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A BILL TO BE ENTITLED
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AN ACT
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relating to the regulation of certain lending and loan origination |
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practices in connection with home loans. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Section 156.002, Finance Code, is amended by |
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adding Subdivision (12) to read as follows: |
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(12) "Subprime home loan" has the meaning assigned by |
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Section 343.201. |
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SECTION 2. Subchapter C, Chapter 156, Finance Code, is |
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amended by adding Sections 156.216, 156.217, and 156.218 to read as |
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follows: |
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Sec. 156.216. MORTGAGE BROKER DUTIES. (a) A mortgage |
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broker, in connection with the origination of a mortgage loan, |
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shall: |
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(1) act in the applicant's interest; |
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(2) act with reasonable care, skill, and diligence; |
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(3) act in good faith and engage in fair dealing; |
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(4) clearly disclose to the applicant, not later than |
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three business days after receipt of the loan application, all |
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material information, as defined by commission rule, that might |
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reasonably affect the rights, interests, or ability of the |
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applicant to receive the applicant's intended benefit from the |
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loan; and |
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(5) make a reasonable effort to present the applicant |
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with a range of loan products for which the applicant likely |
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qualifies and that are appropriate to the applicant's existing |
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circumstances, based on information known to or obtained in good |
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faith by the broker. |
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(b) A mortgage broker, at least 72 hours before the date of |
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closing of a mortgage loan originated by the mortgage broker, shall |
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disclose to the borrower the total amount of fees the mortgage |
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broker will receive from any person for loan origination services |
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rendered to the borrower, including: |
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(1) the dollar amount of the fees; and |
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(2) the amount of the fees as a stated percentage of |
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the total loan amount. |
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(c) A mortgage broker shall promptly disclose to an |
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applicant each loan product available to the applicant of which the |
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mortgage broker is aware that is projected to cost the applicant |
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less over the projected term of the loan than a loan product |
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recommended to the applicant by the mortgage broker. |
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(d) A mortgage broker shall broker subprime home loans with |
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regard to the applicant's ability to repay the loan. An applicant's |
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statement of ability to repay a loan is not conclusive evidence of |
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the applicant's ability to repay the loan for purposes of this |
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subsection. A mortgage broker must evaluate other reliable, |
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objective evidence of affordability and ability to repay. The |
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determination of whether an applicant is reasonably able to repay a |
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loan must include a reasonable verification of all sources of |
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income by tax returns, payroll receipts, or bank records. |
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(e) A mortgage broker who violates Subsection (a) or (b) is |
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liable to the aggrieved applicant or borrower for: |
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(1) actual damages caused by the violation; |
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(2) reasonable attorney's fees; and |
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(3) court costs. |
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Sec. 156.217. RESTRICTION ON CHARGE BY MORTGAGE BROKER FOR |
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SUBPRIME HOME LOANS. (a) A mortgage broker may charge or collect a |
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fee for loan origination services in connection with a subprime |
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home loan only if: |
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(1) the applicant or borrower receives the services; |
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and |
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(2) the amount of the fee is reasonably related to the |
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value of the services actually rendered. |
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(b) The amount by which a fee received by the mortgage |
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broker for originating a subprime home loan exceeds the amount |
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disclosed under Section 156.216(b) must be credited to the borrower |
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to pay for loan costs, including closing costs. |
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Sec. 156.218. PROHIBITED PRACTICE. A mortgage broker may |
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not recommend or make a mortgage loan that contains a provision for |
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a prepayment penalty. |
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SECTION 3. The heading to Subchapter C, Chapter 343, |
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Finance Code, is amended to read as follows: |
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SUBCHAPTER C. SUBPRIME AND HIGH-COST HOME LOANS |
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SECTION 4. Section 343.201, Finance Code, is amended by |
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amending Subdivision (1) and adding Subdivisions (1-a) and (3) to |
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read as follows: |
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(1) "Average prime offer rate" has the meaning |
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assigned by 12 C.F.R. Section 226.35(a), as amended. |
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(1-a) "High-cost home loan" means a loan that: |
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(A) is made to one or more individuals for |
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personal, family, or household purposes; |
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(B) is secured in whole or part by: |
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(i) a manufactured home, as defined by |
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Section 347.002, used or to be used as the borrower's principal |
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residence; or |
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(ii) real property improved by a dwelling |
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designed for occupancy by four or fewer families and used or to be |
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used as the borrower's principal residence; |
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(C) has a principal amount equal to or less than |
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one-half of the maximum conventional loan amount for first |
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mortgages as established and adjusted by the Federal National |
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Mortgage Association; |
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(D) is not: |
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(i) a reverse mortgage; or |
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(ii) an open-end account, as defined by |
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Section 301.002; and |
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(E) is a credit transaction described by 12 |
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C.F.R. Section 226.32, as amended, except that the term includes a |
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residential mortgage transaction, as defined by 12 C.F.R. Section |
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226.2, as amended, if the total loan amount is $20,000 or more and: |
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(i) the annual percentage rate exceeds the |
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rate indicated in 12 C.F.R. Section 226.32(a)(1)(i), as amended; or |
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(ii) the total points and fees payable by |
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the consumer at or before loan closing will exceed the amount |
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indicated in 12 C.F.R. Section 226.32(a)(1)(ii), as amended. |
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(3) "Subprime home loan" means a loan that: |
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(A) is made to one or more individuals for |
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personal, family, or household purposes; |
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(B) is secured in whole or part by a lien on: |
