TITLE 7. BANKING AND SECURITIES

PART 4. DEPARTMENT OF SAVINGS AND MORTGAGE LENDING

CHAPTER 51. DEPARTMENT ADMINISTRATION

The Finance Commission of Texas (commission), on behalf of the Department of Savings and Mortgage Lending (SML), proposes rule changes in Chapter 51: repeals in Subchapter A (§§51.1 - 51.4), Subchapter D (§§51.300 - 51.304), Subchapter E (§§51.400 - 51.405), and Subchapter F (§§51.500 - 51.506); amendments in Subchapter B (§51.100) and Subchapter C (§51.200); and new rules in Subchapter A (§§51.1 - 51.5) (proposed rules).

Explanation of and Justification for the Rules

The proposed rules are the product of SML's rule review of 7 TAC Chapter 51, Department Administration, conducted in accordance with Government Code §2001.039. The existing rules in Chapter 51 establish various requirements concerning SML's administrative processes and procedures.

Changes Concerning the Reorganization of Chapter 51

SML has determined it should reorganize its rules in 7 TAC Chapter 51 by relocating the existing rules in Subchapter E, Mortgage Grant Fund, to Chapter 52, a vacant chapter. SML has further determined it should relocate the existing rules in Subchapter D, Recovery Fund, and Subchapter F, Mortgage Grant Fund: Recovery Claims for Unlicensed Activity, to Chapter 53, a vacant chapter. The proposed rules, if adopted, would effectuate these changes.

Changes Concerning Consumer Complaints (Subchapter A)

The existing rules in Chapter 51, Subchapter A, Complaints, govern SML's administration of Finance Code §13.011, requiring SML to maintain a system to act on consumer complaints, and establish processes and procedures used by SML to process those complaints. The proposed rules: in §51.1, Purpose, clarify the purpose of the rules in Subchapter A; in §51.2, Definitions, adopt new definitions for "Consumer Responsiveness Unit," "respondent," and "SML," and eliminate the definition for "Department"; in §51.3, Computation of Time, clarify how time periods measured in calendar days are computed; in §51.4, Processing Inquiries and Complaints, clarify SML's processes and procedures for processing inquiries and complaints, reduce the time period during which a complainant is allowed to request reconsideration of the disposition of their complaint from 90 days to 60 days, establish a four-year limitations period to file a complaint, and clarify that SML will make reasonable efforts to resolve a complaint within 120 days after the date the complaint is received instead of within 90 days after the date the complaint investigation is complete.

Changes Concerning Hearings and Appeals (Subchapter B)

The existing rules in Chapter 51, Subchapter B, Hearings and Appeals, establish procedural requirements for contested cases and augment the commission's rules in 7 TAC Chapter 9, Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings. The proposed rules: in §51.100, Appeals, Hearings, and Informal Settlement Conferences, clarify that the rules of the State Office of Administrative Hearings (SOAH) apply to contested cases referred to SOAH, and clarify that an appeal for judicial review must be brought in a district court in Travis County, Texas.

Changes Concerning Advisory Committees (Subchapter C)

The existing rules in Chapter 51, Subchapter C, Advisory Committees, govern advisory committees created by SML under Finance Code §13.018, allowing SML to appoint advisory committees to assist in discharging its duties. SML has one advisory committee created under Finance Code §13.018 - the Mortgage Grant Advisory Committee (MGAC) - to assist in administering the mortgage grant fund under Finance Code Chapter 156, Subchapter G. The proposed rules: in §51.200, Advisory Committees, change the date on which advisory committees created under Finance Code §13.018 are abolished from September 1, 2031 to September 1, 2030, to align more closely with SML's schedule for rule review, list the MGAC as an advisory committee subject to the rule, and remove references to the mortgage industry advisory committee created under Finance Code §156.104 which is not subject to the rule since it is not created under Finance Code §13.018.

Other Modernization and Update Changes

The proposed rules, if adopted, would make changes to modernize and update the rules including: adding and replacing language for clarity and to improve readability; removing unnecessary or duplicative provisions; and updating terminology.

Fiscal Impact on State and Local Government

Antonia Antov, Director of Operations for SML, has determined that for the first five-year period the proposed rules are in effect there are no foreseeable increases or reductions in costs to local governments as a result of enforcing or administering the proposed rules. Antonia Antov has further determined that for the first five-year period the proposed rules are in effect there are no foreseeable losses or increases in revenue to local governments as a result of enforcing or administering the proposed rules. Antonia Antov has further determined that for the first five-year period the proposed rules are in effect there are no foreseeable increases or reductions in costs or losses or increases in revenue to the state overall that would impact the state's general revenue fund as a result of enforcing or administering the proposed rules. Implementation of the proposed rules will not require an increase or decrease in future legislative appropriations to SML because SML is a self-directed, semi-independent agency that does not receive legislative appropriations. The proposed rules will not result in losses or increases in revenue to the state because SML does not contribute to the state's general revenue fund.

Public Benefits

Hector Retta, the SML Commissioner, has determined that for each of the first five years the proposed rules are in effect, the public benefit anticipated as a result of enforcing or administering the proposed rules will be for members of the public to better understand SML's administrative processes and procedures.

Probable Economic Costs to Persons Required to Comply with the Proposed Rules

Hector Retta has determined that for the first five years the proposed rules are in effect there are no probable economic costs to persons required to comply with the proposed rules that are directly attributable to the proposed rules for purposes of the cost note required by Government Code §2001.024(a)(5) (direct costs).

One-for-One Rule Analysis

Pursuant to Finance Code §16.002, SML is a self-directed semi-independent agency and thus not subject to the requirements of Government Code §2001.0045.

Government Growth Impact Statement

For each of the first five years the proposed rules are in effect, SML has determined the following: (1) the proposed rules do not create or eliminate a government program; (2) implementation of the proposed rules does not require the creation of new employee positions or the elimination of existing employee positions; (3) implementation of the proposed rules does not require an increase or decrease in legislative appropriations to the agency; (4) the proposed rules do not require an increase or decrease in fees paid to the agency; (5) the proposed rules do create a new regulation (rule requirement). The proposed rules related to Changes Concerning Consumer Complaints (Subchapter A), Changes Concerning Hearings and Appeals (Subchapter B), and Changes Concerning Advisory Committees (Subchapter C) establish various rule requirements, as discussed in those sections; (6) the proposed rules do expand, limit, or repeal an existing regulation (rule requirement). The proposed rules related to Changes Concerning Consumer Complaints (Subchapter A) expand or limit existing rule requirements, as discussed in such section; (7) the proposed rules do not increase or decrease the number of individuals subject to the rules' applicability; and (8) the proposed rules do not positively or adversely affect this state's economy.

