June 26, 2015
by David Seybold
Barrett Daffin Frappier Turner & Engel, LLP
USFN Member (Texas)
Texas legislators may only be in regular session for 140 days every two years, but in this year’s session that ended on June 1, 2015, they passed a slew of new bills affecting residential real property and streamlining foreclosure processes. This is a far cry from the past several legislative sessions where only the Texas Home Equity Lien loans’ quasi-judicial foreclosure process was addressed.
Many lobbying efforts were focused in the 84th Legislature not just on passing new laws to make the nonjudicial foreclosure process more transparent and efficient, but also to defeat rogue legislation that attempted to end nonjudicial foreclosure in Texas replacing such with a quasi-judicial foreclosure process similar to that used for Texas Home Equity Lien loans — greatly increasing servicers’ foreclosure expenses and timelines.
There are three centerpiece legislative initiatives, all of which passed the legislature unanimously. These are discussed below, along with some additional bills that may be of interest to mortgage servicers.
HB 2063: Recording and Effect of Notices of Sale to act as the Appointment of Substitute Trustee — Chapter 12, Texas Property Code, is amended by adding Section 12.0012. When servicers elect to implement the process authorized by this newly amended provision, it will allow the Notice of Sale to serve as the appointment of substitute trustee and would eliminate the need, as a matter of state law, to do a separate written appointment. Chapter 51, Property Code, is amended by adding Section 51.0076 to provide that the appointment of substitute trustee in the Notice of Sale is effective as of the day it is served on the debtor, and allows the document to be recorded in the deed records after the foreclosure sale occurs as an attachment to the substitute trustee’s deed.
One of the benefits of this bill is that the Notice of Sale in the requisite form need not be notarized when attached to the substitute trustee’s deed. An additional benefit accrues to those mortgage servicers who have granted their law firms a written authorization to execute appointment documents on behalf of the mortgagee/mortgage servicer that will allow the law firm to prepare and sign the Notice of Sale acting as the appointment of the substitute trustee, thus curbing much of the litigation over the timing of appointments. This will have the salutary benefits of reducing recording costs, limiting confusion in official public records by eliminating recorded appointments that don’t relate to the completed foreclosure sale, and limiting the “first legal document execution” fire drill that we go through in Texas. On June 17, 2015 the governor filed this bill without signature (which enacts the legislation) so that the effective date of the legislation will be September 1, 2015.
HB 2066: Rescission of Sale Deed Under Mistake — Chapter 51, Property Code, is amended by adding Section 51.016 to allow the mortgagee, trustee, or substitute trustee a limited 15-calendar day window from the foreclosure sale date for rescission of the foreclosure deed by unilateral notice that includes the recording information of the foreclosure deed, and describes the rescission reason if a sale was made subject to certain conditions that have historically been the subject of litigation in Texas. The bill lists six affected conditions: (1) the statutory requirements for the sale were not satisfied; (2) the default leading to the sale was cured before the sale; (3) a receivership or dependent probate administration involving the property was pending at the time of sale; (4) a condition specified in the conditions of sale prescribed by the trustee or substitute trustee before the sale and made available in writing to prospective bidders at the sale was not met; (5) the mortgagee or mortgage servicer and the debtor agreed before the sale to cancel the sale based on an enforceable written agreement by the debtor to cure the default; or (6) at the time of the sale, a court-ordered or automatic stay of the sale, imposed in a bankruptcy case filed by a person with an interest in the property, was in effect.
The written notice is served upon the purchaser if the mortgagee is not the purchaser, and each debtor who (according to the records of the mortgage servicer of the debt) is obligated to pay the debt; each notice is filed for recording in the real property records of the county in which all or a part of the property is located.
HB 2066 specifies and limits the third party purchaser’s remedy to a return of the purchase price plus interest at the rate of 10 percent per year. It also provides that a person who wants to challenge a rescission of a foreclosure deed under this bill must do so within 30 days of the rescission, or be barred by repose.
Notably, the bill also preserves — and does not replace — traditional methods of rescission of foreclosure deeds utilized in Texas.
The governor signed this into law on June 16, 2015, so that the effective date of the legislation will be September 1, 2015; and it will only affect a foreclosure sale that occurs on or after the effective date.
For errors that are promptly discovered, this bill should eliminate the need for lawsuits to cure title as well as discourage “ransom” lawsuits by third-party purchasers who don’t want to unwind a sale without additional remuneration, even where the putative sale is clearly void. This should also help get properties back to REO sooner.
HB 2067: Rescission of Acceleration – Solving the Statute of Limitations Challenge — This bill amends Chapter 16, Texas Civil Practice and Remedies Code, by adding Section 16.038 to allow a lender for any reason or no reason to rescind an acceleration by simply sending a notice of rescission by first-class or certified mail to each debtor’s last-known address before the limitations period expires. The rescission of acceleration is effective when served, and is served when deposited in the mail. The new statute applies with respect to a maturity date accelerated before, on, or after the effective date of the legislation. The governor signed this bill, and the effective date of the legislation was immediate on June 17, 2015.
