|(a) Definitions. Words and terms used in this subchapter
that are defined in the Finance Code, §31.002, have the same
meanings as defined in the Finance Code. The following words and terms
when used in this subchapter shall have the following meanings unless
the context clearly indicates the contrary.
(1) Appraisal-A written report by a state certified
or licensed appraiser containing sufficient information to support
the state bank's evaluation of OREO taking into consideration market
value, analyzing appropriate deductions or discounts, and conforming
to generally accepted appraisal standards unless principles of safe
and sound banking require stricter standards.
(2) Appraiser-A state certified or licensed staff appraiser
or a state certified or licensed third party fee appraiser with relevant
and competent experience and background as related to a particular
(3) Bank facility-Real property, including improvements,
owned or leased to the extent of the lease by a state bank if the
real estate is held for the purposes set forth in the Finance Code, §34.001,
and is not disqualified under the Finance Code, §34.002(b). The
term also includes capitalized leasehold improvements if held for
the same purposes.
(4) Coterminous sublease-A lease with the same duration
as the remainder of the master lease.
(5) Evaluation-A written report prepared by an evaluator
describing the OREO and its condition, the source of information used
in the analysis, the actual analysis and supporting information and
the estimate of the OREO's market value, with any limiting conditions.
(6) Evaluator-An individual who has related real estate
training or experience and knowledge of the market relevant to the
OREO but who has no direct or indirect interest in the OREO. An appraiser
may be an evaluator.
(7) Generally accepted appraisal standards-The Uniform
Standards of Professional Appraisal Practice (USPAP) promulgated by
the Appraisal Standards Board, Appraisal Foundation, Washington, D.C.
(8) Market value-The most probable price which a property
should bring in a competitive and open market under all conditions
requisite to a fair sale, the buyer and seller each acting prudently
and knowledgeably, and assuming the price is not affected by undue
stimulus. Implicit in this definition is the consummation of a sale
as of a specified date and the passing of title from seller to buyer
under conditions whereby:
(A) buyer and seller are typically motivated;
(B) both parties are well informed or well advised,
and acting in what they consider their own best interests;
(C) a reasonable time is allowed for exposure in the
(D) payment is made in terms of cash in U.S. dollars
or in terms of financial arrangements comparable thereto; and
(E) the price represents the normal consideration for
the property sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale.
(9) Non-coterminous sublease-A lease with a duration
shorter than the remainder of the master lease.
(10) Other Real Estate Owned (OREO)-Real estate, including
improvements, mineral interests, surface, and subsurface rights, owned
in whole or in part or leased by a state bank, no matter how acquired,
which is not a bank facility as defined by paragraph (3) of this subsection
or leasehold property as permitted under the Finance Code, §34.204(a),
but excluding nonparticipating royalty interests classified as personal
property pursuant to Finance Code, §34.004.
(11) Staff appraiser-An appraiser on the staff of a
state bank who has no direct or indirect interest in the OREO.
(12) Third party fee appraiser-An appraiser who has
an independent contractor relationship with a state bank and has no
direct or indirect interest in the OREO.
(13) Year-For the purposes of this section, a calendar
(b) Prohibition on real estate ownership. A state bank
may not acquire or hold real estate except as specifically provided
under the Finance Code, §§34.001 - 34.003 and 34.204(a),
and this section.
(c) Acquisition of OREO. A state bank may acquire OREO
(1) purchase under judicial or nonjudicial foreclosure,
or through a deed in lieu of foreclosure, of real estate that is security
for a debt or debts previously contracted in good faith;
(2) purchase to protect its interest in a debt or debts
previously contracted if prudent and necessary to avoid or minimize
(3) purchase of an employee's principal residence to
facilitate a change of duty assignment or relocation upon employment;
(4) with prior written approval of the banking commissioner,
an exchange of OREO or personal property for real estate to avoid
or minimize loss on the real estate exchanged or to facilitate the
disposition of OREO;
(5) with prior written approval of the banking commissioner,
purchase of additional real estate to avoid or minimize loss on OREO
(6) involuntary acquisition of an ownership interest
or leasehold interest in real estate as a result of or incidental
to a judicial or nonjudicial foreclosure, or by adverse possession,
or by operation of law without any action on the part of the state
bank to obtain such interest; or
(7) loss of designation of real estate owned or leased
by the state bank as a bank facility.
(d) Appraisal requirements.
(1) Subject to paragraph (2) of this subsection, when
OREO is acquired, a state bank must substantiate the market value
of the OREO by obtaining an appraisal within 90 days of the date of
acquisition, unless extended by the banking commissioner. An evaluation
may be substituted for an appraisal if the recorded book value of
the OREO is $500,000 or less.