Local Employment Impact Statement

No local economies are substantially affected by the proposed rules. As a result, preparation of a local employment impact statement pursuant to Government Code §2001.022 is not required.

Fiscal Impact on Small and Micro-Businesses and Rural Communities

The proposed rules will not have an adverse effect on small or micro-businesses or rural communities because there are no probable economic costs anticipated to persons required to comply with the proposed rules. As a result, preparation of an economic impact statement and a regulatory flexibility analysis as provided by Government Code §2006.002 are not required.

Takings Impact Assessment

There are no private real property interests affected by the proposed rules. As a result, preparation of a takings impact assessment as provided by Government Code §2007.043 is not required.

Public Comments

Written comments regarding the proposed rules may be submitted by mail to Iain A. Berry, General Counsel, at 2601 North Lamar Blvd., Suite 201, Austin, Texas 78705-4294, or by email to rules.comments@sml.texas.gov. Comments must be received within 30 days after publication of this notice.

SUBCHAPTER A. COMPLAINTS

7 TAC §§51.1 - 51.4

Statutory Authority

This proposal is made under the authority of: Government Code §2001.004(1), requiring a state agency to adopt rules of practice stating the nature and requirements of all available formal and informal procedures; Finance Code §96.002(a), authorizing the commission to adopt rules necessary to supervise and regulate Texas-chartered savings banks and to protect public investment in Texas-chartered savings banks; Finance Code §156.102(a), authorizing the commission to adopt rules necessary for the intent of or to ensure compliance with Finance Code Chapter 156, the Residential Mortgage Loan Company Licensing and Registration Act; Finance Code §157.0023(a), authorizing the commission to adopt rules necessary to implement or fulfill the purposes of Finance Code Chapter 157, the Mortgage Banker Registration and Residential Mortgage Loan Originator License Act; Finance Code §158.003(b), authorizing the commission to adopt and enforce rules necessary for the purposes of or to ensure compliance with Finance Code Chapter 158, the Residential Mortgage Loan Servicer Registration Act; Finance Code §159.108, authorizing the commission to adopt and enforce rules necessary for the intent of or to ensure compliance with Finance Code Chapter 159, Subchapter C; Finance Code §180.004(b), authorizing the commission to implement rules necessary to comply with Finance Code Chapter 180, the Texas Secure and Fair Enforcement for Mortgage Licensing Act of 2009 (Texas SAFE Act); and Finance Code §180.061(5), authorizing the commission to adopt rules establishing requirements for investigation and examination authority for purposes of investigating a violation or complaint arising under the Texas SAFE Act. This proposal is also made under the authority of, and to implement, Finance Code §§11.307, 13.011, 156.301, 157.0022, 157.009, 157.021, 157.026, 158.059, and 158.102.

This proposal affects the statutes in Finance Code: Title 3, Subtitles B and C; and Chapters 13, 156, 157, 158, 159, and 180.

§ 51.1. Definitions.

§ 51.2. Complaint Processing.

§ 51.3. Complaint Resolution and Disposition.

§ 51.4. Complaint Review and Reporting.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 27, 2025.

TRD-202501372

Iain A. Berry

General Counsel

Department of Savings and Mortgage Lending

Earliest possible date of adoption: June 8, 2025

For further information, please call: (512) 475-1535

SUBCHAPTER A. CONSUMER COMPLAINTS

7 TAC §§51.1 - 51.5

Statutory Authority

This proposal affects the statutes in Finance Code: Title 3, Subtitles B and C; and Chapters 13, 156, 157, 158, 159, and 180.

§ 51.1. Purpose.

This subchapter governs SML's administration of Finance Code §13.011, requiring SML to maintain a system to act on consumer complaints. This subchapter establishes processes and procedures used by SML to process inquiries and complaints submitted by consumers.

§ 51.2. Definitions.

In this chapter, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Commissioner" means the savings and mortgage lending commissioner appointed under Finance Code Chapter 13.

(2) "Complainant" means a person who submits a complaint to SML.

(3) "Complaint" means a signed, written communication received by the Consumer Responsiveness Unit that expresses dissatisfaction with a transaction or alleges wrongful conduct.

(4) "Consumer Responsiveness Unit" or "CRU" means the section or unit within SML that receives inquiries and complaints from consumers and investigates complaints.

(5) "Inquiry" means a communication received by the Consumer Responsiveness Unit that expresses dissatisfaction with a transaction or alleges wrongful conduct but is not a complaint.

(6) "Respondent" means an entity or individual who is the subject of a complaint.

(7) "SML" means the Department of Savings and Mortgage Lending.

§ 51.3. Computation of Time.

In this subchapter, the calculation of any time period measured in days is made using calendar days unless clearly stated otherwise. In computing a period of calendar days, the first day is excluded, and the last day is included. If the last day of any period is a Saturday, Sunday, or legal holiday, the period is extended to include the next day that is not a Saturday, Sunday, or legal holiday, unless clearly stated otherwise.

§ 51.4. Processing Inquiries and Complaints.

(a) Processing Inquiries. When an inquiry is received, the CRU will determine whether SML has jurisdiction and regulates the entity and the issue that is the subject of the inquiry. If SML does not, the CRU will inform the person making the inquiry of the appropriate regulatory authority, if known. If SML regulates the entity and the issue that is the subject of the inquiry, the CRU will inform the person making the inquiry of the procedure for submitting a complaint.

(b) Submitting a Complaint. Complaints may be submitted on SML's website (sml.texas.gov), by mail (Attn: Consumer Responsiveness Unit, 2601 N. Lamar Blvd., Suite 201, Austin, Texas 78705), or by email (complaintsubmission@sml.texas.gov). SML will collect the following items and information, if available:

(1) the complainant's name and contact information;

(2) the respondent's name, Nationwide Multistate Licensing System ID, if applicable, and contact information;

(3) the date and place of the alleged misconduct, violation, or transaction;

(4) a description of the facts or conduct alleged to violate applicable statutes or rules; and

(5) any written documentation supporting the complaint.

(1) Jurisdiction review. When a complaint is received, the CRU will determine whether SML has jurisdiction and regulates the entity and the issue that is the subject of the complaint. If SML does not, the CRU will inform the person making the complaint of the appropriate regulatory authority, if known, and the complaint will be closed. The CRU may conduct a preliminary investigation that is limited in scope to determine if SML has jurisdiction and regulates the entity and the issue that is the subject of the complaint.

(2) Reasonable cause review. If SML has jurisdiction and regulates the entity and the issue that is the subject of the complaint, the CRU will determine if reasonable cause exists to conduct an investigation. Reasonable cause exists if the complaint presents facts and evidence indicating that a violation of law more likely than not occurred that is within SML's authority to take action to address. The CRU may conduct a preliminary investigation that is limited in scope to determine if reasonable cause exists. If reasonable cause does not exist, the complaint will be closed. SML may close a complaint for lack of reasonable cause if it involves facts and evidence that are substantially similar to those investigated in a previous complaint submitted by the complainant.

