85R6359 CLG-F     By: Zaffirini, Rodríguez, Watson S.B. No. 1994       A BILL TO BE ENTITLED   AN ACT   relating to the financing of residential real estate purchases by   means of a wrap mortgage loan; creating an offense.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Section 156.002, Finance Code, is amended by   adding Subdivision (16) to read as follows:                (16)  "Wrap mortgage loan" has the meaning assigned by   Section 159.001.          SECTION 2.  Section 156.202(a-1), Finance Code, is amended   to read as follows:          (a-1)  The following entities are exempt from this chapter:                (1)  a nonprofit organization:                      (A)  providing self-help housing that originates   zero interest residential mortgage loans for borrowers who have   provided part of the labor to construct the dwelling securing the   loan; or                      (B)  that has designation as a Section 501(c)(3)   organization by the Internal Revenue Service and originates   residential mortgage loans for borrowers who, through a self-help   program, have provided at least 200 labor hours or 65 percent of the   labor to construct the dwelling securing the loan;                (2)  a mortgage banker registered under Chapter 157;                (3)  any owner of residential real estate who in any   12-consecutive-month period makes no more than five residential   mortgage loans, none of which is a wrap mortgage loan, to purchasers   of the property for all or part of the purchase price of the   residential real estate against which the mortgage is secured; and                (4)  an entity that is:                      (A)  a depository institution;                      (B)  a subsidiary of a depository institution that   is:                            (i)  owned and controlled by the depository   institution; and                            (ii)  regulated by a federal banking agency;   or                      (C)  an institution regulated by the Farm Credit   Administration.          SECTION 3.  Section 157.002, Finance Code, is amended by   adding Subdivision (7) to read as follows:                (7)  "Wrap mortgage loan" has the meaning assigned by   Section 159.001.          SECTION 4.  Sections 157.0121(b) and (c), Finance Code, are   amended to read as follows:          (b)  The following individuals are exempt from this chapter:                (1)  a registered mortgage loan originator when acting   for:                      (A)  a depository institution;                      (B)  a subsidiary of a depository institution that   is:                            (i)  owned and controlled by the depository   institution; and                            (ii)  regulated by a federal banking agency;   or                      (C)  an institution regulated by the Farm Credit   Administration;                (2)  an individual who offers or negotiates the terms   of a residential mortgage loan with or on behalf of an immediate   family member of the individual;                (3)  a licensed attorney who negotiates the terms of a   residential mortgage loan on behalf of a client as an ancillary   matter to the attorney's representation of the client, unless the   attorney:                      (A)  takes a residential mortgage loan   application; and                      (B)  offers or negotiates the terms of a   residential mortgage loan;                (4)  an individual who offers or negotiates terms of a   residential mortgage loan secured by a dwelling that serves as the   individual's residence;                (5)  any owner of residential real estate who in any   12-consecutive-month period makes no more than five residential   mortgage loans, none of which is a wrap mortgage loan, to purchasers   of the property for all or part of the purchase price of the   residential real estate against which the mortgage is secured; and                (6)  an individual who is exempt as provided by Section   180.003(b).          (c)  Employees of the following entities, when acting for the   benefit of those entities, are exempt from the licensing and other   requirements of this chapter applicable to residential mortgage   loan originators:                (1)  a nonprofit organization:                      (A)  providing self-help housing that originates   zero interest residential mortgage loans for borrowers who have   provided part of the labor to construct the dwelling securing the   loan; or                      (B)  that has designation as a Section 501(c)(3)   organization by the Internal Revenue Service and originates   residential mortgage loans for borrowers who, through a self-help   program, have provided at least 200 labor hours or 65 percent of the   labor to construct the dwelling securing the loan;                (2)  any owner of residential real estate who in any   12-consecutive-month period makes no more than five residential   mortgage loans, none of which is a wrap mortgage loan, to purchasers   of the property for all or part of the purchase price of the   residential real estate against which the mortgage is secured; and                (3)  an entity that is:                      (A)  a depository institution;                      (B)  a subsidiary of a depository institution that   is:                            (i)  owned and controlled by the depository   institution; and                            (ii)  regulated by a federal banking agency;   or                      (C)  an institution regulated by the Farm Credit   Administration.          