(2) An additional appraisal or evaluation is not required
when a state bank acquires OREO if a valid appraisal or appropriate
evaluation was made in connection with the real estate loan that financed
the acquisition of the OREO and the appraisal or evaluation is less
than one year old.
(3) An evaluation shall be made on all OREO at least
once a year. An appraisal shall be made at least once every three
years, unless extended by the banking commissioner, on OREO with a
recorded book value in excess of $500,000.
(4) Notwithstanding another provision of this section,
the banking commissioner may require an appraisal of OREO if the banking
commissioner considers an appraisal necessary to address safety and
(e) Additional expenditures on OREO. A state bank may
re-fit OREO for new tenants or make normal repairs and incur routine
maintenance costs to preserve or protect the value of the OREO or
to render the OREO in saleable condition without prior notification
to or approval by the banking commissioner. Other advances or additional
expenditures on OREO must have the prior written approval of the banking
commissioner, and must not be:
(1) made for the purpose of speculation in real estate;
(2) made for the purpose of changing or altering the
current status or intended use of the OREO; and
(3) inconsistent with safe and sound banking practices.
(f) Holding period.
(1) A state bank must dispose of OREO no later than
five years after the date it was acquired, ceases to be used as a
bank facility, or ceases to be a bank facility as provided by Finance
Code, §34.002(b), unless an extension of time for disposing of
the real estate is granted in writing by the banking commissioner
pursuant to Finance Code, §34.003(d).
(2) The holding period commences on the date that:
(A) ownership is acquired by the state bank pursuant
to subsection (c)(1) - (5) of this section;
(B) OREO is acquired by a state bank through merger/consolidation,
conversion or purchase and assumption;
(C) the bank first learns of its ownership interest
in real estate which has devolved to the bank by operation of law
under subsection (c)(6) of this section;
(D) the bank ceases to use a former bank facility or
completes its relocation from a former bank facility to a new bank
(E) is three years following the acquisition of real
estate as a bank facility for future expansion or relocation of the
bank if the real estate has not been occupied by the bank, unless
the banking commissioner has granted written approval to a further
delay in the improvement and occupation of the real estate.
(3) The banking commissioner may grant one or more
additional extensions of time for disposing of OREO if the banking
commissioner finds that the state bank has made a good faith effort
to dispose of the OREO or that disposal of the OREO would be detrimental
to the safety and soundness of the state bank.
(g) Disposition Efforts; Documentation. A state bank
must make diligent and ongoing efforts to dispose of OREO and must
maintain documentation adequate to reflect those efforts. Such documentation
must be available for inspection by the banking commissioner.
(h) Disposition of OREO. A state bank may dispose of
(1) selling the OREO in a transaction that qualifies
as a sale under regulatory accounting principles;
(2) selling the OREO pursuant to a land contract or
contract for deed;
(3) retaining the OREO for its own use as a bank facility,
subject to the approval of the banking commissioner, including residential
OREO retained for the purpose of providing temporary housing for employees
(A) the bank has two or more locations of sufficient
distance that overnight travel is required in connection with business
at either location; and
(B) the board has certified that the cost of purchasing
and maintaining the property is reasonable in comparison to other
options for temporarily housing employees;
(4) transferring the OREO to a majority-owned subsidiary
in compliance with 12 C.F.R. §362.4(b)(5)(i);
(5) transferring the OREO for market value to an affiliate,
subject to the Finance Code, §33.109, and applicable federal
law, including 12 U.S.C. §§371c, 371c - 1, and 1828(j);
(6) if the OREO is a master lease, obtaining a coterminous
sublease or an assignment of a coterminous sublease, provided that
if the bank acquires or obtains assignment of a non-coterminous sublease,
the holding period during which the master lease must be divested
is suspended for the duration of the sublease and will commence running
again upon termination of the sublease; or
(7) entering into a transaction that does not qualify
for disposal under paragraphs (1) - (5) of this section; provided
that its obligation to dispose of the OREO is not met until the bank
receives or accumulates from the purchaser an amount in cash, principal
and interest payments, and private mortgage insurance totaling 10%
of the sales price, as measured in accordance with regulatory accounting
(i) Accounting for OREO. Investment in OREO, and disposition
of OREO, must be accounted for in accordance with regulatory accounting
|Source Note: The provisions of this §12.91 adopted to be effective March 1, 1996, 21 TexReg 1527; amended to be effective November 13, 1997, 22 TexReg 10954; amended to be effective July 10, 2003, 28 TexReg 5149; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective November 7, 2013, 38 TexReg 7687; amended to be effective January 5, 2017, 41 TexReg 10562; amended to be effective September 10, 2020, 45 TexReg 6228