(3) Respondent's response. If reasonable cause exists, SML will send a copy or a summary of the complaint and appropriate supporting documentation to the respondent to request a response unless SML determines that doing so would jeopardize investigation of the complaint or an enforcement action. A respondent must respond within 14 days after the date the request is sent, unless an extension is given. The respondent must respond by the new deadline if an extension is given. If the respondent fails to respond, the factual matters alleged in the complaint may be construed against the respondent and may constitute grounds for an enforcement action against the respondent. SML will provide a copy of the response to the complainant unless the respondent requests that the response be kept confidential from the complainant, or SML determines that providing the response would jeopardize investigation of the complaint or an enforcement action. The respondent may provide a copy of the response to the complainant at the time it sends its response to SML, and if so, the respondent must indicate as such in the response (i.e., by listing the complainant as a carbon copy recipient).

(4) Investigation. On receipt of the respondent's response, the CRU will conduct an investigation. Investigations will be conducted as SML considers appropriate based on the relevant facts and circumstances known or reasonably inferred. An investigation may include:

(A) review of documentary evidence;

(B) interviews with complainants, respondents, and third parties, and the taking of sworn written statements;

(C) obtaining information from other state or federal agencies, regulatory authorities, or self-regulatory organizations;

(D) requiring complainants or respondents to provide explanatory, clarifying, or supplemental information; and

(E) other lawful investigative methods SML considers appropriate.

(5) Closing the complaint after an investigation. When investigation and analysis of the complaint are complete, the complaint will be closed. SML will send written notice (closing notice) to the complainant and the respondent within 10 business days after the date the complaint is closed, except as provided by subparagraph (E) of this paragraph. The closing notice will include a general description of how the complaint was closed (disposition) but will not include the investigator's specific findings or other information obtained during the investigation that is made confidential by law. Common dispositions include:

(A) Litigation. The complaint involves facts and issues that are being litigated or arbitrated by the parties or have been determined by a judicial or arbitration decision.

(B) Resolution. The complaint is resolved by agreement of the parties or is resolved to the satisfaction of SML through corrective action taken by the respondent.

(D) Insufficient evidence. SML has determined that there is insufficient evidence to establish that a violation occurred.

(E) Enforcement referral. SML has determined that there is sufficient evidence to establish that a violation occurred and the complaint is referred for an enforcement action. A respondent referred for an enforcement action will be notified through the enforcement action and does not receive a closing notice.

(6) Request for Reconsideration. A complainant who disagrees with the disposition of a complaint (including a complaint closed for lack of jurisdiction under paragraph (1) of this subsection or for lack of reasonable cause under paragraph (2) of this subsection) may request reconsideration within 60 days after the date the closing notice is sent. On receipt of a timely request, a senior investigator from the CRU (other than the investigator who made the initial determination) or a staff attorney will review the file and determine the disposition. The individual assigned to review the file may investigate the complaint further to determine the disposition. SML will send written notice to the complainant within 10 business days after the date the disposition is determined. The disposition determined as a result of a request for reconsideration under this subparagraph is considered final and may not be challenged further by the complainant.

(d) Limitations Period. A complaint must be submitted within four years after the date the alleged act or omission giving rise to the complaint occurred or should reasonably have been discovered by the complainant. A complaint submitted outside this period for which SML has jurisdiction will be closed for lack of reasonable cause under subsection (c)(2) of this section.

(e) Public Information. Complaints and inquiries submitted to SML are generally considered public information unless a specific statutory exception applies.

(f) Protecting the Complainant's Identity. At the request of the complainant, SML will take reasonable measures to protect the complainant's identity to the extent possible. However, complainants are cautioned that, as provided by subsections (c)(3) and (e) of this section, complaints are generally considered public information, and the respondent is generally given notice of and the opportunity to respond to the complaint. The information provided to the respondent may show or indicate the complainant's identity. If the complaint results in SML taking enforcement action that requires an administrative hearing or judicial proceeding, SML may be required to prove the violation using evidence that shows or indicates the complainant's identity.

(g) Prioritizing Complaints. SML will prioritize complaints to determine the order in which complaints are investigated, considering the seriousness of the allegations and the length of time a complaint has been open.

(h) Complaint Monitoring. SML will monitor how long each complaint is open and will make reasonable efforts to resolve a complaint within 120 days after the date the complaint is received. SML will notify the complainant of the status of his or her complaint at least quarterly until the complaint is closed unless doing so would jeopardize investigation of the complaint or an enforcement action

§ 51.5. Complaint Information.

(a) SML will maintain records of complaints received in accordance with its records retention policy.

(b) SML will report complaint activity to the Finance Commission of Texas at each of its regular meetings.

(c) SML will make information available on its website describing the processes and procedures in §51.4 of this title (relating to Processing Inquiries and Complaints).

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 27, 2025.

TRD-202501373

Iain A. Berry

General Counsel

Department of Savings and Mortgage Lending

Earliest possible date of adoption: June 8, 2025

For further information, please call: (512) 475-1535

SUBCHAPTER B. HEARINGS AND APPEALS

7 TAC §51.100

Statutory Authority

This proposal is made under the authority of Government Code: §2001.004(1), requiring a state agency to adopt rules of practice stating the nature and requirements of all available formal and informal procedures; and §2009.051(c), authorizing a state agency to adopt alternative dispute resolution procedures by rule. This proposal is also made under the authority of, and to implement, Finance Code §§13.017, 66.107, 96.107, 156.209, 156.302, 156.303, 156.401, 156.406, 156.504, 157.009, 157.010, 157.017, 157.023, 157.024, 157.026, 157.031, 158.059, 158.105, 158.059, 159.301, and 180.202.

This proposal affects the statutes in Finance Code Title 3, Subtitles B and C; and Chapters 13, 156, 157, 158, 159, and 180.

§ 51.100. Appeals, Hearings, and Informal Settlement Conferences.

(a) Alternative Resolution of Appeal. If [ ~~legal or enforcement staff determines~~ ] an enforcement action is appealed, SML [ ~~that has been appealed~~ ] may resolve the matter [ ~~be resolved without a hearing, legal or enforcement staff may pursue settlement~~ ] through negotiation, mediation, agreed order, consent order, informal settlement conference, alternative dispute resolution, or other appropriate means.