SECTION 5.  Section 158.002, Finance Code, is amended by   adding Subdivisions (8) and (9) to read as follows:                (8)  "Wrap lender" has the meaning assigned by Section   159.001.                (9)  "Wrap mortgage loan" has the meaning assigned by   Section 159.001.          SECTION 6.  Section 158.052, Finance Code, is amended by   amending Subsection (a) and adding Subsection (d) to read as   follows:          (a)  This chapter does not require registration by:                (1)  a federal or state depository institution, or a   subsidiary or affiliate of a federal or state depository   institution;                (2)  a person registered under Chapter 157;                (3)  a person licensed under Chapter 342 or regulated   under Chapter 343, if the person does not act as a residential   mortgage loan servicer servicing first-lien secured loans; or                (4)  except as provided by Subsection (d), a person   making a residential mortgage loan with the person's own funds, or   to secure all or a portion of the purchase price of real property   sold by that person.          (d)  This chapter applies to a wrap lender who services a   wrap mortgage loan.          SECTION 7.  Subtitle E, Title 3, Finance Code, is amended by   adding Chapter 159 to read as follows:   CHAPTER 159. WRAP MORTGAGE LOAN FINANCING   SUBCHAPTER A. GENERAL PROVISIONS   Sec. 159.001.  DEFINITIONS. In this chapter:                (1)  "Commissioner" means the savings and mortgage   lending commissioner.                (2)  "Finance commission" means the Finance Commission   of Texas.                (3)  "Residential mortgage loan" has the meaning   assigned by Section 180.002.                (4)  "Residential real estate" has the meaning assigned   by Section 180.002.                (5)  "Wrap borrower" means a person obligated to pay a   wrap mortgage loan.                (6)  "Wrap lender" means a person who makes a wrap   mortgage loan.                (7)  "Wrap mortgage loan" means a residential mortgage   loan:                      (A)  made to finance the purchase of residential   real estate that will continue to be subject to an unreleased lien   that:                            (i)  attached to the residential real estate   before the loan was made; and                            (ii)  secures a debt incurred by a person   other than the wrap borrower that was not paid off at the time the   loan was made; and                      (B)  obligating the wrap borrower to the wrap   lender for payment of a debt the principal amount of which includes:                            (i)  the outstanding balance of the debt   described by Paragraph (A)(ii); and                            (ii)  any remaining amount of the purchase   price financed by the wrap lender.   SUBCHAPTER B. LICENSING          Sec. 159.051.  LICENSE REQUIRED. (a) An individual may not   make a wrap mortgage loan unless the individual:                (1)  is licensed as a residential mortgage loan   originator under Chapter 157;                (2)  is sponsored by an appropriate entity;                (3)  is enrolled with the Nationwide Mortgage Licensing   System and Registry as required by Section 180.052; and                (4)  complies with other requirements of Chapter 180   applicable to residential mortgage loan originators required to be   licensed under Chapter 157 and with rules adopted by the finance   commission under Chapter 180.          (b)  An entity may not make a wrap mortgage loan unless the   entity holds an active residential mortgage loan company license   under Subchapter C, Chapter 156. The entity must apply for and be   issued a mortgage company license as provided by Section 156.2041.          (c)  The requirement to obtain a license under Subsection (a)   or (b) applies to an individual or entity making a wrap mortgage   loan regardless of whether the person engages in a specific   activity for which a license is required under Chapter 156 or 157 in   connection with the making of the loan.   SUBCHAPTER C.  DISCLOSURES AND CONSENT          Sec. 159.101.  FOREIGN LANGUAGE REQUIREMENT; OFFENSE. (a)   If the negotiations that precede the execution of a wrap mortgage   loan agreement are conducted primarily in a language other than   English, the wrap lender shall provide a copy to the wrap borrower   in that language of all written documents relating to the   transaction, including:                (1)  the agreement;                (2)  any disclosure notice required in connection with:                      (A)  the making of the wrap mortgage loan; or                      (B)  the conveyance of the residential real estate   securing the loan;                (3)  any annual accounting statements regarding the   loan; and                (4)  any notice of default under the agreement.          (b)  A person who violates this section commits an offense.   An offense under this subsection is a Class A misdemeanor.          Sec. 159.102.  