By: Danburg H.B. No. 579
73R1235 LJD-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to mortgage loans and to encumbrances on homestead
1-3 property.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 41.001(b), Property Code, is amended to
1-6 read as follows:
1-7 (b) Encumbrances may be properly fixed on homestead property
1-8 for:
1-9 (1) purchase money;
1-10 (2) taxes on the property; <or>
1-11 (3) work and material used in constructing
1-12 improvements on the property if contracted for in writing before
1-13 the material is furnished or the labor is performed and in a manner
1-14 required for the conveyance of a homestead, with joinder of both
1-15 spouses if the homestead claimant is married; or
1-16 (4) a debt that is a home equity loan as provided by
1-17 Chapter 5A, Title 79, Revised Statutes, unless the owners have on
1-18 file an unrevoked affidavit as provided by Article 5A.08 of that
1-19 chapter.
1-20 SECTION 2. Title 79, Revised Statutes (Article 5069-1.01 et
1-21 seq., Vernon's Texas Civil Statutes), is amended by adding Chapter
1-22 5A to read as follows:
1-23 CHAPTER 5A. HOME EQUITY LOANS
1-24 Art. 5A.01. HOME EQUITY LOAN DEFINED; USE; OTHER LOANS
2-1 INCLUDED. (1) In this chapter, "home equity loan" means a loan or
2-2 other written agreement extending credit for any purpose, including
2-3 a contract for an open-end account, made under this chapter to any
2-4 person, that is secured in whole or in part by any lien on or other
2-5 interest in a homestead created by a mortgage, deed of trust, or
2-6 other document.
2-7 (2) The proceeds of a home equity loan may be used for any
2-8 purpose.
2-9 (3) A loan made for the payment or refinancing of all or
2-10 part of the purchase money of a homestead or for work and material
2-11 used in constructing improvements on a homestead may be made under
2-12 this chapter, but the loan is not considered a home equity loan and
2-13 is not subject to this chapter unless the parties elect in the loan
2-14 documents to be governed by this chapter.
2-15 Art. 5A.02. APPLICABILITY OF CHAPTER. (1) Only the
2-16 following persons may engage in the business of making,
2-17 negotiating, or arranging home equity loans:
2-18 (A) a bank, savings and loan association, or credit
2-19 union, doing business under the laws of this state or the United
2-20 States;
2-21 (B) a person licensed under Chapter 3 of this title
2-22 (Article 5069-3.01 et seq., Vernon's Texas Civil Statutes); or
2-23 (C) a lender approved by the U.S. Department of
2-24 Housing and Urban Development.
2-25 (2) Home equity loans may be made in addition to any loans
2-26 otherwise authorized for those lenders.
2-27 (3) Notwithstanding any other law of this state, a person
3-1 making, negotiating, or arranging a home equity loan under this
3-2 chapter is required to comply only with the requirements of this
3-3 chapter, any nonconflicting requirements of any law relied on as
3-4 authority for the rate or amount of interest provided for in the
3-5 loan, and the requirements of applicable federal law.
3-6 Art. 5A.03. LOAN REQUIREMENTS. (1) A home equity loan,
3-7 other than a reverse annuity mortgage or other annuity agreement,
3-8 may provide for funding to or for the benefit of the borrower in
3-9 one or more advances at a frequency and for a term as agreed by the
3-10 parties. Advances to the borrower or to others under a reverse
3-11 annuity mortgage or other annuity agreement may be made at a
3-12 frequency and in amounts as agreed by the parties if the reverse
3-13 annuity or other annuity is for the life of at least one of the
3-14 borrowers. A home equity loan may provide for repayment in one or
3-15 more payments on the payment schedule and in the amounts agreed on
3-16 by the parties.
3-17 (2) A home equity loan may be made only if, at the time the
3-18 loan is executed by the borrower, the principal amount of the loan,
3-19 when added to all outstanding indebtedness secured by the
3-20 homestead, does not exceed 80 percent of the appraised value of the
3-21 homestead.