(b) Informal Settlement Conferences. [ ~~The Department may conduct an informal settlement conference in order to resolve an enforcement action that has been appealed.~~ ] An individual or entity subject to an enforcement action may request an informal settlement conference. An informal settlement conference does not create any new rights or obligations. Informal settlement conferences:

(1) are conducted at the discretion of legal and [ or ] enforcement staff;

(2) may not be requested for purposes of delay [ ~~used as a delay tactic~~ ]; and

(3) may be [ ~~primarily~~ ] conducted remotely, including by [ ~~solely over the~~ ] phone or videoconference[ ~~, or by email~~ ].

(c) Mediation. SML [ ~~As applicable under Finance Code §13.017, the Department~~ ] may, at the discretion of the Commissioner or his or her designee, arrange for the services of a qualified mediator or subject matter expert to assist in resolving complaints or other matters.

(d) Hearings. Hearings are governed by the rules in [ ~~may be conducted in accordance with~~ ] Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings)[ ~~, with Texas Government Code Chapter 2001, and may be conducted by the State Office of Administrative Hearings (SOAH)~~ ]. Cases referred to the State Office of Administrative Hearings (SOAH) are also governed by SOAH's rules in 1 TAC Chapter 155 (concerning Rules of Procedure). All hearings are held in Austin, Texas. An appeal for judicial review under Government Code §2001.171 must be brought in a district court in Travis County, Texas .

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 27, 2025.

TRD-202501374

Iain A. Berry

General Counsel

Department of Savings and Mortgage Lending

Earliest possible date of adoption: June 8, 2025

For further information, please call: (512) 475-1535

SUBCHAPTER C. ADVISORY COMMITTEES

7 TAC §51.200

Statutory Authority

This proposal is made under the authority of Government Code §2110.008, authorizing a state agency that has established an advisory committee to designate, by rule, the date on which the committee will be automatically abolished. This proposal is also made under the authority of, and to implement, Finance Code §13.018.

This proposal affects Finance Code §13.018.

§ 51.200. Advisory Committees [ ~~and Informal Conferences~~ ].

[(a)] The following advisory committees created under Finance Code §13.018 are continued [ Advisory Committees. The mortgage industry advisory committee referenced in Finance Code §§156.104 and 157.0024, as well as any advisory committees which may be created under Finance Code §13.018, shall continue ] in existence, and unless continued further, are [ ~~shall be~~ ] automatically abolished on September 1, 2030: [ ~~2031.~~ ]

(1) the mortgage grant advisory committee under §52.5 of this title (relating to Mortgage Grant Advisory Committee); and

(2) any other advisory committee created under Finance Code §13.018 that exists at the time this rule is adopted.

[(b) Informal Conferences. The Commissioner, in addition to obtaining evidence and guidance from an advisory committee, may use informal conferences and consultations with other interested persons to obtain advice and guidance, and assist the Commissioner in carrying out his or her duties.]

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 27, 2025.

TRD-202501375

Iain A. Berry

General Counsel

Department of Savings and Mortgage Lending

Earliest possible date of adoption: June 8, 2025

For further information, please call: (512) 475-1535

SUBCHAPTER D. RECOVERY FUND

7 TAC §§51.300 - 51.304

Statutory Authority

This proposal affects the statutes in Finance Code Chapter 156, Subchapter F.

§ 51.300. Purpose and Applicability.

§ 51.301. Definitions.

§ 51.302. Claims.

§ 51.303. Administrative Penalty Against Originator.

§ 51.304. Liability for Unpaid Claims.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 27, 2025.

TRD-202501376

Iain A. Berry

General Counsel

Department of Savings and Mortgage Lending

Earliest possible date of adoption: June 8, 2025

For further information, please call: (512) 475-1535

SUBCHAPTER E. MORTGAGE GRANT FUND

7 TAC §§51.400 - 51.405

Statutory Authority

This proposal affects the statutes in Finance Code Chapter 156, Subchapter G.

§ 51.400. Purpose and Applicability.

§ 51.401. Definitions.

§ 51.402. Commissioner as Manager.

§ 51.403. Grant Coordinator.

§ 51.404. Mortgage Grant Advisory Committee.

§ 51.405. Grant Program.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 27, 2025.

TRD-202501377

Iain A. Berry

General Counsel

Department of Savings and Mortgage Lending

Earliest possible date of adoption: June 8, 2025

For further information, please call: (512) 475-1535

SUBCHAPTER F. MORTGAGE GRANT FUND: RECOVERY CLAIMS FOR UNLICENSED ACTIVITY

7 TAC §§51.500 - 51.506

Statutory Authority

This proposal affects the statutes in Finance Code Chapter 156, Subchapter G.

§ 51.500. Purpose and Applicability.

§ 51.501. Definitions.

§ 51.502. Claims.

§ 51.503. Consequences for Unlicensed Individual.

§ 51.504. Liability for Unpaid Claims.

§ 51.505. Eligibility.

§ 51.506. Statute of Limitations at Inception.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 27, 2025.

TRD-202501378

Iain A. Berry

General Counsel

Department of Savings and Mortgage Lending

Earliest possible date of adoption: June 8, 2025

For further information, please call: (512) 475-1535

CHAPTER 52. MORTGAGE GRANT FUND

7 TAC §§52.1 - 52.6

The Finance Commission of Texas (commission), on behalf of the Department of Savings and Mortgage Lending (SML), proposes new rules in Chapter 52: §§52.1 - 52.6 (proposed rules).

Explanation of and Justification for the Rules

Changes Concerning the Reorganization of Chapter 51

SML has determined it should reorganize its rules in 7 TAC Chapter 51 by relocating the existing rules in Subchapter E, Mortgage Grant Fund, to Chapter 52, a vacant chapter. The proposed rules, if adopted, would effectuate this change.

Changes Concerning the Mortgage Grant Fund

The existing rules in Chapter 51, Subchapter E, Mortgage Grant Fund, govern SML's administration of the mortgage grant fund under Finance Code Chapter 156, Subchapter G, which provides grants for financial education relating to mortgage loans. The proposed rules: in §52.2, Definitions, adopt a new definition for "SML" and eliminate the definition for "Department"; in §52.4, Grant Coordinator, clarify that the SML commissioner may designate one or more SML employees to act on behalf of the grant coordinator when the grant coordinator is not available, and clarify that the grant coordinator may appear at hearings and judicial proceedings related to the mortgage grant fund; in §52.6, Grant Program, remove provisions related to disbursements from the mortgage grant fund made for the purpose of Finance Code §156.554(b)(3) as being unrelated to the grant program that is the subject of the rule, clarify that a political subdivision of this state is eligible to receive a grant, and clarify that a residential mortgage loan servicer registered with SML that is a nonprofit organization is eligible to receive a grant, and eliminate the requirement for grantees to make a longitudinal report after the grant cycle is completed.