ENFORCEABILITY OF WRAP LIEN. A lien securing   a wrap mortgage loan is void and considered released without the   necessity of a judicial determination unless:                (1)  the residential real estate was conveyed to the   purchaser with the written consent of each holder of an unreleased   lien described by Section 159.001(7)(A) and a copy of each   lienholder's written consent is attached to the recorded instrument   conveying the residential real estate; and                (2)  the wrap mortgage loan and the conveyance of the   residential real estate securing the loan are closed at the office   of a title company and an affidavit of a person knowledgeable of the   facts regarding the closing location that confirms the closing   location is attached to the recorded instrument conveying the   residential real estate.          Sec. 159.103.  FAILURE TO OBTAIN CONSENT AS DECEPTIVE TRADE   PRACTICE. A wrap lender who makes a wrap mortgage loan without   obtaining the written consent of a lienholder necessary under   Section 159.102, or a person who knowingly assists a wrap lender in   making a wrap mortgage loan without obtaining that consent, engages   in a deceptive trade practice under Subchapter E, Chapter 17,   Business & Commerce Code, and that conduct is actionable under that   subchapter.          Sec. 159.104.  BUYER AS ATTORNEY IN FACT. (a)  A wrap lender   is considered to have given irrevocable consent to the wrap   borrower as the lender's attorney in fact with respect to each   unreleased lien on the property described by Section 159.001(7)(A)   with respect to which the wrap lender:                (1)  was the grantor of the security interest; or                (2)  has assumed the debt secured by the lien.          (b)  As the wrap lender's attorney in fact under this   section, the wrap borrower may:                (1)  authorize the release of information, negotiate,   and enter into a binding settlement or other agreement with the   lienholder regarding the unreleased lien; and                (2)  exercise any and all powers granted to an attorney   in fact or agent under Section 752.102, Estates Code, for a real   property transaction under a statutory durable power of attorney   with respect to the residential real estate securing the wrap   mortgage loan.          Sec. 159.105.  BORROWER'S RIGHT OF ACTION. (a) A wrap   borrower may bring an action to:                (1)  obtain declaratory or injunctive relief to enforce   this subchapter;                (2)  recover any actual damages suffered by the wrap   borrower as a result of a violation of this subchapter; or                (3)  obtain other remedies available in an action under   Section 17.50, Business & Commerce Code, as otherwise authorized   under this subchapter.          (b)  A wrap borrower who prevails in an action under this   section may recover court costs and reasonable attorney's fees.          Sec. 159.106.  WAIVER OR AVOIDANCE PROHIBITED. (a) Any   purported waiver of a right of a wrap borrower under this subchapter   or purported exemption of a person from liability for a violation of   this subchapter is void.          (b)  A person who is a party to a residential real estate   transaction may not evade the application of this subchapter by any   device, subterfuge, or pretense, and any attempt to do so is void   and a deceptive trade practice under Subchapter E, Chapter 17,   Business & Commerce Code, and is actionable under that subchapter.   SUBCHAPTER D.  DUTIES OWED TO WRAP BORROWER          Sec. 159.151.  MONEY HELD IN TRUST. A person who collects or   receives a payment from a wrap borrower under the terms of a wrap   mortgage loan holds the money in trust for the benefit of the   borrower.          Sec. 159.152.  FIDUCIARY DUTY. A person who collects or   receives a payment from a wrap borrower under the terms of or in   connection with a wrap mortgage loan owes a fiduciary duty to the   wrap borrower to use the payment to satisfy the wrap lender's   obligations under each debt described by Section 159.001(7)(A)(ii)   and any other obligation affecting the residential real estate for   which the wrap lender is responsible.          Sec. 159.153.  DECEPTIVE TRADE PRACTICE. In addition to any   other penalties or remedies provided by law, a breach of a duty   created by this subchapter is a deceptive trade practice under   Subchapter E, Chapter 17, Business & Commerce Code, and is   actionable under that subchapter.   SUBCHAPTER E.  WRAP BORROWER'S RIGHTS          Sec. 159.201.  APPLICABILITY OF SUBCHAPTER. (a) Subject to   Subsection (b), this subchapter applies only to a wrap mortgage   loan for a purchase of residential real estate to be used as the   wrap borrower's residence.          (b)  This subchapter does not apply to a wrap mortgage loan   for a sale of residential real estate that is the wrap lender's   homestead.          Sec. 159.202.  WRAP BORROWER'S RIGHT TO DEDUCT. The wrap   borrower, without taking judicial action, may deduct from any   amount owed to the wrap lender under the terms of the wrap mortgage   loan:                (1)  the amount of any payment made by the wrap borrower   to an obligee of a debt described by Section 159.001(7)(A)(ii) to   cure a default by the wrap lender caused by the lender's failure to   make payments for which the lender is responsible under the terms of   the wrap mortgage loan; or                (2)  any other amount for which the wrap lender is   liable to the wrap borrower under the terms of the wrap mortgage   loan.   SUBCHAPTER F. ENFORCEMENT OF CERTAIN REGISTRATION REQUIREMENTS          Sec. 159.251.  