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Texas Legislation Addresses Trustee Delegation of Functions to Auction Companies and Attorneys

Robert D. Forster II

Legislation has been introduced in Texas (HB 1470 / SB 1405) that addresses trustee delegation of certain functions to auction companies and to attorneys.  UTA has taken a neutral position on this legislation.  The House Bill has unified with the Senate Bill which has been recommended by the Senate to be placed on the local and uncontested calendar.  Once placed upon the calendar, it will head directly to the Governor for signature.

A summary of the bill, as written by Robert D. Forster, II of BDF Law Group follows:

(1)          Updates the language in the substitute trustee exception under the auction code to clarify that it applies to all security instruments and not just “deeds of trust.”  This is a small change but perhaps important in light of the fact that in modern practice, security instruments come in many different flavors and have many different descriptions;

(2)    Assures that ‘auction companies’ are authorized to provide auction services like those under the HUD and GSE programs.  Under current law, an auctioneer (which is defined in the auction licensing statute broad enough to include persons selling real property at a public sale) may not work as an auctioneer for an entity unless that entity is an auction company owned or operated by an individual who has a Texas auctioneering license.  Most auction companies do not meet this definition under current Texas law.  Because the trustee sale exception for foreclosure applies only to “a foreclosure sale personally conducted by a trustee under a deed of trust” it is far from clear that the current auction companies are authorized to do what they are doing by arranging, coordinating and marketing sales.  There is some ambiguity in the law as to whether auction companies may do what they do without a license.  This bill cuts off the confusion, and the risk, by authorizing trustees to contract with auction companies and attorneys to perform some or even all of the trustee’s functions;

(3)    Provides for minimum information a purchaser at sale must give to the trustee and protects the trustee by allowing the trustee to immediately resell the property if the purchaser refuses.  This will further assist trustees, law firms, and auction companies to ensure compliance with OFACs;

(4)    Provides that when a trustee conducts a sale, the trustee is entitled to reasonable trustee and trustees’ attorney’s fees.  In Texas, this is extremely important.  The typical foreclosure attorney fee does not contemplate the substantial work required after completion of the sale to locate claimants to the proceeds, determine their priority, and deal with litigation matters into which trustees are unfortunately too often embroiled.   All of this work is the trustee’s duty under both the deed of trust and the Texas foreclosure statute.  We believe that the standard deed of trust provides for this already, but have been involved in a fair amount of costly litigation over alleged ambiguities in the deed of trust.  The bill holds that a prevailing trustee in a lawsuit based on a groundless claim is entitled to recover reasonable attorney’s fees necessary associated with defense of the claim.  Furthermore, the bill cuts through the confusion created by the ambiguities in the deed of trust by specifying that such fees are allowed and presumed reasonable if below certain thresholds (<2.5% of sale proceeds or $5000 for trustee’s fees and 1.5% for trustee’s attorney’s fees); and

(5)  The percentage and cap are proposed to protect consumers and are consistent with custom in the residential realm.  The bill further ensures the senior purchase money lien gets paid first in priority over the trustee’s fee. This favors the lender and alters the priority in deeds of trust, which nearly universally call for the trustee’s fees to be paid as costs of sale before any other claim is paid, including the mortgage.  The bill’s statutory provision, however, recognizes the reality that where the first lien soaks up all the proceeds of a sale, the trustee does not usually need to undertake the costly project of managing or distributing cash or finding other claimants through a rigorous title search back to inception.  We feel this feature in the bill protects lenders and consumers.

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