By Danburg                                            H.J.R. No. 59
       74R4174 DWS-F
                                  A JOINT RESOLUTION
    1-1  proposing a constitutional amendment authorizing a voluntary,
    1-2  consensual encumbrance on homestead property for the purpose of an
    1-3  equity loan.
    1-4        BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF TEXAS:
    1-5        SECTION 1.  Section 50, Article XVI, Texas Constitution, is
    1-6  amended to read as follows:
    1-7        Sec. 50.  (a)  The homestead of a family, or of a single
    1-8  adult person, shall be, and is hereby protected from forced sale,
    1-9  for the payment of all debts except for:
   1-10              (1)  the purchase money thereof, or a part of such
   1-11  purchase money;
   1-12              (2)  <,> the taxes due thereon;
   1-13              (3)  <, or for> work and material used in constructing
   1-14  improvements thereon, if <and in this last case only when> the work
   1-15  and material are contracted for in writing, with the consent of
   1-16  both spouses, in the case of a family homestead, given in the same
   1-17  manner as is required in making a sale and conveyance of the
   1-18  homestead; or
   1-19              (4)  an equity loan.
   1-20        (b)  The <nor may the> owner or claimant of the property
   1-21  claimed as homestead, if married, may not sell or abandon the
   1-22  homestead without the consent of each owner and the <other> spouse
   1-23  of each owner, given in such manner as may be prescribed by law.
   1-24        (c)  No mortgage, trust deed, or other lien on the homestead
    2-1  shall ever be valid unless it secures a debt described by this
    2-2  section, <except for the purchase money therefor, or improvements
    2-3  made thereon, as hereinbefore provided,> whether such mortgage, or
    2-4  trust deed, or other lien, shall have been created by the owner
    2-5  alone, or together with his or her spouse, in case the owner is
    2-6  married.  All pretended sales of the homestead involving any
    2-7  condition of defeasance shall be void.
    2-8        (d)  An equity loan may not be secured by homestead property
    2-9  that is not in a city, town, or village.
   2-10        (e)  An equity loan may be made only by:
   2-11              (1)  a bank, savings and loan association, savings
   2-12  bank, or credit union doing business under the laws of this state
   2-13  or the United States;
   2-14              (2)  a person licensed to make regulated loans, as
   2-15  provided by statute; or
   2-16              (3)  a person approved as a mortgagee by the United
   2-17  States government to make federally insured loans, as determined by
   2-18  statute.
   2-19        (f)  At any time a homestead may not be encumbered by more
   2-20  than one equity loan in addition to a valid encumbrance on the
   2-21  homestead property authorized by Subsection (a)(1), (a)(2), or
   2-22  (a)(3) of this section.
   2-23        (g)  A lender may not make an equity loan other than a
   2-24  reverse mortgage if a borrower under the loan is 65 years of age or
   2-25  older.
   2-26        (h)  A lender may not require or accept real or personal
   2-27  property as additional collateral on an equity loan, except for a
    3-1  manufactured home, personal property affixed or to be affixed to
    3-2  the homestead in a manner that would make the property a fixture,
    3-3  or rents derived from the homestead property.  Only the homestead
    3-4  property securing an equity loan may be collateral for the equity
    3-5  loan.
    3-6        (i)  A lender may not require or accept a borrower's
    3-7  homestead property, regardless of whether the property was
    3-8  previously encumbered by an existing equity loan, as collateral on
    3-9  a debt not described by Subsection (a) of this section.
   3-10        (j)  The principal amount of an equity loan plus the
   3-11  aggregate total of the outstanding balances of other indebtedness
   3-12  secured by valid encumbrances of record against the homestead
   3-13  property may not exceed 90 percent of the fair market value of the
   3-14  homestead property on the date the equity loan is made.  The
   3-15  principal amount of a blended equity loan may not exceed 90 percent
   3-16  of the fair market value of the homestead property on the date the
   3-17  blended equity loan is made.
