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A BILL TO BE ENTITLED
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AN ACT
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relating to consumer protections for clients of exchange |
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facilitators for tax-deferred exchanges of real property. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Subtitle C, Title 5, Business & Commerce Code, is |
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amended by adding Chapter 106 to read as follows: |
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CHAPTER 106. CONSUMER PROTECTIONS FOR CLIENTS OF EXCHANGE |
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FACILITATORS |
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Sec. 106.001. LEGISLATIVE PURPOSE. The legislature finds |
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that ensuring the integrity, trustworthiness, and capacity of |
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persons holding themselves out as, or performing or contracting to |
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perform the activities of, exchange facilitators is vital to the |
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consummation of transactions involving exchange of and |
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reinvestment in property located in this state and is in the public |
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interest. The purpose of this chapter is to provide consumer |
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protections for clients of persons that engage in the activities of |
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an exchange facilitator in order to ensure the integrity, |
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trustworthiness, and capacity of such persons to engage in those |
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activities. |
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Sec. 106.002. DEFINITIONS. In this chapter: |
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(1)(A) "Exchange facilitator" means a person, other |
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than a person described by Paragraph (B), that: |
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(i) for a fee facilitates an exchange of |
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like kind property by entering into an agreement with a taxpayer by |
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which the person acquires from the taxpayer the contractual rights |
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to sell the taxpayer's relinquished property located in this state |
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and transfers a replacement property to the taxpayer as a qualified |
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intermediary, as that term is defined under Treasury Regulation |
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Section 1.1031(k)-1(g)(4), or that enters into an agreement with |
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the taxpayer to take title to a property in this state as an |
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exchange accommodation titleholder, as that term is defined in |
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Internal Revenue Service Procedure 2000-37, or that enters into an |
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agreement with a taxpayer to act as trustee of a qualified trust or |
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as a holder of a qualified escrow as those terms are defined under |
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Treasury Regulation Section 1.1031(k)-1(g)(3); |
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(ii) maintains an office in this state for |
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the purpose of soliciting business to perform any of the activities |
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described by Subparagraph (i); or |
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(iii) advertises to the public in this |
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state the ability or willingness of the person to provide, or |
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solicits customers to whom to sell, the services of the person |
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described by Subparagraph (i) or services as a qualified |
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intermediary, as that term is defined under Treasury Regulation |
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Section 1.1031(k)-1(g)(4), in printed publications, direct mail, |
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television or radio advertisements, telephone calls, facsimile |
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transmissions, electronic mail and messaging, or other electronic |
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communications, whether active or passive. |
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(B) "Exchange facilitator" does not include any |
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of the following persons: |
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(i) the taxpayer or a disqualified person, |
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as that term is defined under Treasury Regulation Section |
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1.1031(k)-1(k), seeking to qualify for the nonrecognition |
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provisions of Section 1031 Internal Revenue Code of 1986; |
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(ii) a financial institution that is acting |
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only as a depository for exchange funds and that is not facilitating |
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exchanges; |
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(iii) a person that advertises for and |
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teaches seminars or classes or otherwise makes presentations to |
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attorneys, accountants, real estate professionals, tax |
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professionals, or other professionals, when the primary purpose is |
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to teach the professionals about tax-deferred exchanges or to train |
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them to act as exchange facilitators; or |
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(iv) a person licensed as an attorney at law |
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by this state. |
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(2) "Fee" means compensation of any nature, direct or |
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indirect, monetary or in kind, that is received by a person or |
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related person as defined by Section 267(b) or 707(b), Internal |
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Revenue Code of 1986, for any services relating to or incidental to |
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the exchange of like kind property. |
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(3) "Financial institution" means any entity the |
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operations of which are regulated by an agency of the United States |
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Department of the Treasury or the United States Department of |
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Housing and Urban Development, a finance agency as defined by |
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Chapter 11, Finance Code, the Texas Credit Union Commission and |
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credit union department, the Texas Real Estate Commission, or the |
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Texas Department of Insurance. |
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Sec. 106.003. FINANCIAL ASSURANCES. (a) An exchange |
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facilitator must obtain, maintain, and provide to the clients of |
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the exchange facilitator the following financial assurances: |
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(1) a fidelity bond or fidelity bonds in an amount not |
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less than $1 million, executed by a surety company authorized to do |
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business in this state and approved by the commissioner of |
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insurance for the purpose of issuing bonds under this chapter, or a |
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deposit of cash or securities or letters of credit in an amount not |
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less than $1 million, with financial institutions; and |
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(2) a policy of errors and omissions insurance in an |
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amount not less than $250,000, or a deposit of cash or securities or |
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letters of credit in an amount not less than $250,000, with |
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financial institutions and issuers, as applicable. |
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Sec. 106.004. NATURE AND DUTIES OF AN EXCHANGE FACILITATOR. |
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A person that engages in the business of providing the services of |
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an exchange facilitator is a fiduciary with respect to the parties |
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with whom the person contracts to provide services as an exchange |
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facilitator. An exchange facilitator has a duty of loyalty and of |
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good faith and fair dealing with such parties. A breach of the |
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duties or of either duty is actionable by the parties with whom the |
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exchange facilitator contracted that suffered a loss due to the |
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breach of duty. This section is a clarification of existing law and |
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does not create a separate cause of action. |
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SECTION 2. This Act applies only to exchange facilitators |
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acting under agreements entered into on or after the effective date |
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of this Act or under agreements entered into before the effective |
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date of this Act that do not become effective as to all other |
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parties until on or after that date. Exchange facilitators acting |
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under agreements that became effective as to all parties before the |
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effective date of this Act are covered by the law in effect on the |
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date the agreements became effective, and the former law is |
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continued in effect for that purpose. |
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SECTION 3. This Act takes effect January 1, 2010. |