The power of rescission is unilaterally exercised by the mortgagee, servicers, or their attorneys in Texas. A rescission of acceleration effectively puts the loan back on an installment basis without waiving any default, which means that the installment loan will simply be once again an unmatured debt on which limitations do not begin to run until the last installment becomes due.
This should help in the Texas home equity area where there have been long delays, historically, which servicers do not have a lot of ability to control. It should also help to facilitate workout discussions under loss mitigation programs that have many times resulted in protracted delay resulting in necessary, but unfortunate, decisions to file a suit to avoid statute of limitations issues, even where another borrower assistance option might be available. This should be a great aid to servicers and borrowers alike, although it cuts out the plaintiff bar’s arguments concerning expiration of the Statute of Limitations.
HB 831: Disclosure of Mortgage Information to Surviving Spouse — Subchapter B, Chapter 343, Texas Finance Code, is amended by adding Section 343.103 to allow a non-obligor surviving spouse to obtain documentation regarding the promissory note for a home loan, balance information, and other information from the mortgage servicer.
The request must include a death certificate, an affidavit of heirship (including language that the survivor was married to the mortgagor at the time of the mortgagor’s death), and an affidavit of the surviving spouse that he or she is currently residing in the mortgaged property as a principal residence. Further, the request must also include a notice to the mortgage servicer that states in bold-faced, capital, or underlined letters: “THIS REQUEST IS MADE PURSUANT TO TEXAS FINANCE CODE SECTION 343.103. SUBSEQUENT DISCLOSURE OF INFORMATION IS NOT IN CONFLICT WITH THE GRAMM-LEACH-BLILEY ACT UNDER 15 U.S.C. SECTION 6802(e)(8).”
A mortgage servicer that provides the information as required under this section is not liable to the estate of the mortgagor, or any heir or beneficiary of the mortgagor, as a result of providing this information to the surviving spouse. The bill will take effect on September 1, 2015.
HB 2207: Foreclosure Sale of Property Subject to an Oil or Gas Lease — This bill was first passed by the 2013 legislature but vetoed by then-Governor Perry at the request of large oil and gas companies. Texas is a “first in time; first in right” state. This fundamental rule of real property rights is such that a property interest occurring first in time is superior to any right that is created after. Thus, if a mortgage is filed before an oil and gas lease, the mortgage is superior to the rights of the oil and gas lessee. If the mortgage is foreclosed, the oil and gas lease is terminated by the foreclosure. Under HB 2207, Subtitle B, Title 5, Property Code, is amended by adding Chapter 66 to provide that the oil and gas lease always survives, no matter when it is created if the oil or gas lease has not terminated or expired on its own terms, and was executed and recorded in the real property records of the county before the foreclosure sale. The 2015 version of the bill added protections for the interest of mortgage lenders by providing that the foreclosure of a preexisting mortgage terminates the rights under a later oil and gas lease to use the surface of the mortgaged property. An agreement (including a subordination agreement) between a lessee of an oil or gas lease and a mortgagee of real property, or the lessee of an oil or gas lease and the purchaser of foreclosed real property, controls over any conflicting provision of this section. An agreement between a mortgagor and mortgagee may not modify the application of this section unless the affected lessee agrees to the modification. Signed by the governor on June 15, 2015, the bill is prospective only and will take effect on January 1, 2016.
HB 3316: Time for Recording a Durable Power of Attorney for Certain Real Property Transactions — Section 751.151, Estates Code, is amended to make any real property transaction carried out under a power of attorney voidable, if the power of attorney is not filed with the county clerk in the county where the real property is located within 30 days of the filing of the associated real property transaction. The bill is prospective only and will take effect on September 1, 2015.
SB 462: Transfer on Death (TOD) Deed — Subtitle C, Title 2, Estates Code, is amended by adding Chapter 114 to enact the Texas Real Property Transfer on Death Act based upon a 2009 uniform act, which has been described as providing a simple process for the non-probate transfer of real estate by allowing an owner of real property to designate a beneficiary of a TOD deed to automatically receive the property upon the owner’s death without necessity of any probate action. During the owner’s lifetime, the beneficiary of a TOD deed has no interest in the property, and the owner retains full power to transfer or encumber the property.
In addition, a TOD deed is a revocable, non-testamentary instrument and must be recorded in the deed records of the county where the property is located. A TOD deed does not affect a transferor’s interest or rights in the property during the owner’s lifetime, and is void if the owner otherwise conveys the property during his or her lifetime. A power of attorney may not be used to create a TOD deed. The bill is prospective only and will take effect on September 1, 2015.
HCR 101: Texas Legislature’s Official Mixed Drink — One cannot leave out of the legislature’s accomplishments mention of a House Concurrent Resolution, which designates the combination of Texas vodka and “a splash of” [author commentary here] Texas red grapefruit juice as the official mixed drink of the 84th Legislative Session. Cheers to the end of another Texas legislative session!
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