In the Texas House of Representatives

H.R. ______

To protect Texas homeowners from predatory foreclosure practices and from foreclosure as a direct result of third party, fraudulent, loan modification schemes.

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IN THE TEXAS HOUSE OF REPRESENTATIVES

Date

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A BILL

To protect Texas homeowners from predatory foreclosure practices and from foreclosure as a direct result of third party, fraudulent, loan modification schemes.

Be it enacted by the Senate and House of Representatives of the State of Texas assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the “Emergency Homeowners Protection Act of 2010”.

SECTION 2. FINDINGS.

The State of Texas finds and declares the following:

(1) The implementation of the Federal Fair Housing Act of 1968, and all subsequent, related legislation forced lending institutions into relaxing their qualification standards for home mortgages.

(2) This federally mandated relaxing of these qualification standards put lending institutions at undue financial risk.

(3) The federally mandated relaxing of the qualification standards did nothing to prevent, or address predatory lending practices.

(4) The federally mandated relaxing of the qualification standards did nothing to prevent, or address predatory foreclosure practices.

(5) More recent federal legislation passed under the Home Affordable Modification Program that was designed to help struggling homeowners to keep their homes has done more harm than good in that it:

(a) Only provides a set of “guidelines” for both the consumer and the mortgage companies to go by, however only the consumer is bound by these “guidelines”.

(b) Failed to make any changes to, or even address current foreclosure practices including predatory foreclosure practices.

(d) Provided an opportunity for fraudulent, third party loan modification schemes to begin occurring all over the country due to the fact that the legislation failed to outline the mortgage companies responsibilities as a matter of law when they are contacted by a third party for the purpose of a loan modification.

SECTION 3. EMERGENCY HOMEOWNERS PROTECTION ACT OF 2010.

In General. – This Act is implemented as an emergency consumer protection measure in response to the ever increasing problem of predatory foreclosure practices and third party loan modification fraud schemes that result in foreclosure and supersedes any and all foreclosure law in the State of Texas.

CHAPTER 1 – BACKGROUND AND PURPOSE

Current Texas foreclosure laws do not do enough to help homeowners avoid foreclosure. Notice requirements are inadequate and existing procedures favor lenders. Federal law provides resources for borrowers facing foreclosure, but short notice periods and short periods to cure default on loans make it difficult for borrowers to access these federal resources. The purpose of this section is to provide protection for the consumer.

CHAPTER 1 – SECTION 2 – DEFINITIONS

(a) Bank or lender means any financial institution that provides consumer loans for the purpose of purchasing real property.

(b) Borrower or Borrowers are the account holder and/or property owner also known as the homeowner.

(c) Contract is the document or set of documents that outlines the terms of repayment as well as the consequences for default.

(d) A third party is any person, persons, business or other entity that is independent of the Bank and the borrower who engages in any activity on behalf of the borrower.

(e) In house means any kind of loan modification or any other process that has the ultimate goal of preventing foreclosure that is done by the bank.

CHAPTER 1 – SECTION 3

In the interest of protecting Texas homeowners from predatory foreclosure practices and foreclosure that is a direct result of third party loan modification fraud, the Texas Property Codes are hereby amended to add the following:

(1) Any and all lenders who have account holders in the State of Texas shall be required to operate under Texas Law regardless of their state or country of domicile.

(2) No procedure for foreclosure may begin until the following requirements are met:

(a) The borrower is a minimum of 90 days behind on payments.

(b) The borrower has been provided with copies of any and all contracts for repayment, that bear the borrower’s signature when the mortgage has been sold from one financial institution to another, without regard to the reason for such a transaction to occur, no less than 30 days after such transaction is completed. No fees may be assessed against the borrower to facilitate the execution of this new contract. The borrower will be given 30 days to either return the fully executed contract, or refinance with a lender of their choosing.

(c) Any new contract that is not identical to the original contract in it’s terms and conditions, fully executed or not, shall be considered null and void.

(d) Absent a fully executed contract between borrower and current mortgage holder, no foreclosure proceedings may commence, nor may any “acceleration” clauses be put into effect.

(e) Telephone calls, or attempted phone calls by the mortgage company or any person or entity assigned with such duty do not qualify as proper notice of default.

(f) The only acceptable method of notification is written notification, delivered by any delivery service that requires a signature for delivery. The delivery documents must reference Notice of Default.

CHAPTER 2 – THIRD PARTY INVOLVEMENT

All banks have a fiduciary duty to protect the accounts of their customers from fraud, however, for reasons stated previously, this is not happening. For this reason, the Texas Property Code is amended to add the following requirements:

When a bank is contact by a third party on behalf of one of it’s borrowers, for any reason the bank as a matter of law must comply with the following:

(1) The bank shall immediately send written notification to the borrower that it has been contacted by a third party that shall include the following information:

(a) The name, address and phone number of the person or entity that contacted the bank;

(b) A request for written confirmation that the third party contact has been authorized by the borrower;

(2) Once it has been established that the contact has been authorized by the borrower, the bank shall be required to obtain, from the third party, a copy of the fully executed contract for services between the third party and the borrower. The bank shall also be required to provide the borrower with written notification that outlines the rules and/or regulations set forth by the Home Affordable Modification Program that includes specific language regarding the collection of up-front fees for such services as well as the typical warning signs that fraud may be occurring.