Other Modernization and Update Changes

Fiscal Impact on State and Local Government

Public Benefits

Probable Economic Costs to Persons Required to Comply with the Proposed Rules

One-for-One Rule Analysis

Pursuant to Finance Code §16.002, SML is a self-directed semi-independent agency and thus not subject to the requirements of Government Code §2001.0045.

Government Growth Impact Statement

For each of the first five years the proposed rules are in effect, SML has determined the following: (1) the proposed rules do not create or eliminate a government program; (2) implementation of the proposed rules does not require the creation of new employee positions or the elimination of existing employee positions; (3) implementation of the proposed rules does not require an increase or decrease in legislative appropriations to the agency; (4) the proposed rules do not require an increase or decrease in fees paid to the agency; (5) the proposed rules do create a new regulation (rule requirement). The proposed rules related to Changes Concerning the Mortgage Grant Fund establish various rule requirements, as discussed in that section; (6) the proposed rules do expand, limit, or repeal an existing regulation (rule requirement). The proposed rules related to Changes Concerning the Mortgage Grant Fund have the effect of repealing existing rule requirements as discussed in such section; (7) the proposed rules do not increase or decrease the number of individuals subject to the rules' applicability; and (8) the proposed rules do not positively or adversely affect this state's economy.

Local Employment Impact Statement

No local economies are substantially affected by the proposed rules. As a result, preparation of a local employment impact statement pursuant to Government Code §2001.022 is not required.

Fiscal Impact on Small and Micro-Businesses and Rural Communities

The proposed rules will not have an adverse effect on small or micro-businesses, or rural communities because there are no probable economic costs anticipated to persons required to comply with the proposed rules. As a result, preparation of an economic impact statement and a regulatory flexibility analysis as provided by Government Code §2006.002 are not required.

Takings Impact Assessment

There are no private real property interests affected by the proposed rules. As a result, preparation of a takings impact assessment as provided by Government Code §2007.043 is not required.

Public Comments

Statutory Authority

This proposal affects the statutes in Finance Code Chapter 156, Subchapter G.

§ 52.1. Purpose.

This chapter governs SML's administration of the Mortgage Grant Fund under Finance Code Chapter 156, Subchapter G other than claims made against the Mortgage Grant Fund in accordance with Finance Code §156.555 which are governed by Chapter 53 of this title (relating to Recovery Claims).

§ 52.2. Definitions.

In this chapter, the following definitions apply, unless the context clearly indicates otherwise:

(1) "Auxiliary mortgage loan activity company" has the meaning assigned by Finance Code §156.002.

(2) "Commissioner" means the savings and mortgage lending commissioner appointed under Finance Code Chapter 13.

(3) "Finance Commission" means the Finance Commission of Texas.

(4) "Grant Coordinator" means the employee of SML that assists the Commissioner in discharging his or her duties related to the Mortgage Grant Fund, as provided by §52.4 of this title (relating to Grant Coordinator).

(5) "Mortgage Grant Advisory Committee" or "MGAC" means the Mortgage Grant Advisory Committee created to advise the Commissioner concerning administration of the MGF grant program, as provided by §52.5 of this title (relating to Mortgage Grant Advisory Committee).

(6) "Mortgage Grant Administration Manual" or "MGAM" means the manual of the policies and procedures governing administration of the MGF and the MGF grant program, as provided by §52.3 of this title (relating to Management by the Commissioner).

(7) "Mortgage Grant Fund" or "MGF" means the fund the Commissioner administers under Finance Code Chapter 156, Subchapter G.

(8) "SML" means the Department of Savings and Mortgage Lending.

§ 52.3. Management by the Commissioner.

(a) Management by the Commissioner. As provided by Finance Code §156.553, the Commissioner serves as manager and administers all aspects of the MGF.

(b) Periodic Reports to the Finance Commission. The Commissioner or Grant Coordinator will report the status and activities of the MGF to the audit committee of the Finance Commission at each regular meeting of the committee, or as directed by the Finance Commission.

(c) Mortgage Grant Administration Manual. The Commissioner maintains a manual of the policies and procedures governing administration of the MGF and the MGF grant program. The MGAM, and any amendments to the MGAM, must be approved by the Finance Commission.

§ 52.4. Grant Coordinator.

The Commissioner may appoint an employee of SML to serve as Grant Coordinator to assist the Commissioner in discharging his or her duties related to the MGF. The Commissioner may designate one or more SML employees to act on behalf of the Grant Coordinator when the Grant Coordinator is not available. The Grant Coordinator serves under the direction of the Commissioner and acts as liaison between grantees, the Commissioner, and the MGAC. The Commissioner may delegate any authority of the Commissioner to act as manager of the MGF to the Grant Coordinator, including any duties listed under Finance Code §156.553(a).

§ 52.5. Mortgage Grant Advisory Committee.

(a) Purpose. The MGAC exists as an advisory committee to make recommendations to the Commissioner and Grant Coordinator concerning administration of the MGF grant program. The MGAC will continue in existence until the abolishment date set by §51.200 of this title (relating to Advisory Committees).

(b) Governance. The MGAC is governed by the MGAM.

(c) Advisory Role of the MGAC. The MGAC, at the request of the Commissioner, makes recommendations concerning administration of the MGF grant program including:

(1) evaluating grant applications to determine whether the application should be approved, and the amount of the grant award;

(2) monitoring ongoing grant awards to evaluate performance and determine compliance;

(3) considering potential amendments to the MGAM; and

(4) evaluating potential candidates for appointment to the MGAC.

§ 52.6. Grant Program.

(a) Purpose. This section governs disbursements made from the MGF to provide grants for financial education relating to mortgage loans, as provided by Finance Code §156.554(b)(1).

(b) Grant Cycle. The fund may have one competitive grant cycle every two years. A new grant cycle begins on January 1 of every odd-numbered year. An applicant may choose to apply for a one-year grant or a two-year grant. The grant cycle for a one-year grant begins on January 1 and ends on December 31 of the odd-numbered year for the applicable cycle. The grant cycle for a two-year grant begins on January 1 of the odd-numbered year and ends on December 31 of the following even-numbered year for the applicable cycle.

(c) Eligibility. A grant may only be given to a company licensed by SML as an auxiliary mortgage loan activity company, a nonprofit organization, or a political subdivision of this state. Grant funding is not available to entities licensed by or registered with SML other than auxiliary mortgage loan activity companies and residential mortgage loan servicers that operate as a nonprofit organization.

(d) Grant Application. To be considered for the grant program, an applicant must submit a completed grant application by the deadline and in accordance with the instructions for the applicable grant cycle. Late or incomplete grant applications will not be accepted. Meeting eligibility criteria and timely submission of a grant application does not guarantee a grant award.

