BILL ANALYSIS

 

 

Senate Research Center

S.B. 767

 

By: Ellis

 

Business & Commerce

 

8/5/2011

 

Enrolled

 

 

 

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

 

S.B. 767 seeks to provide safeguards for consumers seeking foreclosure consulting services.  Currently, there is no formal training required for foreclosure consultants.  These safeguards such as defining appropriate contract language, disclosures, operating procedures, and violation penalties would protect consumers.  Due to the continuation of a higher number of foreclosures, this bill would benefit those consumers seeking assistance.

 

S.B. 767 amends current law relating to the regulation of certain residential mortgage foreclosure consulting services, and provides a criminal penalty.

 

RULEMAKING AUTHORITY

 

This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.

 

SECTION BY SECTION ANALYSIS

 

SECTION 1.  Amends Title 2, Business & Commerce Code, by adding Chapter 21, as follows:

 

CHAPTER 21.  REGULATION OF CERTAIN RESIDENTIAL FORECLOSURE CONSULTING SERVICES

 

SUBCHAPTER A.  GENERAL PROVISIONS

 

Sec.  21.001.  DEFINITIONS.  (a) Defines, in this chapter, "foreclosure consultant,"  "homeowner," "mortgage servicer," and "residence in foreclosure."

 

(b)  Provides that for purposes of Subsections (a)(2) and (4), a foreclosure action has been commenced if notice of sale has been filed under Section 51.002(b) (relating to giving notice of sale of real property under contract lien), Property Code, or a judicial foreclosure action has been commenced.

 

Sec.  21.002.  EXCEPTION FROM APPLICABILITY OF CHAPTER.  (a)  Provides that, except as provided by Subsection (b), this chapter does not apply to the following persons that perform foreclosure consulting services:

 

(1) an attorney admitted to practice in this state who performs those services in relation to the attorney's attorney-client relationship with a homeowner or the beneficiary of the lien being foreclosed;

 

(2)  a person that holds or is owed an obligation secured by a lien on a residence in foreclosure if the person performs those services in connection with the obligation or lien;

 

(3) a mortgage servicer of an obligation secured by a lien on a residence in foreclosure if the servicer performs those services in connection with the obligation or lien;

 

(4)  a person that regulates banks, trust companies, savings and loan associations, credit unions, or insurance companies under the laws of this state or the United States if the person performs those services as part of the person's normal business activities;

 

(5)  an affiliate of a person described by Subdivision (4) if the affiliate performs those services as part of the affiliate's normal business activities;

 

(6) a judgment creditor of the homeowner of the residence in foreclosure, if:

 

(A) the legal action giving rise to the judgment was commenced before the notice of default required under Sections 5.064 (Seller's Remedies on Default), 5.066 (Equity Protection; Sale of Property), or 51.002(d) (relating to requiring written notice by certified mail), Property Code; and

 

(B) the judgment is recorded in the real property records of the clerk of the county where the residence in foreclosure is located;

 

(7)  a licensed title insurer, title insurance agent, or escrow officer authorized to transact business in this state if the person is performing those services in conjunction with title insurance or settlement services;

 

(8)  a licensed real estate broker or real estate salesperson if the person is engaging in an activity for which the person is licensed;

 

(9)  a person licensed or registered under Chapter 156 (Mortgage Brokers), Finance Code, if the person is engaging in an activity for which the person is licensed or registered under that chapter;

 

(10)  a person licensed or registered under Chapter 157 (Registration of Mortgage Bankers), Finance Code, if the person is engaging in an activity for which the person is licensed or registered under that chapter;

 

(11)  a nonprofit organization that provides solely counseling or advice to homeowners who have a residence in foreclosure or have defaulted on their home loans, unless the organization is an associate of the foreclosure consultant;

 

(12)  a depository institution, as defined by Section 31.002, Finance Code, subject to regulation or supervision by a state or federal regulatory agency; or

 

(13)  an affiliate or subsidiary of a depository institution described by Subdivision (12).

 

 (b)  Provides that this chapter applies to a person described by Subsection (a) if the person is providing foreclosure consulting services to a homeowner designed or intended to transfer title, directly or indirectly, to a residence in foreclosure to that person or the person's associate, unless the person is a mortgagee or mortgage servicer that negotiates with or accepts from the mortgagor a deed in lieu of foreclosure for the benefit of the mortgagee.

 

Sec.  21.003.  CONFLICT WITH OTHER LAW.  Provides that to the extent of a conflict between this chapter and Chapter 393 (Credit Services Organizations), Finance Code, this chapter controls.

 

[Reserves Sections 21.004-21.050 for expansion.]

 

SUBCHAPTER B.  CONTRACT FOR SERVICES

 

Sec.  21.051.  FORM AND TERMS OF CONTRACT.  Requires that each contract for the purchase of the services of a foreclosure consultant by a homeowner of a residence in foreclosure be in writing, dated, and signed by each homeowner and the foreclosure consultant.

 

Sec.  21.052.  REQUIRED DISCLOSURE.  Requires the foreclosure consultant, before entering into a contract with a homeowner of a residence in foreclosure for the purchase of the services of a foreclosure consultant, to provide the homeowner written notice.  Sets forth the required language and format of the written notice.

 

[Reserves Sections 21.053-21.100 for expansion.]

 

SUBCHAPTER C.  LIMITATIONS, PROHIBITIONS, AND DUTIES REGARDING SERVICES

 

Sec.  21.101.  RESTRICTIONS ON CHARGE OR RECEIPT OF CONSIDERATION.  Prohibits a foreclosure consultant from:

 

(1)  charging or receiving compensation until the foreclosure consultant has fully performed each service the foreclosure consultant has contracted to perform or has represented the foreclosure consultant can or will perform unless the foreclosure consultant has obtained a surety bond or established and maintained a surety account for each location at which the foreclosure consultant conducts business in the manner that Subchapter E (Surety Bond; Surety Account), Chapter 393, Finance Code, provides for credit services organizations; or

 

(2)  receiving any consideration from a third party in connection with foreclosure consulting services provided to the homeowner of a residence in foreclosure unless the consideration is fully disclosed in writing to the homeowner.

 

Sec.  21.102.  PROHIBITED CONDUCT.  Prohibits a foreclosure consultant from:

 

(1)  taking any power of attorney from a homeowner for any purpose other than to inspect documents;

 

(2)  acquiring an interest, for purposes of securing payment of compensation, directly or indirectly, in the real or personal property of the homeowner of a residence in foreclosure with whom the foreclosure consultant has contracted to perform services; or

 

(3)  taking an assignment of wages to secure payment of compensation.

 

Sec.  21.103.  RETENTION OF RECORDS.  (a)  Requires a foreclosure consultant to keep each record and document, including the foreclosure consultant contract, related to foreclosure consulting services performed on behalf of a homeowner.

 

(b)  Requires a foreclosure consultant to retain the records described by Subsection (a) until at least the third anniversary of the day the foreclosure consultant contract entered into by the consultant and the homeowner was terminated or concluded.

 

[Reserves Sections 21.104-21.150 for expansion.]

 

SUBCHAPTER D.  ENFORCEMENT

 

Sec.  21.151.  CRIMINAL PENALTY.  (a)  Provides that a person commits an offense if the person violates this chapter.

 

(b)  Provides that an offense under this chapter is a Class C misdemeanor.

 

SECTION 2.  Makes application of this Act prospective.

 

SECTION 3.  Effective date: September 1, 2011.