USA – TEXAS Law and Practice Contributed by: Taylor Cooksey, David Brooks, Serena Kramer and Philip Kinkaid, Cokinos | Young
least 25 days before the sale; otherwise, the tax lien will not be extinguished by the foreclosure. 3.7 Subordinating Existing Debt to Newly Created Debt It is possible for existing secured debt to become sub - ordinated to newly created debt by agreement. Sub - ordination agreements will cause an existing lender to become lower in lien priority and repayment. This can occur in situations where a borrower is seeking additional financing or is restructuring its debt to raise additional financing. New lenders may require existing debt to be subor - dinated to their loan before they will extend credit. The existing (subordinated) lenders must agree to any subordination before the newly created debt will have priority. A subordinated lender may seek to negotiate a loan modification or other concession from its bor - rower in return for its agreeing to a lower priority. 3.8 Lenders’ Liability Under Environmental Laws The Comprehensive Environmental Response, Com - pensation, and Liability Act (CERCLA) imposes broad liability on owners and operators of facilities where hazardous substances were released or disposed of. It includes a secured creditor exemption that pro - tects lenders from owner/operator liability if they hold ownership in a CERCLA facility primarily to protect their security interest, and they do not “participate in the management of the facility”, meaning that their actions are limited to those of a typical lender, such as inspecting the property, providing financial advice or monitoring the borrower’s financial condition. The lender is barred from assuming responsibility for haz - ardous substance handling or disposal practice and from exercising control at a level similar to that of a manager of the facility. Texas has enacted similar state-level exemptions for secured creditors. 3.9 Effects of a Borrower Becoming Insolvent In Texas, a lender’s lien or security interest is still valid even if the borrower becomes insolvent. A borrower’s bankruptcy is typically an automatic event of default under a deed of trust, resulting in immediate accelera - tion of the debt (ie, foreclosing). However, this type of provision is unenforceable under the Bankruptcy
Code as a so-called “ipso facto” clause. A borrower’s bankruptcy will trigger the Bankruptcy Code’s auto - matic stay, which prevents the lender from either fore - closing on the property or exercising other remedies against the borrower. The lender may nevertheless be able to seek from the bankruptcy court relief from the automatic stay to enforce its lien or security interest. 3.10 Taxes on Loans Texas does not impose a mortgage tax or a documen - tary transfer tax in connection with mortgage loans or mezzanine loans related to real estate, including the granting or enforcement of liens and security interests. Nominal recording fees that vary from county to coun - ty apply to the recordation of security instruments. Planning and zoning controls in Texas are decen - tralised, with municipalities having the most author - ity through zoning ordinances and subdivision rules, while counties play a narrower role focused on devel - opment standards. State law provides the enabling framework. The Texas Local Government Code grants cities the power to regulate land use, building heights, lot sizes and population density through zoning ordinances. Municipal ordinances govern subdivision planning and development standards within a city’s jurisdic - tion, including its extraterritorial jurisdiction. The Texas Property Code regulates property owners’ associa - tions, which can impose additional restrictions beyond municipal zoning, but those are private agreements rather than governmental controls. 4. Planning and Zoning 4.1 Planning and Zoning Framework Texas does not impose a uniform zoning code. The City of Houston does not have zoning per se, but is largely regulated by private restrictions and municipal ordinances governing subdivision planning and non- zoning land use restrictions. Counties in Texas have a limited zoning power compared to municipalities, focusing on subdivision rules rather than zoning. State agencies like the Texas Commission on Environmen - tal Quality impose additional requirements, such as
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