|(a) Definitions. Words and terms used in this subchapter
that are defined in Finance Code, §181.001
et seq. have the same meanings as defined therein. 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 trust company's evaluation of OREO taking into consideration market
value, analyzing appropriate deductions or discounts, and conforming
to generally accepted appraisal standards, unless principles of safety
and soundness applicable to trust companies 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 appraisal assignment.
(3) Coterminous sublease--A lease with the same duration
as the remainder of the master lease.
(4) 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.
(5) 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.
(6) Generally accepted appraisal standards--The Uniform
Standards of Professional Appraisal Practice (USPAP) promulgated by
the Appraisal Standards Board, Appraisal Foundation, Washington, D.C.
(7) 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.
(8) Non-coterminous sublease--A lease with a duration
shorter than the remainder of the master lease.
(9) 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 trust company, no matter how acquired,
which is not a trust company facility as defined by paragraph (3)
of this subsection or leasehold property as permitted under Finance
(10) Staff appraiser--An appraiser on the staff of
a trust company who has no direct or indirect interest in the OREO.
(11) Third party fee appraiser--An appraiser who has
an independent contractor relationship with a trust company and has
no direct or indirect interest in the OREO.
(12) Trust company facility--Real property, including
improvements, owned or leased, to the extent the lease or the leasehold
improvements are capitalized, by a trust company if the real estate
is held for the purposes set forth in Finance Code, §184.001,
and is not disqualified under Finance Code, §184.002(b). The
term also includes capitalized leasehold improvements if held for
the same purposes.
(13) Year--For the purposes of this section, a calendar
(b) Prohibition on real estate ownership. A trust company
may not acquire or hold real estate except as specifically provided
under Finance Code, §§184.001-184.003 and 184.203, and this
(c) Acquisition of OREO with restricted capital. A
trust company may hold OREO purchased with the restricted capital
of the trust company only if acquired:
(1) by 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) by purchase to protect its interest in a debt or
debts previously contracted if prudent and necessary to avoid or minimize
(3) with prior written approval of the banking commissioner,
by 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;
(4) with prior written approval of the banking commissioner,
by purchase of additional real estate to avoid or minimize loss on
OREO currently held;
(5) by 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 trust
company to obtain such interest; or
(6) by loss of designation of real estate owned or
leased by the trust company as a trust company facility.
(d) Acquisition of OREO with secondary capital. A trust
company may hold OREO purchased with the secondary capital of the
trust company, subject to the exercise of prudent judgment using the
factors set forth in Finance Code, §184.101(f).
(e) Appraisal requirements. Paragraphs (1) - (3) of
this subsection apply to OREO acquired with the restricted capital
of the trust company.
(1) Subject to paragraph (2) of this subsection, when
OREO is acquired, a trust company 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 trust company acquires OREO if a valid appraisal or appropriate
evaluation was made in connection with a 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
(f) Additional expenditures on OREO. A trust company
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 acquired with the restricted capital of the trust
company 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; or
(3) inconsistent with principles of safety and soundness
applicable to trust companies.
(g) Holding period.
(1) A trust company must dispose of OREO acquired with
the restricted capital of the trust company no later than five years
after it was acquired or ceases to be used as a trust company facility,
unless an extension of time for disposing of the real estate is granted
in writing by the banking commissioner pursuant to Finance Code, §184.003(d).
(2) The holding period commences on the date that:
(A) ownership is acquired by the trust company pursuant
to subsection (c)(1) - (5) of this section;
(B) OREO is acquired by the trust company through merger/consolidation,
conversion, or purchase and assumption;
(C) the trust company first learns of its ownership
interest in real estate which has devolved to the trust company by
operation of law under subsection (c)(6) of this section;
(D) the trust company ceases to use a former trust
company facility or completes its relocation from a former trust company
facility to a new trust company facility; or
(E) is three years following the acquisition of real
estate as a trust company facility for future expansion or relocation
of the trust company if the real estate has not been occupied by the
trust company, unless the banking commissioner has granted written
approval to a further delay in the improvement and occupation of the
(3) The banking commissioner may grant one or more
additional extensions of time for disposing of OREO acquired with
the restricted capital of the trust company if the commissioner finds
that the trust company 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 trust company.
(h) Disposition efforts; documentation. A trust company
must make diligent and ongoing efforts to dispose of OREO acquired
with the restricted capital of the trust company and must maintain
documentation adequate to reflect those efforts. Such documentation
must be available for inspection by the commissioner. If secondary
capital is adequate to reclassify OREO in a manner that does not impinge
on restricted capital, this disposition requirement does not apply.
(i) Disposition of OREO. A trust company may dispose
of OREO by:
(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 property for its own use as a trust
company facility, subject to the approval of the commissioner;
(4) transferring the OREO for market value to an affiliate,
subject to Finance Code, §183.109, and applicable federal law,
including 12 United States Code, §§371c, 371c-1, and 1828(j);
(5) if the OREO is a master lease, obtaining a coterminous
sublease or an assignment of a coterminous sublease, provided that
if the trust company 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
(6) entering into a transaction that does not qualify
for disposal under paragraphs (1) - (5) of this subsection; provided
that its obligation to dispose of the OREO is not met until the trust
company 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
(j) Accounting for investments in facilities and OREO.
A state trust company shall comply with regulatory accounting principles
in accounting for its:
(1) investment in and depreciation of facilities, furniture,
fixtures, and equipment; and
(2) investment in OREO and disposition of OREO.