(e) Review and Approval. The Commissioner, after considering the recommendations of the MGAC and the Grant Coordinator, will review timely and complete applications and determine the grants awarded.

(f) Grant Agreement. To participate in the grant program, a grantee approved by the Commissioner to receive a grant must execute the grant agreement approved by the Commissioner for the applicable grant cycle and tailored to that grantee (grant agreement).

(g) Grantee Compliance. A grantee must comply with applicable financial, administrative, and programmatic terms and conditions, and exercise proper stewardship over grant funds. A grantee must use awarded funds in compliance with the following in effect for the applicable grant cycle:

(1) all applicable state laws and regulations;

(2) all applicable federal laws and regulations;

(3) the MGAM;

(4) the grant agreement signed by the Commissioner or the Commissioner's designee and the grantee;

(5) all reporting and monitoring requirements, as outlined in the grant agreement; and

(6) any other guidance documents posted on the MGF webpage for the applicable grant cycle.

(h) Reporting and Monitoring.

(1) General reporting requirements. To receive reimbursement of grant expenses a grantee must:

(A) submit periodic grant reports as provided by the grant agreement;

(B) maintain satisfactory compliance with the grant agreement including the grantee's goals approved for funding in the grant agreement; and

(2) Progress Reports. A grantee must submit progress reports that demonstrate performance outcomes over the term of the grant in accordance with and by the deadlines specified in the grant agreement.

(3) Monitoring. The Grant Coordinator may use the following methods to monitor a grantee's performance and expenditures:

(A) Audit. The Commissioner or Grant Coordinator may audit a grantee to review and compare individual source documentation and materials to summary data provided during the reporting process; or

(B) Site Visits. The Commissioner or Grant Coordinator may visit a grantee's place of business or other place where grant activities are conducted to evaluate performance and determine compliance.

(i) Reimbursement.

(1) Eligibility. To be eligible for reimbursement, a grantee must comply with the grant agreement and all other items listed in subsection (g) of this section. To ensure that grant funds are used for a public purpose as provided by Finance Code §156.556(1), grant funds will only be awarded on a cost reimbursement basis for actual, allowable, and allocable costs incurred by a grantee pursuant to the grant agreement. Expenses incurred before the beginning of or after termination of the grant agreement are not eligible for reimbursement. The Commissioner may withhold reimbursements when a grantee is not in compliance with the grant agreement or other items listed in subsection (g) of this section.

(2) Procedure. To request reimbursement, a grantee must submit a progress report and reimbursement request in accordance with and by the deadlines specified in the grant agreement. The progress report and reimbursement request must be made using the current forms prescribed by the Commissioner for the applicable grant cycle. The progress report must be detailed and include supporting documentation to justify the reimbursement request. SML will review and approve requests for reimbursement that satisfy the requirements and promptly disburse funds for approved requests.

(j) Misuse of Grant Funds. The Commissioner may require a refund of grant funds already disbursed to the grantee and may cancel the grant agreement or disqualify the grantee from receiving future grants if:

(1) grant funds are not used for a public purpose allowable under Finance Code §156.554(b)(1);

(2) grant funds are used in an illegal manner;

(3) the grantee violates the grant agreement or other items listed in subsection (g) of this section; or

(4) the Commissioner determines that the grantee made a material misrepresentation in obtaining the grant or in seeking reimbursement of grant funds.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 27, 2025.

TRD-202501379

Iain A. Berry

General Counsel

Department of Savings and Mortgage Lending

Earliest possible date of adoption: June 8, 2025

For further information, please call: (512) 475-1535

CHAPTER 53. RECOVERY CLAIMS

7 TAC §§53.1 - 53.12

The Finance Commission of Texas (commission), on behalf of the Department of Savings and Mortgage Lending (SML), proposes new rules in Chapter 53: §§53.1 - 53.12 (proposed rules).

Explanation of and Justification for the Rules

Changes Concerning the Reorganization of Chapter 51

SML has determined it should reorganize its rules in 7 TAC Chapter 51 by relocating the existing rules in Subchapter D, Recovery Fund, and Subchapter F, Mortgage Grant Fund: Recovery Claims for Unlicensed Activity, to Chapter 53, a vacant chapter. The proposed rules, if adopted, would effectuate this change.

Changes Concerning Recovery Claims

The existing rules in Chapter 51, Subchapter D, Recovery Fund, govern SML's administration of Finance Code §13.016 and Chapter 156, Subchapter F, Recovery Fund, which creates a recovery fund that allows for claims to compensate persons for actual, out-of-pocket damages incurred because of violations committed by an individual licensed by SML as a residential mortgage loan originator under Finance Code Chapter 157. The existing rules in Chapter 51, Subchapter F, Mortgage Grant Fund: Recovery Claims for Unlicensed Activity, govern SML's administration of Finance Code §156.555, allowing for claims to be made against the Mortgage Grant Fund created under Finance Code Chapter 156, Subchapter G, Mortgage Grant Fund, to compensate persons for actual, out-of-pocket damages incurred because of fraud committed by an individual who acted as a residential mortgage loan originator but did not hold a residential mortgage loan originator license under Finance Code Chapter 157. The proposed rules: in §53.2, Definitions, adopt new definitions for "Consumer Responsiveness Unit," "recovery claim," and "SML," and eliminate the definition for "Department"; in §53.3, Submitting a Claim, clarify where a claim application should be sent, clarify that, if a claimant submits a scanned copy of the claim application, the claimant must maintain the original application and send it by mail to SML on request, and clarify that a claim application that is incomplete may be deemed withdrawn after notice is sent to the claimant and the claimant fails to provide the additional information within 30 days; in §53.4, Investigating the Claim, clarify that claims are generally investigated in the same manner as a complaint, and that, if the claim relates a pending complaint, the investigator may investigate the claim and the complaint simultaneously, and, if the claim relates to a closed complaint, the investigator may adopt the findings of that complaint investigation; in §53.5, Resolution by Agreement, clarify where notice to SML of a claim being resolved by the parties should be sent, and that, upon resolution of a claim by the parties, SML may consider the claim withdrawn or hold the claim in abatement pending satisfaction of the agreement; in §53.6, Preliminary Determination; Requests for Appeal, clarify where an appeal of SML's preliminary determination of the claim should be sent; in §53.7, Administrative Hearings, clarify that, at an administrative hearing on a recovery claim, SML will present its preliminary determination and then allow the claimant to present their claim and the respondent to contest or defend against the claim, and clarify that the claimant has the burden of proving they are entitled to recovery; in §53.12, Recoverable Damages, clarify the types of damages that a claimant may recover.

Other Modernization and Update Changes

Fiscal Impact on State and Local Government

Public Benefits

Probable Economic Costs to Persons Required to Comply with the Proposed Rules

One-for-One Rule Analysis

Pursuant to Finance Code §16.002, SML is a self-directed semi-independent agency and thus not subject to the requirements of Government Code §2001.0045.