(3) If it can not be established that the contact was authorized by the borrower, the bank shall be required to notify proper law enforcement and provide such law enforcement with ALL available information on the third party, as well as all contact information for the borrower, and to notify the borrower in writing that it has done so. Such notification to the borrower will include the following information:

(a) The date law enforcement was contacted;

(b) The agency contacted;

(d) Any report number or other information identifying the complaint.

(4) The bank is required to do it’s due diligence to determine the legitimacy of the third party contacting the bank, which shall include, but not be limited to the following:

(a) Requesting from the Secretary of State any all U.C.C. filings associated with the establishment of said third party company;

(b) Requesting from the third party company copies of any and all licenses or other documentation authorizing said company to be doing loan modifications for all employees of the company who will be involved in any part of the loan modification process;

(c) Requesting from the third party company copies of any other documentation that establishes their legal ability and authorization to perform such services such as insurance bonds, training certificates, or any other document required by law for the purpose of loan modification.

(5) In the event that the bank is unable to establish the legitimacy of the third party, for any reason, the bank shall be required to do the following:

(a) Notify the borrower, in writing immediately;

(b) Notify law enforcement immediately;

(d) Suspend any collections, acceleration or foreclosure proceedings that may have been pending against the borrower;

(e) Initiate an in house loan modification process immediately that comply with this act in it’s entirety.

CHAPTER 3 – THIRD PARTY FAILURE TO FOLLOW

THROUGH WITH THE LOAN MODIFICATION PROCESS

The State of Texas has determined that many of the third party loan modification fraud schemes start out as, or appear to start out as a legitimate process, but turns into fraud when the third party fails to follow through with the process until it is complete. As a result of this failure, many homeowners have lost their homes for the reasons outlined in Section 1. This is a travesty that has resulted in the unjust enrichment of not only the person or persons committing third party fraud, but also the banks who reacquire property in such a manner. For this reason, the Texas Property Codes are amended to add the following requirements:

(1) A complete schedule of deadlines for completion and submission of the documents required to facilitate a loan modification will be given to the third party AND to the borrower prior to any loan modification process beginning. This schedule of deadlines will require the written acknowledgement with signature of both the third party and the borrower.

(2) Said schedule of deadlines shall allow for an extension of deadlines where good cause exists. Good cause includes, but is not limited to the following:

(a) An inability, or difficulty on the part of the borrower to produce such records as any income tax or earnings records for years not current or any other records that may be required for years not current.

(b) An inability, or difficulty on the part of the borrower to produce records associated with self-employment or ownership of a small business.

(c) Any other inability, or difficulty on the part of the borrower to produce records that any reasonable person would deem as justified such as illness, disability, divorce, or any other situation that could delay or impede a borrower’s ability to produce the required documents in a timely fashion.

(3) Any request for an extension of deadlines must come from the borrower.

(4) Any request for an extension of deadlines received from the third party shall result in immediate, written notification from the bank to the borrower that states the reason given for the request for an extension and a request for written authorization by the borrower for said extension.

(5) If at ANY time during the loan modification process, a deadline is not met, for any reason, it shall be the responsibility of the bank, NOT the borrower, to ascertain the reason for such a failure from the third party.

(6) If during the process of trying to ascertain the reason a deadline has not been met, the third party claims the fault is that of the borrower, the bank shall send immediate written notification of such claim that provides no more than ten (10) and no less than five (5) working days for the borrower to comply.

(7) If the third party fails to respond to the missed deadline notification, or provides an inadequate reason for the missed deadline, the bank shall provide the borrower of written notification of same that includes language that puts the borrower on notification that there is a possibility of fraud occurring. The bank then shall be required to notify the third party that the lack of response, or the response itself is inadequate that includes language that puts the third party on notice that fraud is suspected and providing no more than five (5) working days, and no less than three (3) working days for the third party to comply. This notice shall put the third party on notice that failure to remedy the situation will result in the actions as laid out in Chapter 2, Section 5.

(8) In the event that after written notification, the third party fails to remedy the problem, the bank shall comply will all requirements of Chapter 2, Section 5.

CHAPTER 4 – BORROWER NOTIFICATION TO BANK

OF A SUSPICION OF FRAUD

As previously stated, the State of Texas has determined that many of the fraudulent loan modification schemes start out, or appear to start out as a legitimate transaction that later turn into fraud. For that reason, Texas Property Codes are amended to include the following:

(1) If at any time during the loan modification process, the borrower notifies the bank that cause for suspicion of fraud exists, all the provisions of Chapter 2, Section 5 will apply.

(2) Cause for suspicion of fraud by the borrower may include, but is not limited to the following:

(a) A cessation, in contact, or an inability for the borrower to make reasonable contact with the third party for any reason.