3-22 (3) In determining the outstanding indebtedness under
3-23 Section (2) of this article, unearned interest, however
3-24 denominated, shall be excluded. For the purpose of establishing
3-25 the appraised value of the property, the lender shall use the most
3-26 recent appraisal as rendered by the tax appraisal district of the
3-27 county in which the property is located or an appraisal made by an
4-1 appraiser who is a member of either the Appraisal Institute or the
4-2 Society of Real Estate Appraisers or by a person who has been
4-3 approved for this purpose by the regulatory authority regulating
4-4 the lender. An appraisal made in accordance with this chapter may
4-5 be relied on by the lender.
4-6 (4) A lender may not accelerate the payment schedule of a
4-7 home equity loan or demand payment in full of the loan solely
4-8 because of a decrease in the market value of the property securing
4-9 the loan.
4-10 (5) Additional collateral may not be required on a home
4-11 equity loan except for personal property affixed to the homestead
4-12 in a manner that would classify the property as a fixture. This
4-13 section does not prohibit or limit any statutory or common law lien
4-14 or right of offset. This section does not prevent a lender from
4-15 requiring insurance as additional protection and security for a
4-16 loan if the insurance is authorized by this chapter. Proceeds of a
4-17 sale of the homestead or its fixtures or proceeds of insurance
4-18 covering the property are not considered additional collateral and
4-19 may be included as part of the security for the loan.
4-20 (6) The lender shall provide to a borrower in the note or
4-21 other loan documents at the time the borrower executes a home
4-22 equity loan a notice in 10-point boldfaced type as follows:
4-23 "YOU ARE PLEDGING YOUR HOME AS COLLATERAL TO SECURE THE
4-24 PAYMENT OF A LOAN. IN THE EVENT OF NONPAYMENT OR
4-25 FAILURE TO PERFORM THE TERMS OF THE LOAN CONTRACT, THE
4-26 LENDER HAS THE RIGHT TO FORECLOSE ON YOUR HOME AND SELL
4-27 IT TO SATISFY PAYMENT OF THE LOAN."
5-1 (7) The lender may not advance the proceeds of a home equity
5-2 loan until the expiration of three business days after the date the
5-3 loan is executed by the borrower. The borrower is entitled to
5-4 rescind the home equity loan by giving written notice to the lender
5-5 before the expiration of that three-day period.
5-6 (8) A home equity loan made under this chapter may not be
5-7 closed at the residence of the borrower, and all such loans must be
5-8 closed at an office of the lender, a title company, a title search
5-9 company, or an attorney licensed to practice law in this state.
5-10 Art. 5A.04. INTEREST, CHARGES, AND FEES. (1) A lender may
5-11 contract for and receive on a home equity loan any fixed or
5-12 variable rate of interest that does not exceed any rate of interest
5-13 authorized under Article 1.04 of this title (Article 5069-1.04,
5-14 Vernon's Texas Civil Statutes) or any other statute authorizing the
5-15 lender to charge a rate of interest. The interest contracted for,
5-16 charged, or received shall be accrued and earned by applying the
5-17 simple annual interest rate under the loan contract to the
5-18 principal balance, including additions to principal subsequent to
5-19 the loan contract, from time to time unpaid until the date of
5-20 payment in full.
5-21 (2) A lender may charge the following fees or charges in
5-22 connection with a home equity loan if collected on or before
5-23 closing or included in the principal of the loan:
5-24 (A) reasonable fees for title examination and
5-25 preparation of an abstract of title by an attorney who is not a
5-26 salaried employee of the lender or by a title company or property
5-27 search company authorized to do business in this state, or premiums
6-1 or fees for title insurance or title search for the benefit of the
6-2 mortgagee and, at the mortgagor's option, title insurance or title
6-3 search for the benefit of the mortgagor;
6-4 (B) reasonable fees charged to the lender by an
6-5 attorney who is not a salaried employee of the lender for
6-6 preparation of the loan documents in connection with the home
6-7 equity loan if the fees are evidenced by a statement for services
6-8 rendered that is addressed to the lender;
6-9 (C) charges prescribed by law that are or will be paid
6-10 to public officials for determining the existence of, and for
6-11 perfecting, releasing, and satisfying, liens or security interests;
6-12 (D) reasonable fees for an appraisal of real property
6-13 offered as security for the loan prepared by an appraiser described
6-14 by Article 5A.03(3) of this title;
6-15 (E) the reasonable cost of any credit report and a
6-16 loan application fee;
6-17 (F) reasonable fees for a survey of real property
6-18 offered as security for the loan prepared by a registered surveyor
6-19 who is not a salaried employee of the lender;
6-20 (G) a loan origination fee;
6-21 (H) prepaid interest in the form of discount or other
6-22 points; and
6-23 (I) premiums in connection with the sale of credit
6-24 life insurance and credit health and accident insurance, the
6-25 benefits of which go in whole or in part to reduce or extinguish
6-26 the loan balance.