Government Growth Impact Statement

For each of the first five years the proposed rules are in effect, SML has determined the following: (1) the proposed rules do not create or eliminate a government program; (2) implementation of the proposed rules does not require the creation of new employee positions or the elimination of existing employee positions; (3) implementation of the proposed rules does not require an increase or decrease in legislative appropriations to the agency; (4) the proposed rules do not require an increase or decrease in fees paid to the agency; (5) the proposed rules do create a new regulation (rule requirement). The proposed rules related to Changes Concerning Recovery Claims establish various rule requirements, as discussed in that section; (6) the proposed rules do not expand, limit, or repeal an existing regulation (rule requirement); (7) the proposed rules do not increase or decrease the number of individuals subject to the rules' applicability; and (8) the proposed rules do not positively or adversely affect this state's economy.

Local Employment Impact Statement

No local economies are substantially affected by the proposed rules. As a result, preparation of a local employment impact statement pursuant to Government Code §2001.022 is not required.

Fiscal Impact on Small and Micro-Businesses and Rural Communities

Takings Impact Assessment

There are no private real property interests affected by the proposed rules. As a result, preparation of a takings impact assessment as provided by Government Code §2007.043 is not required.

Public Comments

Statutory Authority

This proposal affects the statutes in Finance Code Chapter 156, Subchapters F and G.

§ 53.1. Purpose.

This chapter governs SML's administration of:

(1) Finance Code §13.016 and Chapter 156, Subchapter F, creating a recovery fund that allows for claims to compensate persons for actual, out-of-pocket damages incurred because of violations committed by an individual licensed by SML as a residential mortgage loan originator under Finance Code Chapter 157; and

(2) Finance Code §156.555, allowing for claims to be made against the Mortgage Grant Fund created under Finance Code Chapter 156, Subchapter G, to compensate persons for actual, out-of-pocket damages incurred because of fraud committed by an individual who acted as a residential mortgage loan originator but did not hold a residential mortgage loan originator license under Finance Code Chapter 157.

§ 53.2. Definitions.

In this chapter, the following definitions apply, unless the context clearly indicates otherwise.

(1) "Application" means a request, in any form, for an offer (or a response to a solicitation of an offer) of residential mortgage loan terms, and the information about the mortgage applicant that is customary or necessary in a decision on whether to make such an offer, including, but not limited to, a mortgage applicant's name, income, social security number to obtain a credit report, property address, an estimate of the value of the real estate, or the mortgage loan amount.

(2) "Claimant" means a mortgage applicant making or seeking to make a claim against the recovery fund in accordance with Finance Code §156.504 or against the Mortgage Grant Fund in accordance with Finance Code §156.555.

(3) "Commissioner" means the savings and mortgage lending commissioner appointed under Finance Code Chapter 13.

(4) "Consumer Responsiveness Unit" or "CRU" means the section or unit within SML that receives inquiries and complaints from consumers and investigates complaints.

(5) "Mortgage applicant" means an applicant for a residential mortgage loan or a person who is solicited (or contacts a residential mortgage loan originator in response to a solicitation) to obtain a residential mortgage loan, and includes a person who has not completed or started completing a formal loan application on the appropriate form (e.g., the Fannie Mae Form 1003 Uniform Residential Loan Application), but has submitted financial information constituting an application, as provided by paragraph (1) of this section.

(6) "Mortgage Grant Fund" means the fund the Commissioner administers in accordance with Finance Code Chapter 156, Subchapter G.

(7) "Recovery claim" or " claim" means a claim made against the recovery fund in accordance with Finance Code §156.504 or against the Mortgage Grant Fund in accordance with Finance Code §156.555.

(8) "Recovery fund" means the fund the Commissioner administers in accordance with Finance Code §13.016 and Chapter 156, Subchapter F.

(9) "Residential mortgage loan" has the meaning assigned by Finance Code §180.002 and includes new loans and renewals, extensions, modifications, and rearrangements of such loans. The term does not include a loan which is secured by a structure that is suitable for occupancy as a dwelling, but is used for a commercial purpose such as a professional office, salon, or other non-residential use, and is not used as residence.

(10) "Respondent" means an individual against whom a recovery claim is made.

(11) "SML" means the Department of Savings and Mortgage Lending.

§ 53.3. Submitting a Claim.

(a) Application Required. A claimant submits a claim by filing a written application using the current form prescribed by the Commissioner and posted on SML's website (sml.texas.gov). The application may be sent by mail (Attn: Consumer Responsiveness Unit, 2601 N. Lamar Blvd., Suite 201, Austin, Texas 78705) or by email (complaintsubmission@sml.texas.gov). If sent by email, the claimant must include a quality, scanned version of the completed application, and must maintain the original application throughout the claims process and send it to SML by mail on request.

(b) Incomplete Filings; Deemed Withdrawal. An application will only be accepted for filing if it is complete. If an application is incomplete, SML will send written notice to the claimant specifying the additional information required to render the application complete. The application may be deemed withdrawn if the claimant fails to provide the additional information within 30 days after the date written notice is sent to the claimant as provided by this subsection. Among other things, the application must:

(1) be verified and sworn under oath before a notary;

(2) identify a valid respondent; and

(3) identify actual, out-of-pocket damages meeting the requirements of §53.12 of this title (relating to Recoverable Damages).

§ 53.4. Investigating the Claim.

When a claim is accepted for filing, it will be assigned to an investigator within the CRU to conduct an investigation. Claims are generally investigated in the same manner as a complaint under §51.4 of this title (relating to Processing Inquiries and Complaints). If the claim relates to a pending complaint, the investigator may investigate the two simultaneously. If the claim relates to a closed complaint, the investigator may adopt the findings of that investigation instead of or in addition to investigating the claim.

§ 53.5. Resolution by Agreement.

The respondent and the claimant may resolve the claim by agreement at any time. If an agreement is reached, the parties must promptly send written notice to SML by mail (Attn: Legal Division, 2601 N. Lamar Blvd., Suite 201, Austin, Texas 78705) or by email (enforcement@sml.texas.gov). If an agreement is reached, SML may, in its sole discretion, consider the claim withdrawn or hold the claim in abatement pending satisfaction of the agreement. If held in abatement, the claim is deemed withdrawn upon satisfaction of the agreement.

§ 53.6. Preliminary Determination; Requests for Appeal.

(a) Preliminary Determination. After the claim is investigated, the claim will be referred to SML's legal and enforcement section to issue a preliminary determination.

