81R5932 AJA-F

By: Lucio S.B. No. 979

A BILL TO BE ENTITLED

AN ACT

relating to foreclosure sales of residential real property; providing a penalty.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subchapter B, Chapter 402, Government Code, is amended by adding Section 402.035 to read as follows:

Sec. 402.035. RESIDENTIAL PROPERTY FORECLOSURE NOTICE. (a) The attorney general, in consultation with interested stakeholders as the attorney general considers appropriate, shall prescribe the form and content of the written notice that must be sent by a mortgage servicer to a debtor under Sections 51.002 and 51.0022, Property Code.

(b) The notice must:

(1) be written in plain language in English and Spanish;

(2) be entitled "Rights of Homeowners or Tenants of Homeowners Facing Foreclosure" or the Spanish equivalent of that title, as applicable; and

(3) include:

(A) an explanation of foreclosure, including a description of the various processes of foreclosure of a mortgage lien on residential property as applicable to each type of mortgage lien;

(B) a statement that state law requires that the debtor in default under a residential mortgage lien be given at least 45 days to cure the default;

(C) a description of the handling of payments made after the time for cure has expired;

(D) the debtor's right to the return of payments in certain circumstances;

(E) a statement that the debtor and the public must be given at least 21 days' notice of the foreclosure sale and that a foreclosure sale may occur only on the first Tuesday of a month;

(F) a description of the options available to the debtor in default to prevent the foreclosure;

(G) a description of and warning against typical activities that may be encountered by the debtor in connection with the foreclosure, including any unconscionable actions or courses of action under Subchapter E, Chapter 17, Business & Commerce Code;

(H) a description of the rights and remedies of a tenant whose landlord loses the property to foreclosure, including a tenant's right to credit a security deposit toward rent under certain circumstances and to withhold rent from a landlord during and after the foreclosure process; and

(I) a description of and contact information for resources available to the debtor to assist in preventing the foreclosure or in filing an action concerning the foreclosure process or the lien being foreclosed, including local bar associations, the State Bar of Texas, and nonprofit legal assistance programs.

(c) The attorney general shall update the notice prescribed under this section at least annually and maintain the most current version of the notice on the attorney general's Internet website.

SECTION 2. Section 24.005(b), Property Code, is amended to read as follows:

(b) If the occupant is a tenant at will or by sufferance, the landlord must give the tenant at least three days' written notice to vacate before the landlord files a forcible detainer suit unless the parties have contracted for a shorter or longer notice period in a written lease or agreement. If a building is purchased at a tax foreclosure sale or a trustee's foreclosure sale under a lien superior to the tenant's lease and the tenant timely pays rent and is not otherwise in default under the tenant's lease after foreclosure, the purchaser must give a residential tenant of the building at least 90 [30] days' written notice to vacate and must otherwise comply with Section 51.011 [if the purchaser chooses not to continue the lease. The tenant is considered to timely pay the rent under this subsection if, during the month of the foreclosure sale, the tenant pays the rent for that month to the landlord before receiving any notice that a foreclosure sale is scheduled during the month or pays the rent for that month to the foreclosing lienholder or the purchaser at foreclosure not later than the fifth day after the date of receipt of a written notice of the name and address of the purchaser that requests payment. Before a foreclosure sale, a foreclosing lienholder may give written notice to a tenant stating that a foreclosure notice has been given to the landlord or owner of the property and specifying the date of the foreclosure].

SECTION 3. Section 51.002, Property Code, is amended by amending Subsection (d) and adding Subsections (d-1) and (d-2) to read as follows:

(d) Notwithstanding any agreement to the contrary, the mortgage servicer of the debt shall serve a debtor in default under a deed of trust or other contract lien on residential real property [used as the debtor's residence] with written notice by certified mail, and first class regular mail, addressed to the debtor at the debtor's last known address stating that the debtor is in default under the deed of trust or other contract lien and giving the debtor at least 45 [20] days to cure the default before notice of sale can be given under Subsection (b). The entire calendar day on which the notice required by this subsection is given, regardless of the time of day at which the notice is given, is included in computing the 45-day [20-day] notice period required by this subsection, and the entire calendar day on which notice of sale is given under Subsection (b) is excluded in computing the 45-day [20-day] notice period.

(d-1) In addition to the notice of sale sent by certified mail under Subsection (b)(3), the mortgage servicer must send the notice of sale by first class regular mail addressed to the debtor at the debtor's last known address and by first class regular mail sent to the property's physical address and addressed to "Occupant."

(d-2) The mortgage servicer must include with each notice sent by regular or certified mail under Subsection (b)(3), (d), or (d-1) a copy of the notice prescribed by the attorney general under Section 402.035, Government Code.

SECTION 4. Chapter 51, Property Code, is amended by adding Sections 51.0022, 51.010, 51.011, and 51.012 to read as follows:

Sec. 51.0022. RETURN OF CERTAIN PAYMENTS; PROVISION OF CERTAIN NOTICE. (a) Before giving a notice of sale under Section 51.002(b), a mortgage servicer must return to the debtor any payments received from the debtor after the last notice of default was sent to the debtor under Section 51.002(d).

(b) If the mortgage servicer receives a payment from the debtor after giving notice of sale under Section 51.002(b), and the foreclosure sale occurs on the date in the notice of sale, the mortgage servicer shall return those payments on or before the 10th day after the date of the sale.