   3-18        (k)  For the purposes of Subsection (j) of this section, the
   3-19  aggregate total of the outstanding balances of indebtedness secured
   3-20  by valid encumbrances of record against the homestead property does
   3-21  not include any advance made by a lender to protect a lien,
   3-22  security interest, or other valid encumbrance on the homestead
   3-23  property securing the loan, including the payment of hazard
   3-24  insurance premiums, repairs to the homestead property, or payments
   3-25  on any indebtedness secured by a prior valid encumbrance on the
   3-26  homestead property.
   3-27        (l)  A lender may not accelerate the remaining payments of an
    4-1  equity loan or demand payment of the loan in full because of a
    4-2  decrease in the market value of the homestead property securing the
    4-3  equity loan, unless the decrease in the market value is caused by
    4-4  substantial damage or destruction to the property, condemnation or
    4-5  other taking of the property, the discovery of an environmental
    4-6  hazard on the property, or the use of the property in a manner that
    4-7  constitutes waste on the property or a nuisance.  This section does
    4-8  not prohibit a lender, if permitted by the loan documents, from
    4-9  refusing to make additional advances under an equity loan other
   4-10  than a reverse mortgage, if the value of the homestead property
   4-11  decreases, regardless of the cause of the decrease.
   4-12        (m)  A lender may not accelerate the remaining payments of an
   4-13  equity loan or demand payment of the loan in full because of the
   4-14  borrower's default under any other indebtedness not secured by a
   4-15  prior valid encumbrance on the homestead property, regardless of
   4-16  whether the indebtedness is owed to the lender.  This section does
   4-17  not prohibit a lender, if permitted by the loan documents, from
   4-18  refusing to make additional advances under an equity loan, other
   4-19  than a reverse mortgage, if the borrower has defaulted in the
   4-20  performance or payment of another indebtedness owed to the lender
   4-21  or another creditor.
   4-22        (n)  In this section:
   4-23              (1)  "Blended equity loan" means an equity loan made
   4-24  for:
   4-25                    (A)  the payment or refinancing of all or part of
   4-26  the purchase money of a homestead, taxes on homestead property, or
   4-27  the work and material used in constructing improvements on a
    5-1  homestead or for the refinancing of a valid lien given in renewal
    5-2  and extension of a lien made for such a purpose; and
    5-3                    (B)  another purpose.
    5-4              (2)  "Equity loan" means an extension of credit under a
    5-5  written agreement, including a contract for an open-end account,
    5-6  blended equity loan, or reverse mortgage, that is secured in whole
    5-7  or in part by a voluntary lien on or other consensual security
    5-8  interest in a homestead created with the consent of each owner and
    5-9  the spouse of each owner, in accordance with applicable statutory
   5-10  requirements.
   5-11              (3)  "Net equity" means the fair market value of the
   5-12  homestead property less the aggregate total of the outstanding
   5-13  balances of all indebtedness secured by valid encumbrances of
   5-14  record against the homestead property.
   5-15              (4)  "Reverse mortgage" means a nonrecourse equity
   5-16  loan:
   5-17                    (A)  under which advances are provided to a
   5-18  borrower based on the equity in a borrower's residence homestead
   5-19  property; and
   5-20                    (B)  that requires no payment of principal or
   5-21  interest until the entire loan becomes due and payable.  <This
   5-22  amendment shall become effective upon its adoption.>
   5-23        SECTION 2.  The following temporary provision is added to the
   5-24  Texas Constitution:
   5-25        TEMPORARY PROVISION.  (a)  This temporary provision applies
   5-26  to the constitutional amendment proposed by the 74th Legislature,
   5-27  Regular Session, 1995, authorizing a voluntary, consensual
    6-1  encumbrance on homestead property.
    6-2        (b)  The constitutional amendment takes effect May 1, 1996.
    6-3        (c)  This temporary provision takes effect on the adoption of
    6-4  the amendment by the voters and expires May 2, 1996.
    6-5        SECTION 3.  This proposed constitutional amendment shall be
    6-6  submitted to the voters at an election to be held November 7, 1995.
    6-7  The ballot shall be printed to permit voting for or against the
    6-8  proposition:  "The constitutional amendment extending homeowners'
    6-9  rights to voluntarily borrow against the equity in and establish a
   6-10  valid lien on their homesteads under certain limited circumstances
   6-11  for purposes in addition to purchase money, improvements, and
   6-12  taxes."