HBA-ATS S.B. 1742 76(R)    BILL ANALYSIS


Office of House Bill AnalysisS.B. 1742
By: Harris
Business & Industry
5/13/1999
Engrossed



BACKGROUND AND PURPOSE 

In general, disclosure laws require sellers of real property and their
agents to disclose to the buyer defects in the property.  A seller or the
seller's agent who fails to disclose defects in the property can be held
liable for the omission.  Nevertheless, disclosure laws exclude some types
of sellers, transaction types, and properties.  Texas case law has held
that a foreclosure buyer bids at his peril at a foreclosure sale and is not
a good faith purchaser without knowledge.   This suggests that
courtappointed trustees may not be subject to the disclosure laws if the
trustee acted in the capacity of a trustee.  Currently, the Property Code
does not address the involvement of a trustee in a foreclosure action
brought by a buyer of foreclosed property. 

S.B. 1742 authorizes a trustee named in a suit or proceeding to plead that
the trustee is not a necessary party by a verified denial (denial) that
states the basis for the trustee's reasonable belief that the trustee was
named a party solely in the capacity as a trustee under a deed of trust,
contract lien, or security instrument.  Within 30 days after the trustee
files the denial, verified responses are due from all parties that set
forth all matters that rebut the trustee's denial.  If a party fails  to
file an objection or to file the response in a timely manner, the trustee
is required to be dismissed.  If a respondent timely files a verified
response, the matter must be set for hearing.  Nevertheless, the court is
required to dismiss the trustee from the action if it is determined that
the trustee is not a necessary party. 

This bill also sets forth certain prohibitions.  The dismissal of the
trustee from an action is prohibited from prejudicing a party's right to
seek injunctive relief to prevent the trustee from proceeding with a
foreclosure sale.  Moreover, this bill prohibits a trustee from being
liable for any good faith error that results from reliance on any
information in law or fact provided by the mortgagor or mortgagee or their
respective attorney, agent, representative, or other third party. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Chapter 51, Property Code, by adding Section 51.007, as
follows: 

Sec. 51.007.  TRUSTEE UNDER DEED OF TRUST, CONTRACT LIEN OR SECURITY
INSTRUMENT.  (a) Authorizes a trustee named in a suit or proceeding to
plead that the trustee is not a necessary party by a verified denial
(denial) that states the basis for the trustee's reasonable belief that the
trustee was named a party solely in the capacity as a trustee under a deed
of trust, contract lien, or security instrument. 

(b) Provides that, within 30 days after the trustee's denial has been
filed, verified responses are due from all parties that set forth all
matters that rebut the trustee's denial. 

(c) Requires the trustee to be dismissed from the suit or proceeding
without prejudice if a party has no objection or fails to file a timely
verified response to the trustee's denial. 
  
 (d) Requires the matter to be set for hearing if the respondent timely
files a verified response.  Requires the court to dismiss the trustee from
the action if it is determined that the trustee is not a necessary party. 

(e) Prohibits a dismissal of the trustee from prejudicing a party's right
to seek injunctive relief to prevent the trustee from proceeding with a
foreclosure sale. 

(f) Prohibits a trustee from being liable for any good faith error that
results from reliance on any information in law or fact provided by the
mortgagor or mortgagee or their respective attorney, agent, representative,
or other third party. 

SECTION 2.  Effective date: September 1, 1999.
            Makes application of this Act prospective.

SECTION 3.  Emergency clause.