(c) A payment returned under this section by mail must include a copy of the notice prescribed by the attorney general under Section 402.035, Government Code. If a payment is returned under this section by electronic means, the mortgage servicer shall mail a notice of the payment's return to the debtor by first class regular mail with a copy of the notice prescribed by the attorney general under Section 402.035, Government Code.

(d) This section applies only to a lien on residential real property occupied by the debtor as the debtor's homestead.

Sec. 51.010. JUDICIAL FORECLOSURE REQUIRED FOR CERTAIN DEBTS. (a) A deed of trust or other contract lien on residential real property occupied by the debtor as the debtor's homestead may not be foreclosed and a power of sale under the contract may not be exercised without a court judgment foreclosing the lien and ordering the sale of the property by a sheriff or constable if the debt in default:

(1) had an annual percentage rate, as defined by the federal Truth in Lending Act (15 U.S.C. Section 1601 et seq.), that was at least three percentage points more than the prime rate as published by the Wall Street Journal two weeks before the date the debt was incurred;

(2) allows the contract interest rate to increase:

(A) by more than two percentage points in any one-year period; or

(B) more often than once a year;

(3) has a universal default provision that allows for a change in the interest rate when there is:

(A) a default by the debtor on any obligation to the lender or any other lender; or

(B) a decrease in the debtor's credit score;

(4) has a prepayment penalty;

(5) allows negative amortization;

(6) provides for a scheduled payment that is more than twice as large as the average of earlier scheduled monthly payments; or

(7) allows for the payment of interest only.

(b) This section does not apply to an interim construction loan.

Sec. 51.011. TENANT'S TIME TO VACATE; PAYMENT OF RENT. (a) A person who purchases residential real property at a foreclosure sale under this chapter and gives a notice to vacate under Section 24.005 to a tenant who occupies the property at the time of the foreclosure sale under a lease agreement entered into after the date the lien that was the subject of the foreclosure sale attached to the property may not require the tenant to vacate the property before the 90th day after the date the notice is sent.

(b) Except as provided by Subsection (c), on a written demand by the purchaser, a tenant described by Subsection (a) must pay rent to the purchaser of the property as required by the lease agreement that applied to the tenant on the date of the foreclosure sale and otherwise comply with the terms of that lease.

(c) A tenant who, before the foreclosure sale, has paid rent for a rental period that includes the date of the foreclosure sale is not required to pay rent to the purchaser until rent for the first rental period commencing after the foreclosure sale is due.

(d) Unless the purchaser acknowledges and delivers in writing a statement that the new owner is responsible for the tenant's security deposit and specifying the exact dollar amount of the deposit, the tenant is entitled to credit the security deposit toward the rent owed the purchaser without the necessity of judicial action.

Sec. 51.012. WAIVER. A provision of a contract, agreement, or other document that purports to waive a right of a debtor or exempt a mortgage servicer, mortgagee, trustee, substitute trustee, or government official from a duty under this chapter is void.

SECTION 5. Subchapter A, Chapter 92, Property Code, is amended by adding Section 92.021 to read as follows:

Sec. 92.021. WITHHOLDING OF RENT ON NOTICE OF FORECLOSURE. (a) Notwithstanding any other law or a provision of a lease agreement, if a tenant receives written notice that the leased premises are subject to a foreclosure sale, the tenant is authorized to withhold the payment of rent without any adverse action, penalty, fee, or charge until:

(1) the property is purchased at a foreclosure sale; or

(2) the default giving rise to the foreclosure sale has been cured, the sale has been canceled, the tenant has been given at least 10 days' notice and proof of the cure and cancellation, and the tenant has been provided a method to confirm the facts directly with the lienholder who initiated the foreclosure sale.

(b) A landlord who violates this section or threatens to violate this section is liable to the tenant for:

(1) actual damages;

(2) a civil penalty of three times the monthly rent; and

(3) reasonable attorney's fees.

(c) A landlord who violates this section or threatens to violate this section commits an offense. An offense under this subsection is a Class A misdemeanor.

SECTION 6. (a) Not later than November 1, 2009, the attorney general shall prescribe the form and content of the notice under Section 402.035, Government Code, as added by this Act.

(b) Section 24.005(b), Property Code, as amended by this Act, and Section 51.011, Property Code, as added by this Act, apply only to a notice to vacate residential real property purchased at a foreclosure sale on or after the effective date of this Act. Notice to vacate residential real property purchased at a foreclosure sale before the effective date of this Act is governed by the law in effect immediately before the effective date of this Act, and that law is continued in effect for that purpose.

(c) Except as provided by this section, Chapter 51, Property Code, as amended by this Act, applies only to a sale of residential real property in which notice of default under Section 51.002, Property Code, is provided on or after December 1, 2009. A sale in which notice of default is provided before December 1, 2009, is subject to the law in effect immediately before the effective date of this Act, and that law is continued in effect for that purpose.

(d) Section 92.021, Property Code, as added by this Act, applies only to a lease agreement entered into or renewed on or after the effective date of this Act. A lease agreement entered into or renewed before the effective date of this Act is governed by the law in effect immediately before the effective date of this Act, and that law is continued in effect for that purpose.

SECTION 7. This Act takes effect September 1, 2009.