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.