Sec. 5.085.  FEE SIMPLE TITLE REQUIRED; MAINTENANCE OF FEE SIMPLE TITLE.  (a)  A potential seller may not execute an executory contract with a potential purchaser if the seller does not own the property in fee simple free from any liens or other encumbrances.
(b)  Except as provided by this subsection, a seller, or the seller's heirs or assigns, must maintain fee simple title free from any liens or other encumbrances to property covered by an executory contract for the entire duration of the contract.  This subsection does not apply to a lien or encumbrance placed on the property that is:
(1)  placed on the property because of the conduct of the purchaser;
(2)  agreed to by the purchaser as a condition of a loan obtained to place improvements on the property, including utility or fire protection improvements; or
(3)  placed on the property by the seller prior to the execution of the contract in exchange for a loan used only to purchase the property if:
(A)  the seller, not later than the third day before the date the contract is executed, notifies the purchaser in a separate written disclosure:
(i)  of the name, address, and phone number of the lienholder or, if applicable, servicer of the loan;
(ii)  of the loan number and outstanding balance of the loan;
(iii)  of the monthly payments due on the loan and the due date of those payments; and
(iv)  in 14-point type that, if the seller fails to make timely payments to the lienholder, the lienholder may attempt to collect the debt by foreclosing on the lien and selling the property at a foreclosure sale;
(B)  the lien:
(i)  is attached only to the property sold to the purchaser under the contract; and
(ii)  secures indebtedness that, at no time, is or will be greater in amount than the amount of the total outstanding balance owed by the purchaser under the executory contract;
(C)  the lienholder:
(i)  does not prohibit the property from being encumbered by an executory contract; and
(ii)  consents to verify the status of the loan on request of the purchaser and to accept payments directly from the purchaser if the seller defaults on the loan; and
(D)  the following covenants are placed in the executory contract:
(i)  a covenant that obligates the seller to make timely payments on the loan and to give monthly statements to the purchaser reflecting the amount paid to the lienholder, the date the lienholder receives the  payment, and the information described by Paragraph (A);
(ii)  a covenant that obligates the seller, not later than the third day the seller receives or has actual knowledge of a  document or an event described by this subparagraph, to notify the purchaser in writing in 14-point type that the seller has been sent a notice of default, notice of acceleration, or notice of foreclosure or has been sued in connection with a lien on the property and to attach a copy of all related documents received to the written notice; and
(iii)  a covenant that warrants that if the seller does not make timely payments on the loan or any other indebtedness secured by the property, the purchaser may, without notice, cure any deficiency with a lienholder directly and deduct from the total outstanding balance owed by the purchaser under the executory contract, without the necessity of judicial action, 150 percent of any amount paid to the lienholder.
(c)  A violation of this section:
(1)  is a false, misleading, or deceptive act or practice within the meaning of Section 17.46, Business & Commerce Code, and is actionable in a public or private suit brought under Subchapter E, Chapter 17, Business & Commerce Code; and
(2)  in addition to other rights or remedies provided by law, entitles the purchaser to cancel and rescind the executory contract and receive from the seller:
(A)  the return of all payments of any kind made to the seller under the contract; and
(B)  reimbursement for:
(i)  any payments the purchaser made to a taxing authority for the property; and
(ii)  the value of any improvements made to the property by the purchaser.
(d)  A seller is not liable under this section if:
(1)  a lien is placed on the property by a person other than the seller; and
(2)  not later than the 30th day after the date the seller receives notice of the lien, the seller takes all steps necessary to remove the lien and has the lien removed from the property.
Added by Acts 2005, 79th Leg., Ch. 978 (H.B. 1823), Sec. 6, eff. September 1, 2005.