By: Dutton, Farrar, Smith of Harris, H.B. No. 1823
Leibowitz
A BILL TO BE ENTITLED
AN ACT
relating to the rights of parties to an executory contract for
conveyance of real property and certain other real property
transactions.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 212.0115(c), Local Government Code, is
amended to read as follows:
(c) On the written request of an owner of land, a purchaser
of real property under a contract for deed, executory contract, or
other executory conveyance, an entity that provides utility
service, or the governing body of the municipality, the municipal
authority responsible for approving plats shall make the following
determinations regarding the owner's land or the land in which the
entity or governing body is interested that is located within the
jurisdiction of the municipality:
(1) whether a plat is required under this subchapter
for the land; and
(2) if a plat is required, whether it has been prepared
and whether it has been reviewed and approved by the authority.
SECTION 2. Subchapter A, Chapter 5, Property Code, is
amended by adding Section 5.014 to read as follows:
Sec. 5.014. PROHIBITED FEES. A person who has a right of
first refusal in real property may not charge a fee for declining to
exercise that right, such as a fee for providing written evidence of
the declination.
SECTION 3. Section 5.062, Property Code, is amended by
amending Subsections (a) and (d) and adding Subsection (e) to read
as follows:
(a) This subchapter applies only to a transaction involving
an executory contract for conveyance of 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 by consanguinity
or affinity, as determined under Chapter 573, Government Code. For
purposes of this subchapter, and only for the purposes of this
subchapter:
(1) [,] a lot measuring one acre or less is presumed to
be residential property; and
(2) an option to purchase real property that includes
or is combined or executed concurrently with a residential lease
agreement, together with the lease, is considered an executory
contract for conveyance of real property.
(d) Section 5.066 and Sections 5.068-5.085 [5.068-5.080] do
not apply to a transaction involving an executory contract for
conveyance if the purchaser of the property:
(1) is related to the seller of the property within the
second degree by consanguinity or affinity, as determined under
Chapter 573, Government Code; and
(2) has waived the applicability of those sections in
a written agreement.
(e) This subchapter does not apply to an executory contract
described by Subsection (a)(2) if the term of the contract is three
years or less and the purchaser and seller have not been parties to
an executory contract to purchase the property covered by the
executory contract for longer than three years.
SECTION 4. Subchapter D, Chapter 5, Property Code, is
amended by adding Section 5.0621 to read as follows:
Sec. 5.0621. CONSTRUCTION WITH OTHER LAW. (a) Except as
provided by Subsection (b), if a residential lease of real property
includes an option to purchase the property, the provisions of this
subchapter and Chapter 92 apply to the lease.
(b) After a tenant exercises an option to purchase leased
property under a residential lease described by Subsection (a),
Chapter 92 no longer applies to the lease.
SECTION 5. Subchapter D, Chapter 5, Property Code, is
amended by adding Section 5.0721 to read as follows:
Sec. 5.0721. INFORMATION REQUIRED IN CONTRACT. An
executory contract must contain the following:
(1) a legal description of the property covered by the
contract;
(2) an explanation of the purchaser's right to receive
an annual accounting statement from the seller under Section 5.077
and the remedies available to the purchaser if the seller fails to
comply with that section;
(3) a covenant that the seller will not place any liens
or encumbrances on the property covered by the contract that are not
disclosed in the contract; and
(4) a covenant that the property has been lawfully
subdivided and platted as required by, as applicable, state,
county, and municipal authorities.
SECTION 6. Section 5.073, Property Code, is amended to read
as follows:
Sec. 5.073. CONTRACT TERMS, CERTAIN WAIVERS PROHIBITED.
(a) A seller may not include as a term of the executory contract a
provision that:
(1) imposes an additional late-payment fee that
exceeds the lesser of:
(A) eight percent of the monthly payment under
the contract; or
(B) the actual administrative cost of processing
the late payment;
(2) prohibits the purchaser from pledging the
purchaser's interest in the property as security to obtain a loan to
place improvements, including utility improvements or fire
protection improvements, on the property; [or]
(3) imposes a prepayment penalty or any similar fee if
the purchaser elects to pay the entire amount due under the contract
before the scheduled payment date under the contract;
(4) forfeits an option fee or other option payment
paid under the contract for a late payment; or
(5) increases the purchase price, imposes a fee or
charge of any type, or otherwise penalizes a purchaser leasing
property with an option to buy the property for requesting repairs
or exercising any other right under Chapter 92.
(b) A provision of the executory contract that purports to
waive a right or exempt a party from a liability or duty under this
subchapter is void.
SECTION 7. Subchapter D, Chapter 5, Property Code, is
amended by adding Section 5.0731 to read as follows:
Sec. 5.0731. TAX EXEMPTIONS AND AMORTIZATION SCHEDULE. At
the time an executory contract is executed, the seller shall
provide to the purchaser:
(1) a copy of each application form for any tax
exemption available from ad valorem taxation for residential
property and a description of those exemptions that is published or
provided by the comptroller; and
(2) an amortization schedule showing all the payments
due under the contract, including a breakdown of the anticipated
adjustment of the interest and principal included in each payment
due under the contract for the entire term of the contract.
