HB 2066 and 2067: New Changes to Texas Foreclosure Laws

Two fairly major changes to Texas foreclosure law occurred recently. House Bill 2066 modifies Chapter 51 of the Texas Property Code to make it easier to rescind nonjudicial foreclosure sales and House Bill 2067 amends Chapter 16 of the Texas Civil Practice and Remedies Code to make it easier to rescind acceleration of promissory notes.

HB 2067 supposedly prevents debtors from obtaining windfalls in the form of having their mortgage debt extinguished because the bank took too long to foreclose. The bill allows banks to unilaterally reset the statute of limitations on foreclosure whenever they want to do so, without consulting the debtor. According to legislative records, banks complained that the Dodd-Frank Act causes them to delay foreclosure, often more than the four-year limitations period, and that it is not fair to lose their note due to Dodd-Frank compliance. While it is hard to comprehend why these debtors deserve such a windfall, this Act is likely to have unintended consequences. For example, many debtors attempt to make payments while the note is accelerated, only to have those payments returned. By the time the banks rescind acceleration, the banks typically add on tens of thousands of dollars in attorney’s fees, late fees, and other charges. Some banks likely even compound the interest while refusing to accept payments. The foregoing practices cause any equity that the debtor had to rapidly evaporate. In some cases, debtors may qualify for relief under loan modification programs, but in many cases, it is likely that this law will cause forfeiture of substantial equity built up over years of timely payments. Personally, I think that this bill gives too much power to the banks. Without reasonable limitations on the bank’s ability to tack on additional fees and interest, this bill likely removes windfalls from debtors while awarding windfalls to the banks.

The bill, furthermore, will contribute to urban blight by allowing foreclosure processes to drag on infinitely. Where I live, houses tend to have foundation problems that are expensive to treat. If those problems are not nipped in the bud early, then they can cause permanent, unfixable structural damage. If a foreclosure drags on for eight years and foundation problems are not addressed during those eight years because the owners believe that they will eventually lose their house to foreclosure, then the damage will be irreparable. Furthermore, we have all seen the houses on our streets that have been left vacant for years. Many of these houses are falling into disrepair. The owners have long gone, but the banks still have not foreclosed and taken possession of the property. In some cases the banks mow the lawns and perform the bare minimum maintenance to avoid municipal liens, but do little else, and the house deteriorates. Dodd-Frank or no Dodd-Frank, these foreclosures need to occur in a timely manner. We already have tolling laws to account for bankruptcies and the like. Allowing the foreclosure process to go on for an infinite period of time seems, to me, like it will contribute to more problems than it solves.

Disclaimer: This blog is for informational purposes only. Do not rely on any part of this blog as legal advice. Instead, seek out the advice of a licensed attorney.

Contracts for Deed: Do the Volume-Dealer Penalties of Section 5.077(d) Have an “Anchoring” Requirement?

One bankruptcy court says yes. Here is an argument for the answer being no.

Under Section 5.077(d), the volume-dealer penalties apply to “A seller who conducts two or more transactions in a 12-month period under this section . . . .” One bankruptcy court has interpreted this provision as meaning that the volume-dealer penalties apply only when a second Contract for Deed has been executed within twelve-months of the Contract for Deed that is the subject of the case currently before the court. Dodson v. Perkins (In re Dodson), 2008 Bankr. LEXIS 4647, 20; 2008 WL 4621293 (Bankr. W.D. Tex. Oct. 16, 2008).

While the Dodson court concluded that Section 5.077(d) must be “anchored” to the signing of the contract being enforced, the court admitted that that court was unable to locate “any case law or other authority, nor any legislative history that would clarify the meaning of the 2005 Statute in this respect.” Id. The statute clearly states that any seller who conducts two transactions in any twelve-month period falls under Section 5.077(d). Texas Courts should not add an additional “anchoring” requirement to an otherwise straightforward statute. Furthermore, the “anchoring” requirement does not make the statute “easier to comply with and to enforce.” Id. at 22. Instead, an “anchoring” requirement would make relief under Section 5.077(d) nearly impossible to prove for many plaintiffs without expending exorbitant time and effort on investigations outside of the discovery process in order to corroborate defendants’ production or lack thereof. If the legislature wanted to add an “anchoring” requirement, then such a requirement would have been easy enough to draft. The legislature did not, however, add an “anchoring” requirement and such a requirement should not be imposed judicially.

Before the statute was amended in 2005, the $250 penalty applied to all Contract for Deed sellers. Id. at 6. The new statute carves out a very narrow niche of sellers—sellers who never conduct more than one qualifying transaction within one year—to be exempted from the harsh penalties and assessed only a nominal penalty of $100 per year. Consequently, an unsophisticated individual who owner-carries financing on his own home to a buyer, generally, will not accidentally lose that home to the harsher penalties. Meanwhile, volume dealers who own multiple properties and sell all or many of the properties by Contracts for Deed will incur the full, normal penalties that were applicable to all Contract for Deed sellers before the 2005 amendments carved out a narrow niche of sellers to exempt under Section 5.077(c). See Tex. Prop. Code § 5.077; Acts 2005, 79th Leg., ch. 978 (H.B. 1823), § 5, effective September 1, 2005.

For most plaintiffs, proving the statutory requirement of two contracts within twelve months creates enough of a hurdle without adding an even more difficult “anchoring” element.

Disclaimer: This blog is for informational purposes only. Do not rely on any part of this blog as legal advice. Instead, seek out the advice of a licensed attorney. Also, this information may be out-of-date.