HBA-TBM S.B. 198 77(R) BILL ANALYSIS Office of House Bill AnalysisS.B. 198 By: Moncrief Business & Industry 3/4/2001 Engrossed BACKGROUND AND PURPOSE Executory contracts involve future obligations on the part of a seller and purchaser and are often utilized when a purchaser is unable to obtain financing for real property. With an executory contract for a home, the purchaser makes payments to the seller and at the end of a specified period of time, if the purchaser is unable to obtain financing, those previous payments are considered rent. Otherwise, the payments are applied toward the purchase price. Under current executory contract law, additional protections are provided to purchasers in economically distressed areas. Senate Bill 198 extends protections to purchasers throughout the state regarding real property sold through an executory contract. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. ANALYSIS Senate Bill 198 amends the Property Code relating to executory contracts for the conveyance of real property. The bill removes the current income and geography brackets so that executory contracts for conveyance apply statewide for a transaction involving real property used or to be used as the purchaser's residence or as the residence of a person related to the purchaser within the second degree of consanguinity or affinity (relative). The bill does not apply to a transaction involving the sale of state land, as well as the sale of land by the Veteran's Land Board under an executory contract (Sec. 5.062). The bill provides that an executory contract is enforceable only when the contract is in writing and signed by the party to be bound or that party's representative. The bill also provides that any oral agreements are superseded by the contract (Sec. 5.072). When negotiations take place in any language other than English, a copy of the contract is required to be in the language of the negotiations. The bill also requires the attorney general to provide translation services, upon request of the seller, and provides for the funding of this service (Sec. 5.068). The bill requires the seller to record the contract and disclosure statement on or before the 30th day after the contract is executed (Sec. 5.076). The bill provides that before an executory contract is signed by the purchaser, the seller is required to provide a tax certificate from the collector for each taxing unit that collects taxes on the property, and a copy of any insurance policy, binder, or other evidence relating to the property that indicates the names of the insurer and the insured, a description of the property, and the amount of property insurance (Sec. 5.070). The bill prohibits the seller from charging any fee similar to a prepayment penalty if the purchaser elects to pay the entire amount due under the contract before the payment date (Sec. 5.071). The notice of a default on an executory contract must be sent by registered or certified mail, return receipt requested (Sec. 5.063). S.B. 198 provides that a remedy of rescission or of forfeiture and acceleration against a purchaser in default may be enforced only if the purchaser fails to cure the default within the 60-day period, rather than if the purchaser has paid only a percentage of the purchase price, and if the seller provides notification to the purchaser. This provision does not apply to parts of the contract covering equity protection and the sale of property (Sec. 5.064). In the event that a seller designates a trustee to sell a purchaser's interest in a property, the seller must warrant that the property is free from any encumbrance (Sec. 5.066). The bill modifies the contents of the annual accounting statement that the seller is required to provide the purchaser. The bill provides that a seller who fails to submit the annual accounting statement is liable to the purchaser for a specified amount of liquidated damages and attorney's fees (Sec. 5.077). Every named insured to an executory contract is required to inform the insurer of the contract for conveyance and the term of the contract, and the name and address of any other party to the contract no later than the 10th day after coverage begins (Sec. 5.078). A named insured who currently has insurance coverage relating to property subject to an executory contract shall notify the insurer no later than January 1, 2002 (SECTION 3). The bill requires the insurer who disburses proceeds for damaged property to issue proceeds jointly to the purchaser and seller designated in the contract. If proceeds are disbursed, the bill requires the purchaser and seller to ensure that the proceeds are used to repair, remedy, or improve the condition of the property (Sec. 5.078). The bill provides that a seller who fails to transfer the title upon receipt of the final payment is liable for reasonable attorneys' fees and liquidated damages. In an action against the inheritor of the seller by the purchaser, the court may waive payment of the liquidated damages and attorney's fees if it finds that the inheritor is required to obtain a court order in order to transfer the title and appears to be diligently attempting to do so (Sec. 5.079). The bill stipulates that a failure on the part of the seller or purchaser to comply with provisions relating to the tax payment and insurance coverage disclosure provisions, the provisions prohibiting oral agreements, and the proper disposition of insurance proceeds constitutes a false, misleading, or deceptive act that is subject to action and a cancellation of the contract (Secs. 5.070, 5.072, 5.078, and SECTION 3). The bill sets forth exemptions to certain provisions for a purchaser of property who is a relative of the seller and has waived the applicability of the provisions in a written agreement (Sec. 5.062). A purchaser may pledge the interest in the property to obtain a property improvement loan if the executory contract was entered into before September 1, 2001, rather than September 1, 1995 (Sec. 5.075). EFFECTIVE DATE September 1, 2001.