APPLICABILITY OF SUBCHAPTER. This subchapter   applies only to a wrap lender who is required to register as a   residential mortgage loan servicer under Chapter 158.          Sec. 159.252.  INSPECTION; INVESTIGATION. (a)  The   commissioner may conduct an inspection of a wrap lender registered   under Chapter 158 as the commissioner determines necessary to   determine whether the wrap lender is complying with that chapter   and applicable rules.  The inspection may include an inspection of   the books, records, documents, operations, and facilities of the   wrap lender.  The commissioner may share evidence of criminal   activity gathered during an inspection or investigation with any   state or federal law enforcement agency.          (b)  For reasonable cause, the commissioner at any time may   investigate a wrap lender registered under Chapter 158 to determine   whether the lender is complying with that chapter and applicable   rules.          (c)  The commissioner may conduct an undercover or covert   investigation only if the commissioner, after due consideration of   the circumstances, determines that the investigation is necessary   to prevent immediate harm and to carry out the purposes of Chapter   158.          (d)  The finance commission by rule shall provide guidelines   to govern an inspection or investigation under this section,   including rules to:                (1)  determine the information and records of the wrap   lender to which the commissioner may demand access during an   inspection or investigation; and                (2)  establish what constitutes reasonable cause for an   investigation.          (e)  Information obtained by the commissioner during an   inspection or investigation under this section is confidential   unless disclosure of the information is permitted or required by   other law.          (f)  The commissioner may share information gathered during   an investigation under this section with a state or federal agency.     The commissioner may share information gathered during an   inspection with a state or federal agency only if the commissioner   determines there is a valid reason for the sharing.          (g)  The commissioner may require reimbursement of expenses   for each examiner for an on-site examination or inspection of a   registered wrap lender under this section if records are located   out of state and are not made available for examination or   inspection by the examiner in this state.  The finance commission by   rule shall set the maximum amount for the reimbursement of expenses   authorized under this subsection.          Sec. 159.253.  ISSUANCE AND ENFORCEMENT OF SUBPOENA. (a)   During an investigation conducted under this subchapter, the   commissioner may issue a subpoena that is addressed to a peace   officer of this state or other person authorized by law to serve   citation or perfect service.  The subpoena may require a person to   give a deposition, produce documents, or both.          (b)  If a person disobeys a subpoena or if a person appearing   in a deposition in connection with the investigation refuses to   testify, the commissioner may petition a district court in Travis   County to issue an order requiring the person to obey the subpoena,   testify, or produce documents relating to the matter.  The court   shall promptly set an application to enforce a subpoena issued   under Subsection (a) for hearing and shall cause notice of the   application and the hearing to be served on the person to whom the   subpoena is directed.          SECTION 8.  Section 180.002, Finance Code, is amended by   adding Subdivision (24) to read as follows:                (24)  "Wrap mortgage loan" has the meaning assigned by   Section 159.001.          SECTION 9.  Section 180.003(a), Finance Code, is amended to   read as follows:          (a)  The following persons are exempt from this chapter:                (1)  a registered mortgage loan originator when acting   for an entity described by Section 180.002(16)(A)(i), (ii), or   (iii);                (2)  an individual who offers or negotiates terms of a   residential mortgage loan with or on behalf of an immediate family   member of the individual;                (3)  a licensed attorney who negotiates the terms of a   residential mortgage loan on behalf of a client as an ancillary   matter to the attorney's representation of the client, unless the   attorney:                      (A)  takes a residential mortgage loan   application; and                      (B)  offers or negotiates the terms of a   residential mortgage loan;                (4)  an individual who offers or negotiates terms of a   residential mortgage loan secured by a dwelling that serves as the   individual's residence;                (5)  an owner of residential real estate who in any   12-consecutive-month period makes no more than five residential   mortgage loans, none of which is a wrap mortgage loan, to purchasers   of the property for all or part of the purchase price of the   residential real estate against which the mortgage is secured; and                (6)  an owner of a dwelling who in any   12-consecutive-month period makes no more than five residential   mortgage loans, none of which is a wrap mortgage loan, to purchasers   of the property for all or part of the purchase price of the   dwelling against which the mortgage or security interest is   secured.          SECTION 10.  This Act takes effect September 1, 2017.