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(i) a manufactured home, as defined by |
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Section 347.002, used or to be used as the borrower's principal |
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residence; or |
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(ii) real property improved by a dwelling |
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designed for occupancy by four or fewer families and used or to be |
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used as the borrower's principal residence; and |
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(C) has an annual percentage rate that exceeds |
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the average prime offer rate for a comparable transaction published |
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by the Federal Reserve Board by: |
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(i) at least 1.5 percentage points for a |
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first-lien loan; or |
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(ii) at least 3.5 percentage points for a |
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second-lien loan. |
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SECTION 5. Sections 343.203 and 343.205, Finance Code, are |
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amended to read as follows: |
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Sec. 343.203. NEGATIVE AMORTIZATION. A high-cost or |
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subprime home loan may not provide for a payment schedule with |
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regular periodic payments that cause the principal balance to |
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increase, except that this section does not prohibit negative |
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amortization as a consequence of a temporary forbearance, bridge |
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loan, or restructure sought by the borrower. |
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Sec. 343.205. PREPAYMENT PENALTIES PROHIBITED. A lender |
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may not make a high-cost or subprime home loan containing a |
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provision for a prepayment penalty. |
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SECTION 6. Subchapter C, Chapter 343, Finance Code, is |
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amended by adding Sections 343.207, 343.208, 343.209, 343.210, and |
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343.211 to read as follows: |
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Sec. 343.207. NET BENEFIT REQUIRED FOR SUBPRIME HOME LOANS. |
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A lender may not make a subprime home loan to a borrower that |
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refinances an existing home loan if the new loan does not have a |
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reasonable, tangible net benefit to the borrower considering all of |
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the circumstances, including the terms of both the new and |
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refinanced loans and the borrower's stated loan objectives, |
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repayment ability, current and expected income, and current |
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obligations. |
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Sec. 343.208. RESTRICTION ON INTRODUCTORY RATE OF SUBPRIME |
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HOME LOAN. A lender may not make a subprime home loan that has an |
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initial or introductory interest rate with a term of less than six |
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months. |
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Sec. 343.209. DETERMINATION OF BORROWER'S ABILITY TO REPAY |
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SUBPRIME HOME LOAN. A lender shall make a subprime home loan with |
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regard to the borrower's ability to repay the loan. A borrower's |
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statement of ability to repay a loan is not conclusive evidence of |
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the borrower's ability to repay the loan for purposes of this |
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section. A lender must evaluate other reliable, objective evidence |
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of affordability and ability to repay. The determination of whether |
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a borrower is reasonably able to repay a loan must include a |
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reasonable verification of all sources of income by tax returns, |
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payroll receipts, or bank records. |
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Sec. 343.210. DISCLOSURE OF PROPERTY TAXES AND PROPERTY |
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INSURANCE FOR SUBPRIME HOME LOANS REQUIRED. With respect to a |
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subprime home loan, the first time a lender informs a borrower about |
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the estimated or actual periodic loan payment amount, the lender |
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shall: |
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(1) inform the borrower that an additional amount will |
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be due for property taxes and property insurance; and |
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(2) disclose to the borrower as soon as practicable |
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the estimated amount of the initial periodic payment for property |
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taxes and property insurance. |
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Sec. 343.211. CERTAIN PROVISIONS IN SUBPRIME HOME LOAN |
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AGREEMENT VOID. A provision of a subprime home loan agreement that |
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violates Section 343.205 or 343.208 is void. |
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SECTION 7. Chapter 51, Property Code, is amended by adding |
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Section 51.010 to read as follows: |
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Sec. 51.010. VIOLATION OF SUBPRIME UNDERWRITING STANDARDS |
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AS DEFENSE AGAINST FORECLOSURE; COUNTERCLAIM; INJUNCTION. (a) This |
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section applies only to the foreclosure of a lien on an interest in |
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real property that secures a "subprime home loan," as defined by |
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Section 343.201, Finance Code. |
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(b) A debtor against whom a mortgagee files an action to |
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foreclose the mortgagee's lien on the debtor's interest in real |
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property may assert against the mortgagee, as a defense to the |
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mortgagee's right to payment of the debt secured by the lien or as a |
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counterclaim, that the mortgagee or a person who assigned the |
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security interest held by the mortgagee violated Section 343.203, |
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343.205, 343.207, or 343.208, Finance Code, with respect to the |
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loan secured by the lien. |
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(c) A debtor who receives a notice of default or notice of |
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sale under Section 51.002 from a mortgagee with respect to a loan |
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secured by a lien on the debtor's interest in real property may file |
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an action against the mortgagee at any time before the property is |
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sold at a foreclosure sale under Section 51.002, asserting that the |
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mortgagee is not entitled to payment of the debt secured by the lien |
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because of the violation of Section 343.203, 343.205, 343.207, or |
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343.208, Finance Code, with respect to the loan secured by the lien |
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by the mortgagee or a person who assigned the security interest held |
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by the mortgagee. A debtor who files an action under this section |
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may seek any other relief provided by law for the alleged violation. |
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The court in which the action is filed shall enjoin the sale of the |
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property under Section 51.002 pending a final judgment in the |
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action. |
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SECTION 8. The changes in law made by this Act to Subchapter |
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C, Chapter 343, Finance Code, as amended by this Act, apply only to |
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a loan closed on or after the effective date of this Act. A loan |
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closed before the effective date of this Act is governed by the law |
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in effect when the loan was closed, and the former law is continued |
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in effect for that purpose. |
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SECTION 9. Section 51.010, Property Code, as added by this |
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Act, applies only to a loan closed on or after the effective date of |
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this Act. A loan closed before the effective date of this Act is |
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governed by the law in effect immediately before the effective date |
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of this Act, and that law is continued in effect for that purpose. |
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SECTION 10. This Act takes effect January 1, 2010. |