reads substantially similar
4-70 to the following:
5-1 NOTICE OF CANCELLATION
5-2 (date of contract)
5-3 YOU MAY CANCEL THE EXECUTORY CONTRACT FOR ANY
5-4 REASON WITHOUT ANY PENALTY OR OBLIGATION BY (date).
5-5 (1) YOU MUST SEND A TELEGRAM OR MAIL OR DELIVER
5-6 A SIGNED AND DATED COPY OF THIS CANCELLATION NOTICE OR
5-7 ANY OTHER WRITTEN NOTICE TO (Name of Seller) AT
5-8 (Seller's Address) BY (date).
5-9 (2) THE SELLER SHALL, NOT LATER THAN THE 10TH
5-10 DAY AFTER THE DATE THE SELLER RECEIVES YOUR
5-11 CANCELLATION NOTICE:
5-12 (A) RETURN THE EXECUTED CONTRACT AND ANY
5-13 PROPERTY EXCHANGED OR PAYMENTS MADE BY YOU UNDER THE
5-14 CONTRACT; AND
5-15 (B) CANCEL ANY SECURITY INTEREST ARISING OUT OF
5-16 THE CONTRACT.
5-17 I HEREBY CANCEL THIS CONTRACT.
5-18 ____________________ __________________
5-19 (Date) (Purchaser's Signature)
5-20 Sec. 5.098. PURCHASER'S RIGHT TO PLEDGE INTEREST IN PROPERTY
5-21 ON CONTRACTS ENTERED INTO BEFORE SEPTEMBER 1, 1995. (a) On an
5-22 executory contract entered into before September 1, 1995, a
5-23 purchaser may pledge the interest in the property, which accrues
5-24 pursuant to Section 5.101, only to obtain a loan for improving the
5-25 safety of the property or any improvements on the property.
5-26 (b) Loans that improve the safety of the property and
5-27 improvements on the property include loans for:
5-28 (1) improving or connecting a residence to water
5-29 service;
5-30 (2) improving or connecting a residence to a
5-31 wastewater system;
5-32 (3) building or improving a septic system;
5-33 (4) structural improvements in the residence; and
5-34 (5) improved fire protection.
5-35 Sec. 5.099. RECORDING REQUIREMENTS. (a) Except as provided
5-36 by Subsection (b), the seller shall record the executory contract
5-37 as prescribed by Title 3.
5-38 (b) Section 12.002(c) does not apply to an executory
5-39 contract filed for record under this section.
5-40 (c) If the executory contract is terminated for any reason,
5-41 the seller shall record the instrument that terminates the
5-42 contract.
5-43 (d) The county clerk shall collect the filing fee prescribed
5-44 by Section 118.011, Local Government Code.
5-45 Sec. 5.100. ANNUAL ACCOUNTING STATEMENT. (a) The seller
5-46 shall provide the purchaser with an annual statement in January of
5-47 each year for the term of the executory contract.
5-48 (b) The statement must include the following information:
5-49 (1) the amount paid under the contract;
5-50 (2) the remaining amount owed under the contract; and
5-51 (3) the number of payments remaining under the
5-52 contract.
5-53 Sec. 5.101. EQUITY PROTECTION; SALE OF PROPERTY. (a) If a
5-54 purchaser defaults after the purchaser has paid 40 percent or more
5-55 of the amount due or the equivalent of 48 monthly payments under
5-56 the executory contract, the seller is granted the power to sell, as
5-57 trustee for the purchaser, the purchaser's interest in the property
5-58 as provided by this section. The seller may not enforce the remedy
5-59 of rescission or forfeiture and acceleration.
5-60 (b) The seller shall notify a purchaser of a default under
5-61 the contract and allow the purchaser at least 60 days after the
5-62 date notice is given to cure the default. The notice must be
5-63 provided as prescribed by Section 5.062 except that the notice must
5-64 substitute the following statement:
5-65 NOTICE
5-66 YOU ARE NOT COMPLYING WITH THE TERMS OF THE CONTRACT TO
5-67 BUY YOUR PROPERTY. UNLESS YOU TAKE THE ACTION
5-68 SPECIFIED IN THIS NOTICE BY (date) THE SELLER HAS THE
5-69 RIGHT TO SELL YOUR PROPERTY AT A PUBLIC AUCTION.
5-70 (c) The seller must post, file, and serve a notice of sale
6-1 and the county clerk shall record and maintain the notice of sale
6-2 as prescribed by Section 51.002. A notice of sale is not valid
6-3 unless it is given after the period to cure has expired.