SECTION 8. Section 5.077(b), Property Code, is amended to
read as follows:
(b) The statement must include the following information:
(1) the amount paid under the contract;
(2) the remaining amount owed under the contract;
(3) the number of payments remaining under the
contract;
(4) the amounts paid to taxing authorities on the
purchaser's behalf if collected by the seller;
(5) the amounts paid to insure the property on the
purchaser's behalf if collected by the seller;
(6) if the property has been damaged and the seller has
received insurance proceeds, an accounting of the proceeds applied
to the property; [and]
(7) if the seller has changed insurance coverage, a
legible copy of the current policy, binder, or other evidence that
satisfies the requirements of Section 5.070(a)(2);
(8) the amount of interest paid under the contract;
and
(9) a disclosure that reads substantially similar to
the following: "The amount of interest, if any, you paid under this
contract or a portion of that interest may be deductible from your
income for federal income tax purposes. Consult with your tax
advisor for assistance.".
SECTION 9. Subchapter D, Chapter 5, Property Code, is
amended by adding Sections 5.081-5.085 to read as follows:
Sec. 5.081. RIGHT TO CONVERT CONTRACT. (a) A purchaser, at
any time and without paying penalties or charges of any kind, is
entitled to convert the purchaser's interest in property under an
executory contract into recorded, legal title in accordance with
this section.
(b) If the purchaser tenders to the seller an amount of
money equal to the balance of the total amount owed by the purchaser
to the seller under the executory contract, the seller shall
transfer to the purchaser recorded, legal title of the property
covered by the contract.
(c) Subject to Subsection (d), if the purchaser delivers to
the seller of property covered by an executory contract a
promissory note that is equal in amount to the balance of the total
amount owed by the purchaser to the seller under the contract and
that contains the same interest rate, due dates, and late fees as
the contract:
(1) the seller shall execute a deed containing any
warranties required by the contract and conveying to the purchaser
recorded, legal title of the property; and
(2) the purchaser shall simultaneously execute a deed
of trust that:
(A) contains the same terms as the contract
regarding the purchaser's and seller's duties concerning the
property;
(B) secures the purchaser's payment and
performance under the promissory note and deed of trust; and
(C) conveys the property to the trustee, in
trust, and confers on the trustee the power to sell the property if
the purchaser defaults on the promissory note or the terms of the
deed of trust.
(d) On or before the 10th day after the date the seller
receives a promissory note under Subsection (c) that substantially
complies with that subsection, the seller shall:
(1) deliver to the purchaser a written explanation
that legally justifies why the seller refuses to convert the
purchaser's interest into recorded, legal title under Subsection
(c); or
(2) communicate with the purchaser to schedule a
mutually agreeable day and time to execute the deed and deed of
trust under Subsection (c).
(e) A seller who violates this section is liable to the
purchaser in the same manner and amount as a seller who violates
Section 5.079 is liable to a purchaser. This subsection does not
limit or affect any other rights or remedies a purchaser has under
other law.
(f) On the last date that all of the conveyances described
by Subsections (b) and (c) are executed, the executory contract:
(1) is considered completed; and
(2) has no further effect.
(g) The appropriate use of forms published by the Texas Real
Estate Commission for transactions described by this section
constitutes compliance with this section.
Sec. 5.082. REQUEST FOR BALANCE AND TRUSTEE. (a) A
purchaser under an executory contract, on written request, is
entitled to receive the following information from the seller:
(1) as of the date of the request or another date
specified by the purchaser, the amount owed by the purchaser under
the contract; and
(2) if applicable, the name and address of the seller's
desired trustee for a deed of trust to be executed under Section
5.081.
(b) On or before the 10th day after the date the seller
receives from the purchaser a written request for information
described by Subsection (a), the seller shall provide to the
purchaser a written statement of the requested information.
(c) If the seller does not timely respond to a request made
under this section, the purchaser may:
(1) determine or pay the amount owed under the
contract, including determining the amount necessary for a
promissory note under Section 5.081; and
(2) if applicable, select a trustee for a deed of trust
under Section 5.081.
(d) For purposes of Subsection (c)(2), a purchaser must
select a trustee that lives or has a place of business in the same
county where the property covered by the executory contract is
located.
Sec. 5.083. RIGHT TO CANCEL CONTRACT FOR IMPROPER PLATTING.
(a) Except as provided by Subsection (c), in addition to other
rights or remedies provided by law, the purchaser may cancel and
rescind an executory contract at any time if the purchaser learns
that the seller has not properly subdivided or platted the property
that is covered by the contract in accordance with state and local
law. A purchaser canceling and rescinding a contract under this
subsection must:
(1) deliver a signed, written notice of the
cancellation and rescission to the seller in person; or
(2) send a signed, written notice of the cancellation
and rescission to the seller by telegram or certified or registered
mail, return receipt requested.
