It is an odd year. That is, 2025 is an “odd” year in the calendar. And if it’s an odd year it’s time for the new Texas legislators of the 89th legislative session to convene and put forth their proposed bills hoping they will eventually become law. Most bills are meant to amend or supplement already existing Texas laws, but there are some which are novel in their scope.
Proposed bills: HB 191, HB 402, HB 518
THE ISSUE
One of the national trends our firm is monitoring are the proposed restrictions on foreign purchase of real and personal property and farmland in the U.S. State governments have been alarmed at the growing rate of foreign purchase of real property and farmland in their respective States. Whether or not these purchases have some nefarious intent, many state legislatures have taken notice including Texas.
THE PROPOSED SOLUTION
Various House bills have been introduced into this year’s session focusing on restricting the purchase of real property and farmland by foreign entities and persons.
In general, these bills mean to bring clarity to the definition of “Real Property” to include; land, improvements, mines or quarries, a mineral in place, standing timber excepting (i) a mortgage or deed of trust creating a lien on or an interest securing payment or performance of an obligation in property described as “Real Property” or (ii) a leasehold estate in land or an improvement for a term of five or fewer years.
These potential laws define foreign entities as those entities that are more than 50% controlled by a “Designated Country”. Designated Country is identified by the US Director of National Intelligence as a country that poses a risk to the national security of the U.S. in each of the 3 most recent Annual Threat Assessments of the U.S. Intelligence Community. They also prohibit the acquisition of real property by a governmental entity of a Designated Country, an organization headquartered in a Designated Country or directly or indirectly under the control of a Designated Country. Currently, the United States Department of Homeland Security (DHS) lists China, Russia, and Iran as Designated Countries.
Other proposed legislation moves to modify the Civil Practice and Remedies Code to give the Texas State Attorney General the ability to prosecute any foreign entity or alien who falls under the above definition and disgorge them of their unlawful purchase. Under the current version of this proposed legislation, the legal action by the Texas Attorney General does not invalidate the lender’s lien.
WHAT IT MEANS FOR LENDERS
These bills have only been introduced in the 89th Session of the Texas Legislature and have yet to become law, but it is undeniable these bills will have great momentum and may eventually find their way to Governor Abbott’s desk and become law. We here at Opper & Gambrell will keep you abreast of any progress or updates and will advise should a version of these bills make their way into law.
Should any of these bills become law then lending institutions will have to step up their background checks on potential Borrowers who may fall under the definition of a foreign “entity” or foreign ”alien”. More careful scrutiny on the “front end” can lead to less or no involvement in possible litigation brought by the state to disgorge the property.
It may also necessitate lender’s hiring counsel and involving itself in the litigation so it can ensure protection of its lien interests. With regard to a leasehold estate in land or an improvement for a term of five or more years, Lenders must consider and possibly reevaluate their debt service coverage ratios applicable to commercial holdings.
FOR MORE INFORMATION
Should you want to peruse the actual bills themselves to get a more detailed understanding you can visit the Texas Legislature Online (TLO) at www.capitol.texas.gov
Thomas D. Pruyn
Attorney-at-Law
Opper & Gambrell, P.L.L.C.
8582 Katy Freeway, Suite 200
Houston, Texas 77024
713-468-6111
tpruyn@opper-gambrell.com