6-27 (3) Premiums for property insurance written in accordance
7-1 with Article 5A.05 of this title may be added to the loan contract.
7-2 (4) In addition, the contract for a home equity loan may
7-3 provide for:
7-4 (A) reasonable fees or charges paid to the trustee in
7-5 connection with a deed of trust or similar instrument executed in
7-6 connection with the home equity loan, including fees for enforcing
7-7 the lien, posting for sale, selling, or releasing the property
7-8 secured by the deed of trust;
7-9 (B) reasonable fees paid to an attorney who is not a
7-10 salaried employee of the lender in the collection of a delinquent
7-11 home equity loan and any court costs and fees incurred in the
7-12 collection of or foreclosure of any lien created by the loan;
7-13 (C) a fee of $15 or less for the return by a
7-14 depository institution of a dishonored check, negotiable order of
7-15 withdrawal, share draft, or deposit draft offered in full or
7-16 partial payment of a home equity loan; and
7-17 (D) if contracted for, a penalty or late charge if any
7-18 scheduled payment continues unpaid for 10 days or more following
7-19 the date the payment is due.
7-20 (5) Only one penalty or late charge authorized by Section
7-21 (4)(D) of this article may be charged for each past due scheduled
7-22 payment. The penalty or late charge may not exceed five percent of
7-23 the scheduled payment. The penalty or late charge is not interest
7-24 under any law that defines interest or limits the rate of interest
7-25 that may be charged, and it may be charged and collected in
7-26 addition to the interest authorized by law.
7-27 Art. 5A.05. INSURANCE. On any home equity loan, a lender
8-1 may request or require a borrower to provide insurance in the same
8-2 amounts and under the same conditions as may apply to secondary
8-3 mortgage loans as provided by Articles 5.02 and 5.03 of this title
8-4 (Articles 5069-5.02 and 5069-5.03, Vernon's Texas Civil Statutes).
8-5 Art. 5A.06. LENDER'S DUTY TO BORROWER. (1) On any home
8-6 equity loan, the lender shall deliver to the borrower, or to one of
8-7 the borrowers if more than one, a copy of the note and all other
8-8 documents signed by the borrower and a written statement in English
8-9 showing the following information:
8-10 (A) the names and addresses of the borrower and of the
8-11 lender; and
8-12 (B) the types of insurance, if any, for which a charge
8-13 is included in the loan agreement and the charge to the borrower
8-14 for the insurance.
8-15 (2) If the note or other loan documents show the information
8-16 required by Section (1) of this article, a copy of the note or
8-17 other loan documents may be delivered instead of a separate
8-18 statement.
8-19 (3) The lender shall give a receipt to a person making a
8-20 cash payment on any loan.
8-21 (4) Any home equity loan may be prepaid in whole or in part,
8-22 without penalty, during regular working hours on any day the lender
8-23 is open for business, except that the lender may require a partial
8-24 prepayment to be made in the amount of that part of one or more
8-25 installments that would be applicable to principal. In the event
8-26 of a prepayment in full of a home equity loan with regularly
8-27 scheduled payments, the lender may assume that the periodic
9-1 payments have been made as originally scheduled and ignore any
9-2 differences created by late or early payments.