(b) If the purchaser cancels the contract as provided under
Subsection (a), the seller, not later than the 10th day after the
date the seller receives the notice of cancellation and rescission,
shall:
(1) deliver in person or send by telegram or certified
or registered mail, return receipt requested, to the purchaser a
signed, written notice that the seller intends to subdivide or plat
the property properly; or
(2) return to the purchaser all payments of any kind
made to the seller under the contract and reimburse the purchaser
for:
(A) any payments the purchaser made to a taxing
authority for the property; and
(B) the value of any improvements made to the
property by the purchaser.
(c) A purchaser may not exercise the purchaser's right to
cancel and rescind an executory contract under this section if, on
or before the 90th day after the date the purchaser receives the
seller's notice under Subsection (b)(1), the seller:
(1) properly subdivides or plats the property; and
(2) delivers in person or sends by telegram or
certified or registered mail, return receipt requested, to the
purchaser a signed, written notice evidencing that the property has
been subdivided or platted in accordance with state and local law.
(d) The seller may not terminate the purchaser's possession
of the property covered by the contract being canceled and
rescinded before the seller pays the purchaser any money to which
the purchaser is entitled under Subsection (b).
Sec. 5.084. RIGHT TO DEDUCT. If a seller is liable to a
purchaser under this subchapter, the purchaser, without taking
judicial action, may deduct the amount owed to the purchaser by the
seller from any amounts owed to the seller by the purchaser under
the terms of an executory contract.
Sec. 5.085. FEE SIMPLE TITLE REQUIRED; MAINTENANCE OF FEE
SIMPLE TITLE. (a) A potential seller may not execute an executory
contract with a potential purchaser if the seller does not own the
property in fee simple free from any liens or other encumbrances.
(b) A seller, or the seller's heirs or assigns, must
maintain fee simple title free from any liens or other encumbrances
to property covered by an executory contract for the entire
duration of the contract. This subsection does not apply to a lien
or encumbrance placed on the property that is:
(1) placed on the property because of the conduct of
the purchaser;
(2) agreed to by the purchaser as a condition of a loan
obtained to place improvements on the property, including utility
or fire protection improvements; or
(3) placed on the property by the seller before
executing the contract in exchange for a loan given to the seller
and used by the seller only to purchase the property.
(c) A violation of this section:
(1) is a false, misleading, or deceptive act or
practice within the meaning of Section 17.46, Business & Commerce
Code, and is actionable in a public or private suit brought under
Subchapter E, Chapter 17, Business & Commerce Code; and
(2) in addition to other rights or remedies provided
by law, entitles the purchaser to cancel and rescind the executory
contract and receive from the seller:
(A) the return of all payments of any kind made to
the seller under the contract; and
(B) reimbursement for:
(i) any payments the purchaser made to a
taxing authority for the property; and
(ii) the value of any improvements made to
the property by the purchaser.
SECTION 10. Except as provided by a contract entered into
before the effective date of this Act, Section 5.014, Property
Code, as added by this Act, applies only to a fee that is solicited
on or after the effective date of this Act for declining the
exercise of a right of first refusal.
SECTION 11. (a) Section 5.062, Property Code, as amended by
this Act, and Section 5.0621, Property Code, as added by this Act,
apply to an executory contract for conveyance in effect on the
effective date of this Act, regardless of the date on which the
purchaser and seller entered into the contract.
(b) Sections 5.0721 and 5.0731, Property Code, as added by
this Act, and Section 5.073, Property Code, as amended by this Act,
apply only to an executory contract for conveyance that is entered
into on or after the effective date of this Act. An executory
contract that was entered into before the effective date of this Act
is governed by the law in effect immediately before the effective
date of this Act, and the former law is continued in effect for that
purpose.
(c) Section 5.077(b), Property Code, as amended by this Act,
applies only to an annual accounting statement provided on or after
the effective date of this Act. An annual accounting statement
provided before the effective date of this Act is governed by the
law in effect immediately before the effective date of this Act, and
the former law is continued in effect for that purpose.
(d) Sections 5.081 and 5.082, Property Code, as added by
this Act, apply to a conversion of title initiated or a request for
information made on or after the effective date of this Act,
regardless of the date on which the purchaser and seller entered
into the executory contract that is the subject of the conversion or
request.
(e) Section 5.083, Property Code, as added by this Act,
applies only to a seller's failure or refusal to subdivide or plat
real property on or after the effective date of this Act, regardless
of the date on which the purchaser and seller entered into the
executory contract covering the property that is improperly
subdivided or platted.
(f) Section 5.084, Property Code, as added by this Act,
applies to the computation of any amount owed to the seller by the
purchaser under the terms of an executory contract on or after the
effective date of this Act, regardless of the date on which the
purchaser and seller entered into the executory contract.
(g) Section 5.085, Property Code, as added by this Act,
applies only to an executory contract for conveyance that is
entered into on or after the effective date of this Act. An
executory contract for conveyance that is entered into before the
effective date of this Act is covered by the law in effect at the
time the contract was entered into, and that law is continued in
effect for that purpose.
SECTION 12. This Act takes effect September 1, 2005.