Texas Attorney General Revises Proposed Foreign Ownership Rules: What They Would Mean for Mortgage Lenders
By Peter Idziak, Partner-in-Charge, Sandler Law Group
On March 27, 2026, the Texas Office of the Attorney General (OAG) proposed rules to enforce Senate Bill 17 (SB 17), which limits certain foreign persons and entities from acquiring interests in Texas real property. The March proposal names mortgage lenders as “facilitating entities” and would require them to report suspected violations. On October 9, 2026, OAG published a revised version of that proposal. The October revision keeps most of the March framework, including its broad scope and reporting duty, and adds a new due-diligence safe harbor. Neither version has been adopted. If adopted, the rules would apply directly to mortgage lenders.
This memo compares the original proposal published March 27, 2026 with the revised proposal published October 9, 2026. It first covers what the October revision changes, then what it carries over from the March proposal. SB 17 took effect September 1, 2025, and is codified in Subchapter H of Chapter 5 of the Texas Property Code. The proposed rules would carry out that subchapter.
Key points for mortgage lenders
Safe harbor (new in October): A lender that conducts know-your-customer (KYC) diligence under a recognized regulatory or industry standard and finds no violation would not be treated as having known of one.
Older ownership (new in October): Reporting ownership acquired before September 1, 2025, would be voluntary.
Reporting duty (carried over from March): A lender that knows or should have known of a violation would be required to file a complaint with OAG.
No reliance on others (carried over from March): A lender could not satisfy its own duty through the title company’s or closing agent’s review.
What the October revision changes
A new safe harbor would give lenders a clearer compliance path.
New §67.4(g) would protect a facilitating entity, such as a mortgage lender, that conducts know-your-customer due diligence consistent with either (1) guidelines issued by an applicable regulatory body or (2) standards adopted in good faith by a recognized industry group, including an official trade association or professional organization. If that diligence does not uncover a violation, the lender would not be deemed to have “known or should have known” of a violation. The March proposal contained no comparable express protection.
The March proposal did not explain what reasonable due diligence requires; the safe harbor would let lenders anchor their procedures to an outside standard. Protection would not be automatic: a lender would need to meet the rule’s conditions. The safe harbor also would not excuse a violation the lender actually discovers or permit an otherwise prohibited purchase.
The October revision does not name approved guidelines, explain which industry groups qualify, or list the documents a lender would need to obtain. Nor does it say whether a borrower certification, an existing KYC program, or an internal policy alone would be enough. To rely on the safe harbor, a lender would need to follow an identified regulatory or industry standard and be able to show how its procedures meet it.
The October revision adds voluntary reporting of older ownership and planning for a public portal.
New §67.6 would allow any person, including a lender, to voluntarily report property acquired before September 1, 2025, by an individual or entity meeting the statutory definitions. Such a report would not, by itself, indicate a violation, and the provision would not require lenders to review or report on their existing loan portfolios.
New §67.10 would allow OAG to plan a public property-search portal, which could operate like other statewide registries, including the Texas sex-offender registry. The text authorizes only planning; it would not create a registry or require lenders to search one. The October revision does not address listing criteria, error correction, or how voluntary reports on older acquisitions would be treated. These details matter because a listing could delay a closing or cloud a later sale or refinance, even without an adjudicated violation.
Other October revisions would expand the enforcement framework.
Revised §67.3 would require the enforcement unit proposed in March to maintain a task force and would add planning and compliance functions. Revised §67.4(b) and new §67.5 emphasize that any person may complain, as the March proposal already allowed. The interagency provision, now §67.8, adds the Texas Department of Agriculture and makes consultation discretionary rather than mandatory. These changes do not appear to add new duties for lenders.
What carries over from the March proposal
The March reporting obligation would remain.
As in March, §67.4(a) would require a facilitating entity to submit a complaint if it knows or should have known, after reasonable due diligence, that an acquisition violates Subchapter H. Under §67.4(e), OAG could refer an entity that fails to report to its licensing or professional disciplinary authority. The definition of facilitating entity remains as broad as in March and expressly includes mortgage lenders, title insurers, property insurers, appraisers, and licensed real estate professionals.
The October revision would still cover post-closing transfers or assignments used to carry out or hide a prohibited acquisition, including transfers to affiliates, parents, subsidiaries, or entities under common control. A lender’s review would therefore need to account for what it knows about the planned transaction and later transfers, not only the borrower named at closing.
There is still no waterfall: lenders could not rely on the title company.
Like the March proposal, the October revision does not create a “waterfall” that makes one party primarily responsible, and it does not expressly allow a lender to satisfy its own duty by relying on the review or filing of the title company, closing agent, attorney, or another party. Each facilitating entity seeking the new safe harbor would need to meet its conditions on its own. A title company’s involvement or another party’s borrower affidavit would not, by itself, satisfy a lender’s duties.
The broad March ownership and transaction definitions would remain.
The definition of control continues to include general partners, managing members, executive officers, shareholders holding at least 10 percent of voting interests, and persons with certain present or future rights to acquire or dispose of an entity’s Texas real property. The 10 percent threshold is part of the definition of control, not a separate ban on every entity with 10 percent foreign ownership. For entity borrowers, a lender’s review would extend beyond the borrower to these control persons.
As in March, obtaining control of an entity that owns Texas real property would be an acquisition, even if the entity bought the property before September 1, 2025. This could affect refinances and other loans to entity borrowers whose ownership has changed. Successive short-term leases, licenses, or other arrangements that in substance create a leasehold of at least one year would also remain covered.
The March proposal’s seven-calendar-day response period for OAG investigative demands and Secretary of State interrogatories, with exceptions for urgent circumstances and extensions for good cause, is unchanged, as are its confidentiality provisions. The chapter still states that it applies only to acquisitions on or after September 1, 2025; how that limit would interact with the new voluntary reporting provision is unclear.
Comments on the October revision are open.
The notice allows comments for 30 days after its publication on October 9, 2026. Email written comments to OAGRuleCommentsCh67@oag.texas.gov or mail them to General Counsel Division, Attn: Rule Comments, Office of the Attorney General, P.O. Box 12548, Austin, Texas 78711-2548. Requests for a public hearing are due before the comment period ends.
Please contact Peter Idziak, Partner-in-Charge, Sandler Law Group, with questions about the proposal.