9-3 (5) On termination and full payment of a home equity loan,
9-4 the holder shall, within a reasonable time, cancel and return any
9-5 note to the borrower and shall furnish to the borrower releases of
9-6 any mortgage, deed of trust, security interest, or other interest
9-7 securing the loan that no longer secures any indebtedness of the
9-8 borrower to the holder.
9-9 Art. 5A.07. PROHIBITED PRACTICES. (1) A lender may not
9-10 accept an assignment of wages as security for any loan made under
9-11 this chapter.
9-12 (2) A lender may not accept any confession of judgment or
9-13 any power of attorney running to the lender or to any third person
9-14 to confess judgment or to appear for a borrower in a judicial
9-15 proceeding.
9-16 (3) Except in the case of an open-end account, a lender may
9-17 not accept any promise to pay or loan obligation that does not
9-18 disclose, on the loan obligation or on a separate statement, the
9-19 amount financed and the schedule of payments.
9-20 (4) A lender may not accept any instrument in which blanks
9-21 are left to be filled in after the loan is made.
9-22 (5) A lender may not accept any instrument in which a
9-23 borrower waives any right accruing to him under this chapter unless
9-24 the waiver is authorized by this chapter.
9-25 Art. 5A.08. AFFIDAVIT OF INELIGIBILITY OF HOMESTEAD FOR HOME
9-26 EQUITY LOAN. (1) All owners of a homestead may execute and file
9-27 in the deed records of the county in which the homestead is located
10-1 an affidavit stating that the property, while it is a homestead, is
10-2 not eligible to be used as security for a home equity loan
10-3 authorized by Article XVI, Section 50(a)(4), of the Texas
10-4 Constitution. The filing of the affidavit prevents all persons,
10-5 including the owners, from placing a lien securing a home equity
10-6 loan on the homestead property for the three-year period after the
10-7 filing date and continuously thereafter for successive three-year
10-8 periods unless revoked by the then current owners within 30 days
10-9 before the next scheduled expiration date of the affidavit, or
10-10 until all homestead interest of the owners has been terminated.
10-11 (2) The affidavit must be in substantially the following
10-12 form:
10-13 STATE OF TEXAS )
10-14 COUNTY OF )
10-15 I/We, ___________, being the owner(s) of real property
10-16 located in _____________ County, Texas, which is my/our
10-17 homestead, being more particularly described as
10-18 follows:
10-19 ___________________________________
10-20 ___________________________________
10-21 do hereby invoke the provisions of Article XVI, Section
10-22 50(k), of the Texas Constitution, which prevents, after
10-23 complying with the provisions of this article, the
10-24 encumbrance of homestead property with a home equity
10-25 loan for a period of three years from the date of the
10-26 filing of this affidavit and continuously thereafter
10-27 for successive three-year periods until revoked by the
11-1 then current owners by filing a document of revocation
11-2 in the same manner as the original affidavit within 30
11-3 days before the next scheduled expiration date of the
11-4 affidavit.
11-5 EXECUTED ON THIS _____ day of _____________, _____.
11-6 _____________________________
11-7 Affiant(s)
11-8 STATE OF TEXAS )
11-9 COUNTY OF )
11-10 SWORN TO AND SUBSCRIBED BEFORE ME, the undersigned
11-11 authority by the affiant(s) on this _____ day of
11-12 ______________, ______.
11-13 _____________________________
11-14 Notary Public
11-15 State of Texas
11-16 SECTION 3. This Act applies only to a home equity loan
11-17 executed on or after the effective date of this Act.
11-18 SECTION 4. This Act takes effect on the date the
11-19 constitutional amendment proposed by H.J.R. No. ______, Acts of the
11-20 73rd Legislature, Regular Session, 1993, takes effect. If that
11-21 amendment is not approved by the voters, this Act has no effect.
11-22 SECTION 5. The importance of this legislation and the
11-23 crowded condition of the calendars in both houses create an
11-24 emergency and an imperative public necessity that the
11-25 constitutional rule requiring bills to be read on three several
11-26 days in each house be suspended, and this rule is hereby suspended.