6-4 (d) The seller must conduct the sale as prescribed by
6-5 Section 51.002.
6-6 Sec. 5.102. TITLE TRANSFER. (a) The seller shall transfer
6-7 recorded, legal title of the property covered by the executory
6-8 contract to the purchaser not later than the 30th day after the
6-9 date the seller receives the purchaser's final payment due under
6-10 the contract.
6-11 (b) A seller who violates Subsection (a) is subject for each
6-12 day of the violation to a penalty that is equivalent to a daily
6-13 payment under the executory contract.
6-14 Sec. 5.103. LIABILITY FOR DISCLOSURES. For purposes of this
6-15 subchapter, a disclosure required by this subchapter that is made
6-16 by a seller's agent is a disclosure made by the seller.
6-17 SECTION 4. Section 2306.092, Government Code, is amended to
6-18 read as follows:
6-19 Sec. 2306.092. Duties. The department, through the
6-20 community affairs division, shall:
6-21 (1) maintain communication with local governments and
6-22 act as an advocate for local governments at the state and federal
6-23 levels;
6-24 (2) assist local governments with advisory and
6-25 technical services;
6-26 (3) provide financial aid to local governments and
6-27 combinations of local governments for programs that are authorized
6-28 to receive assistance;
6-29 (4) provide information about and referrals for state
6-30 and federal programs and services that affect local governments;
6-31 (5) administer, conduct, or jointly sponsor
6-32 educational and training programs for local government officials;
6-33 (6) conduct research on problems of general concern to
6-34 local governments;
6-35 (7) collect, publish, and distribute information
6-36 useful to local governments, including information on:
6-37 (A) local government finances and employment;
6-38 (B) housing;
6-39 (C) population characteristics; and
6-40 (D) land-use patterns;
6-41 (8) encourage cooperation among local governments as
6-42 appropriate;
6-43 (9) advise and inform the governor and the legislature
6-44 about the affairs of local governments and recommend necessary
6-45 action;
6-46 (10) assist the governor in coordinating federal and
6-47 state activities affecting local governments;
6-48 (11) administer, as appropriate:
6-49 (A) state responsibilities for programs created
6-50 under the federal Economic Opportunity Act of 1964 (42 U.S.C.
6-51 Section 2701 et seq.);
6-52 (B) programs assigned to the department under
6-53 the Omnibus Budget Reconciliation Act of 1981 (Pub.L. No. 97-35);
6-54 and
6-55 (C) other federal acts creating economic
6-56 opportunity programs assigned to the department;
6-57 (12) develop a consumer education program to educate
6-58 consumers on executory contract transactions for conveyance of real
6-59 property used or to be used as the consumer's residence;
6-60 (13) adopt rules that are necessary and proper to
6-61 carry out programs and responsibilities assigned by the legislature
6-62 or the governor; and
6-63 (14) <(13)> perform other duties relating to local
6-64 government that are assigned by the legislature or the governor.
6-65 SECTION 5. The change in law made by Section 2 of this Act
6-66 applies to enforcement, cancellation, or rescission of executory
6-67 contracts on which the purchaser defaults on or after the effective
6-68 date of this Act regardless of when the contract was entered. A
6-69 purchaser who is in default before the effective date of this Act
6-70 is covered by the law in effect when the default occurred, and the
7-1 former law is continued in effect for that purpose.
7-2 SECTION 6. This Act takes effect September 1, 1995, except
7-3 that:
7-4 (1) Subchapter E, Chapter 5, Property Code, as added
7-5 by this Act, applies in a county beginning on a date designated by
7-6 the Texas Department of Housing and Community Affairs, which date
7-7 must be at least 30 days after the date on which notice is given to
7-8 the county clerk under that subchapter, but not later than November
7-9 1, 1995; and
7-10 (2) the Texas Department of Housing and Community
7-11 Affairs shall act as soon as practicable to make the initial
7-12 determinations under Subchapter E, Chapter 5, Property Code, as
7-13 added by this Act, and shall publish and give notice of those
7-14 determinations not later than October 1, 1995.
7-15 SECTION 7. The importance of this legislation and the
7-16 crowded condition of the calendars in both houses create an
7-17 emergency and an imperative public necessity that the
7-18 constitutional rule requiring bills to be read on three several
7-19 days in each house be suspended, and this rule is hereby suspended.
7-20 * * * * *