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.