(b) Requests for Appeal. The respondent or the claimant has 30 days to appeal the preliminary determination. An appeal must be in writing and received by SML within 30 days after the date the preliminary determination is issued. An appeal may be sent by mail (Attn: Legal Division, 2601 N. Lamar Blvd., Suite 201, Austin, Texas 78705) or by email (enforcement@sml.texas.gov).

(c) Effect of Not Appealing. A respondent or claimant who does not timely appeal the preliminary determination is deemed to have irrevocably waived any right they had to challenge the preliminary determination or request a hearing on the preliminary determination and is deemed not to have exhausted all administrative remedies for purposes of judicial review under Government Code §2001.171.

§ 53.7. Administrative Hearings.

(a) If an appeal is requested under §53.6 of this title (relating to Preliminary Determination; Requests for Appeal), SML will cause an administrative hearing to be set. The hearing is governed by §51.100 of this title (relating to Appeals, Hearings, and Informal Settlement Conferences). At the hearing, SML will present its preliminary determination issued under §53.6 of this title. The claimant will then have the opportunity to present their claim, and the respondent will have the opportunity to contest or defend against the claim.

(b) The claimant has the burden of proving they are entitled to recovery. The burden of proof is by a preponderance of the evidence.

§ 53.8. Payment of an Approved Claim.

(a) Payment of an Approved Claim. Upon approval of a claim, the Commissioner will issue an order disbursing funds from the recovery fund or the Mortgage Grant Fund, as applicable. The funds will be disbursed after the date on which the order becomes final and is not appealable for purposes of:

(1) Finance Code §156.504(d), if a hearing is not required under §53.7 of this title (relating to Administrative Hearings); or

(2) Government Code Chapter 2001, if a hearing is required under §53.7 of this title.

(b) Cooperation by Claimant Required. The claimant must comply with SML's instructions for facilitating payment of an approved claim. Among other things, the claimant must complete forms required to cause the claimant to be a valid payee for purposes of the Texas Comptroller of Public Accounts.

§ 53.9. Consequences for the Respondent.

(a) Administrative Penalty. If the Commissioner approves a claim, the Commissioner may impose an administrative penalty against the respondent for the violations of law giving rise to the claim.

(b) Grounds for Denial. Failure by the respondent to pay the administrative penalty constitutes grounds for denial of an application for a residential mortgage loan originator license under Finance Code Chapter 157.

§ 53.10. Unpaid Claims.

(a) No Liability. The recovery fund, Mortgage Grant Fund, the Commissioner, and SML are not liable to a claimant for a claim approved by the Commissioner if the funds in the recovery fund or Mortgage Grant Fund are insufficient to pay the claim.

(b) Payment of Unpaid Claims. If the recovery fund or Mortgage Grant Fund contains insufficient funds to pay a claim, SML will:

(1) record the date the claim was approved; and

(2) pay approved but unpaid claims for which a recordation was made under paragraph (1) of this subsection as funds in the recovery fund or Mortgage Grant Fund become available, in the order of the recorded date of such claims.

§ 53.11. Claims for Unlicensed Activity: Eligibility.

(a) Purpose. Finance Code §156.555(b) adopts by reference the eligibility and procedural requirements for making a claim on the recovery fund in accordance with Finance Code Chapter 156, Subchapter F. This section clarifies how certain requirements apply to a claim made against the Mortgage Grant Fund in accordance with Finance Code §156.555.

(b) Actions by an Unlicensed Individual Acting as an Originator. For a claimant to recover damages from the Mortgage Grant Fund, the respondent must have been acting or attempting to act in the capacity of a residential mortgage loan originator - actions for which a license under Finance Code Chapter 157 is required as provided by Finance Code §157.012 and §55.100 of this title (relating to Licensing Requirements).

(c) Fraudulent Acts. Recovery under Finance Code §156.555 is limited to acts of fraud committed by an individual who acted as a residential mortgage loan originator but did not hold the license required by Finance Code Chapter 157. Finance Code §156.501(b), applicable to claims made on the recovery fund, provides that recovery is limited to acts by a licensed residential mortgage loan originator that constitute a violation of specific, enumerated provisions of Finance Code §§157.024(a) and 156.304(b). As a result, to recover under Finance Code §156.555, a claimant must establish that the acts of the unlicensed individual would have constituted fraudulent dealings for purposes of Finance Code §157.024(a)(3), had he or she been licensed as a residential mortgage loan originator at the time of such acts.

§ 53.12. Recoverable Damages.

(a) Recoverable Damages. A claimant may only recover out-of-pocket monetary damages that reimburse the claimant for money they have actually lost (money losses). To be recoverable, the damages must be direct damages (also known as general damages) that are caused by and directly related to the respondent's actions and therefore conclusively presumed to have been foreseeable by the respondent as a usual and necessary consequence of the respondent's actions.

(1) Recoverable damages can include the following expenses typically incurred by a mortgage applicant in connection with a residential mortgage loan, if they are paid by the claimant:

(A) application fees;

(B) appraisal fees;

(D) origination fees;

(E) loan processing fees; and

(F) other fees for settlement services collected from the borrower when a residential mortgage loan is closed.

(2) Recoverable damages can include the following expenses typically incurred by a mortgage applicant in a real estate transaction directly related to a residential mortgage loan, if they are paid by the claimant:

(A) option fees;

(B) earnest money;

(D) home warranty fees.

(b) Damages Not Recoverable. A claimant may not recover consequential damages (also known as special damages), future damages, or noneconomic damages.

(1) Noneconomic damages that are not recoverable include, but are not limited to:

(A) compensation for physical pain and suffering;

(B) mental or emotional pain and anguish;

(D) disfigurement;

(E) physical impairment;

(F) loss of companionship and society;

(G) inconvenience;

(H) loss of enjoyment of life; and

(I) injury to reputation.

(2) The following damages are expenses that may be incurred by a mortgage applicant in connection with a real estate sales transaction related to a residential mortgage loan, but are deemed to be consequential damages that are not recoverable (list is not exhaustive):

(A) travel expenses paid in connection with the mortgage applicant shopping for real estate (e.g., fuel expenses, vehicle rental, airfare, and hotel fees);

(B) expenses related to terminating the mortgage applicant's preexisting housing arrangements (e.g., lease termination fees, cleaning fees, reletting fees, and lost security deposit);

(C) expenses paid in connection with the mortgage applicant relocating to their prospective housing arrangements (e.g., shipping fees, moving expenses, and storage fees);

(D) expenses paid in connection with securing replacement housing (e.g., rent, hotel fees, utility costs, and home furnishings); and

(E) daily living expenses (e.g., food, clothing, and personal care items).

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 27, 2025.

TRD-202501380

Iain A. Berry

General Counsel

Department of Savings and Mortgage Lending

Earliest possible date of adoption: June 8, 2025

For further information, please call: (512) 475-1535