Enrolled Bill Summary

            Senate Joint Resolution 42 proposes a constitutional amendment to allow a lender to issue a home equity line of credit to a homeowner that authorizes the borrower to request an advance from time to time to make purchases or to repay debt. The amount of advances outstanding at any time may not exceed 50 percent of the fair market value of the home as determined on the date the line of credit is established, and when added to any other debt secured by the home may not exceed 80 percent of the home's fair market value, as provided by existing laws relating to home equity loans. No single advance can be less than $4,000, and the borrower cannot use a credit card, debit card, preprinted solicitation check, or similar device to obtain an advance. The amendment allows the borrower to repay the advance in regular periodic installments not more often than every 14 days and not less often than monthly, beginning no later than two months after the extension of credit is established.

            The amendment authorizes a lender to collect fees on a line of credit only at the time it is established and prohibits the lender from charging or collecting fees in connection with a debit or advance or from amending the extension of credit unilaterally. The amendment requires the written notice a lender must provide a borrower 12 days before closing to include information that describes the borrower's rights regarding a home equity line of credit and adds a statement to the notice declaring that the notice is only a summary of the homeowner’s rights under the Texas Constitution. The amendment requires the closing for a home equity line of credit to occur no sooner than one business day after the date the borrower receives a final itemized disclosure of the actual fees, points, interest, and other closing costs. The amendment authorizes the lender, in the event of an emergency or other good cause and with the written consent of the owner, to provide such documentation to the borrower or to modify the previously provided documentation on the date of closing.

            Senate Joint Resolution 42 requires the lender to forfeit all principal and interest if the lender fails to comply with legal obligations regarding the issuance of a home equity loan, unless the lender cures the noncompliance not later than 60 days after being notified of such noncompliance by: (1) refunding any overcharged amount; (2) sending the borrower a written notice of the lender's failure to comply and acknowledging the lien's proper scope; (3) adjusting the borrower's account to ensure there is no overcharge; (4) delivering required documents and obtaining appropriate signatures; (5) sending the borrower an acknowledgment that the accrual of interest and all obligations under the loan are abated while any prior lien remains secured by the homestead; or (6) if the failure to comply cannot be cured by any of the above means, crediting the borrower $1,000 and offering the borrower the right to refinance at no cost on the same terms, with modifications to correct the noncompliance. The amendment also requires the lender or any holder of the note to forfeit all principal and interest if the extension of credit was made by an unauthorized person or if it was not created under a written agreement with the consent of each owner and each owner’s spouse, unless such individuals subsequently consented. The amendment permits a home equity line of credit to be refinanced before the first anniversary of its closing date in order to satisfy the lender’s ability to cure a defect in the loan.

            Senate Joint Resolution 42 allows a homeowner to refinance a home equity loan with a reverse mortgage. It adds a person regulated by this state as a mortgage broker to the list of persons who are permitted to make such loans, and permits the loan to be secured by a manufactured home that has been converted to real property. It makes a home equity loan, like a home equity line of credit, payable in substantially equal periodic installments not more than every 14 days and not less often than monthly. 

            Senate Joint Resolution 42 authorizes the legislature to delegate to one or more state agencies the power to interpret certain constitutional provisions relating to home equity lending and provides that an act or omission does not violate these provisions if it conforms to an interpretation that is in effect at the time the act or omission occurs and if it is made by a state agency to which the power of interpretation has been delegated or by a Texas or federal appellate court.