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Financial Services Law Insights and Observations

Texas Prohibits Execution of Deeds Conveying Residential Real Estate in Certain Transactions

State Issues

On June 17, Texas Governor Rick Perry signed into law S.B. 1320, which forbids a seller or a mortgagee in a residential real estate transaction, before or at the time of the conveyance of the residential real estate, from requesting or requiring the purchaser or mortgagor to execute and deliver a deed conveying the residential real estate to the seller or mortgagee (i.e., a deed-in-lieu of foreclosure executed in advance so the lender can later avoid foreclosure). The law makes voidable a deed executed in violation of the law, unless a subsequent purchaser for value obtains an interest in the property after the deed was recorded, but without notice of the violation (including notice provided by actual possession of the property by the grantor of the deed). The law also establishes a statute of limitation and provides attorney’s fees for an action to void a deed under the law. S.B. 1320 takes effect on September 1, 2011.