By Pickett H.B. No. 832
75R4738 BEM-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to requiring escrow agents dealing primarily in real
1-3 estate transactions to be bonded; providing a civil penalty.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Title 113A, Revised Statutes, is amended by
1-6 adding Article 6573c to read as follows:
1-7 Art. 6573c. SECURITY REQUIREMENT FOR ESCROW AGENTS
1-8 Sec. 1. REPORT AND BOND REQUIRED. (a) An escrow agent
1-9 doing business in this state shall file annually with the banking
1-10 commissioner of Texas, not later than April 1, a verified report
1-11 listing the amounts held by the escrow agent in escrow deposits
1-12 relating to real estate transactions during the preceding calendar
1-13 year and satisfactory proof that the escrow agent has purchased a
1-14 properly executed surety bond:
1-15 (1) in a form approved by the attorney general;
1-16 (2) issued by a carrier admitted in this state;
1-17 (3) that is continuous and cancelable by the surety
1-18 only after not less than 90 days' advance notice to the
1-19 commissioner;
1-20 (4) that creates an obligation that continues for the
1-21 term of the escrow contracts written while the bond is in force;
1-22 (5) conditioned on the performance by the escrow agent
1-23 of obligations created by escrow contracts entered into by the
1-24 escrow agent; and
2-1 (6) in an amount equal to:
2-2 (A) the average amount held in escrow by the
2-3 escrow agent during the preceding year; or
2-4 (B) $250,000 for an escrow agent that was not in
2-5 business during the preceding year or did not meet the definition
2-6 of "escrow agent" during that year.
2-7 (b) A bond described by Subsection (a)(6)(B) of this section
2-8 may not be reduced until the escrow agent's second annual renewal
2-9 of the bond.
2-10 (c) A person may recover against a surety bond if the person
2-11 obtains against an escrow agent a judgment assessing damages and
2-12 reasonable attorney's fees based on an act or omission on which the
2-13 bond is conditioned that occurred during the term for which the
2-14 person had an amount of money in escrow with the escrow agent.
2-15 (d) The liability imposed on a surety is limited to:
2-16 (1) the amount of damages incurred because of the
2-17 escrow agent's breach of contract; and
2-18 (2) attorney's fees that are incurred in the recovery
2-19 of the judgment and that are reasonable in relation to the work
2-20 performed.
2-21 (e) The liability of a surety may not exceed the face value
2-22 of the surety bond. A surety is not liable for successive claims
2-23 in excess of the bond amount regardless of the number of claims
2-24 made against the bond or the number of years the bond remains in
2-25 force.
2-26 (f) This section does not apply to an attorney or certified
2-27 public accountant licensed in this state who holds money in escrow
3-1 as an incident to the person's practice.
3-2 (g) In this article:
3-3 (1) "Escrow agent" means:
3-4 (A) an entity that receives more than 50 percent
3-5 of the entity's annual income from escrow-related fees for services
3-6 related to real estate transactions; or
3-7 (B) an individual who receives more than 50
3-8 percent of the individual's annual income from escrow-related fees
3-9 for services related to real estate transactions and who is not
3-10 employed by an entity described by Paragraph (A) of this
3-11 subdivision; and
3-12 (2) "Commissioner" means the banking commissioner of
3-13 Texas.
3-14 Sec. 2. VIOLATIONS; INJUNCTIONS. (a) The commissioner
3-15 shall:
3-16 (1) notify an escrow agent of a finding by the
3-17 commissioner that the escrow agent is violating or has violated
3-18 this article; and
3-19 (2) provide the escrow agent an opportunity to correct
3-20 the violation before the 60th day after the date the commissioner
3-21 discovers the violation.
3-22 (b) After the notice and an opportunity to comply, the
3-23 attorney general or the appropriate district or county attorney,
3-24 whether at the request of the commissioner or not, may sue to
3-25 recover a civil penalty under Section 3 of this article or for
3-26 appropriate injunctive relief to prevent the continuation of a
3-27 violation of this article.
4-1 (c) The commissioner and the party bringing the suit are
4-2 entitled to recover reasonable expenses incurred in obtaining
4-3 injunctive relief, civil penalties, or both, including
4-4 investigation costs, court costs, reasonable attorney's fees,
4-5 witness fees, and deposition expenses.
4-6 (d) Venue may be maintained in Travis County or in a county
4-7 in which any real estate relating to an escrow agreement entered
4-8 into by an escrow agent while in violation of this article is
4-9 located.
4-10 (e) Not later than the seventh day before the date on which
4-11 a party intends to sue under this section on the party's own
4-12 initiative, the party shall provide to the commissioner notice of
4-13 the suit.
4-14 (f) The injunctive relief and civil penalty authorized by
4-15 this article are in addition to any other civil, administrative, or
4-16 criminal penalty provided by law.
4-17 Sec. 3. CIVIL PENALTY. (a) An escrow agent that violates
4-18 this article is liable for a civil penalty of not less than $100 or
4-19 more than $1,000 for each day of violation.
4-20 (b) In determining the amount of the penalty, the court
4-21 shall consider:
4-22 (1) the escrow agent's previous violations;
4-23 (2) the risk of loss created by the violation to
4-24 parties contracting with the escrow agent; and
4-25 (3) the amount necessary to deter future violations.
4-26 (c) A penalty collected under this article by the attorney
4-27 general shall be deposited to the credit of the general revenue
5-1 fund. A penalty collected under this article by a district or
5-2 county attorney shall be deposited to the credit of the general
5-3 fund of the county in which the suit was heard.
5-4 SECTION 2. This Act takes effect September 1, 1997.
5-5 SECTION 3. The importance of this legislation and the
5-6 crowded condition of the calendars in both houses create an
5-7 emergency and an imperative public necessity that the
5-8 constitutional rule requiring bills to be read on three several
5-9 days in each house be suspended, and this rule is hereby suspended.