By: Patterson S.B. No. 301
A BILL TO BE ENTITLED
AN ACT
1-1 relating to a voluntary, consensual encumbrance on homestead
1-2 property for the purpose of an equity loan.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Subsection (b), Section 41.001, Property Code, is
1-5 amended to read as follows:
1-6 (b) Encumbrances may be properly fixed on homestead property
1-7 for:
1-8 (1) purchase money;
1-9 (2) taxes on the property; <or>
1-10 (3) work and material used in constructing
1-11 improvements on the property if contracted for in writing as
1-12 provided by Sections 53.059(a), (b), and (c); or
1-13 (4) an equity loan, as defined by Article 5A.01, Title
1-14 79, Revised Statutes (Article 5069-5A.01, Vernon's Texas Civil
1-15 Statutes).
1-16 SECTION 2. Title 79, Revised Statutes (Article 5069-1.01 et
1-17 seq., Vernon's Texas Civil Statutes), is amended by adding Chapter
1-18 5A to read as follows:
1-19 CHAPTER 5A. EQUITY LOANS
1-20 Art. 5A.01. DEFINITIONS. In this chapter:
1-21 (1) "Advance" means a draw or extension of credit as
1-22 described by Article 1.01(f) of this title under an equity loan
1-23 structured as a contract for an open-end account or as a reverse
1-24 mortgage.
2-1 (2) "Application" means an oral or written request for
2-2 an equity loan made according to procedures established by the
2-3 lender.
2-4 (3) "Blended equity loan" means an equity loan made
2-5 for:
2-6 (A) the payment or refinancing of all or part of
2-7 the purchase money of a homestead, taxes on homestead property, or
2-8 the work and material used in constructing improvements on a
2-9 homestead or for the refinancing of a valid lien given in renewal
2-10 and extension of a lien made for such a purpose; and
2-11 (B) another purpose.
2-12 (4) "Business day" means a day other than a Sunday or
2-13 a legal public holiday listed by 5 U.S.C. Section 6103(a).
2-14 (5) "Equity loan" means an extension of credit under a
2-15 written agreement, including a contract for an open-end account,
2-16 blended equity loan, or reverse mortgage, that is:
2-17 (A) secured in whole or in part by a voluntary
2-18 lien on or other consensual security interest in a homestead;
2-19 (B) created with the consent of each owner and
2-20 the spouse of each owner in accordance with applicable statutory
2-21 requirements; and
2-22 (C) without recourse for personal liability
2-23 against each owner and the spouse of each owner.
2-24 (6) "Reverse mortgage" means a nonrecourse equity
2-25 loan:
2-26 (A) under which advances are provided to a
2-27 borrower based on the equity in a borrower's residence homestead
3-1 property; and
3-2 (B) that requires no payment of principal or
3-3 interest until the entire loan becomes due and payable.
3-4 Art. 5A.02. CONSTRUCTION OF CHAPTER. (a) For the purposes
3-5 of this chapter, an equity loan is considered made on the earliest
3-6 date on which both of the following are executed:
3-7 (1) each promissory note, or contract for an open-end
3-8 account, evidencing the equity loan; and
3-9 (2) a deed of trust or other security instrument
3-10 securing the equity loan.
3-11 (b) In establishing the fair market value of homestead
3-12 property, a lender shall rely on an appraisal or evaluation,
3-13 whichever may be appropriate, prepared in accordance with a state
3-14 or federal requirement applicable to the lender. If no state or
3-15 federal appraisal or evaluation requirement applies to an equity
3-16 loan, the fair market value of the homestead property may be, at
3-17 the lender's option, the value estimate set forth in:
3-18 (1) the most recent ad valorem tax appraisal district
3-19 valuation letter for the homestead property; or
3-20 (2) an appraisal prepared by a licensed or certified
3-21 appraiser under the Texas Appraiser Licensing and Certification Act
3-22 (Article 6573a.2, Vernon's Texas Civil Statutes).
3-23 Art. 5A.03. APPLICABILITY OF CHAPTER. (a) A lender making,
3-24 negotiating, or arranging an equity loan, including a reverse
3-25 mortgage, is required to comply with:
3-26 (1) this chapter;
3-27 (2) any nonconflicting requirement of another law
4-1 relied on as authority for the rate or amount of interest provided
4-2 for in the loan; and
4-3 (3) applicable federal law.
4-4 (b) A loan made for the payment or refinancing of all or
4-5 part of the purchase money of a homestead, taxes on homestead
4-6 property, including the refinancing of valid and subsisting ad
4-7 valorem tax liens, federal tax liens, and maintenance fee liens, or
4-8 the work and material used in constructing improvements on a
4-9 homestead, or a loan made in renewal and extension of such a loan,
4-10 is not an equity loan, but may be made subject to this chapter if
4-11 the parties in the loan documents agree that the loan is to be
4-12 governed by this chapter. A blended equity loan is governed by
4-13 this chapter.
4-14 Art. 5A.04. AUTHORIZED LENDERS. (a) An equity loan may be
4-15 made only by:
4-16 (1) a bank, savings and loan association, savings
4-17 bank, or credit union doing business under the laws of this state
4-18 or of the United States;
4-19 (2) a person licensed under Chapter 3 of this title;
4-20 or
4-21 (3) a person approved as a mortgagee by the United
4-22 States Department of Housing and Urban Development to make insured
4-23 loans under the National Housing Act (12 U.S.C. Section 1701 et
4-24 seq.).
4-25 (b) A lender under Subsection (a) of this article may make
4-26 an equity loan in addition to any other loan authorized for that
4-27 lender.
5-1 Art. 5A.05. ELIGIBLE PROPERTY. An equity loan may not be
5-2 secured by homestead property that is designated for agricultural
5-3 use as provided by Subchapter C, Chapter 23, Tax Code.
5-4 Art. 5A.06. ONE EQUITY LOAN AUTHORIZED. At any time a
5-5 homestead may not be encumbered by more than one equity loan in
5-6 addition to a valid encumbrance on homestead property authorized by
5-7 Section 41.001(b)(1), (2), or (3), Property Code.
5-8 Art. 5A.07. ADVANCES AND REPAYMENT DETERMINED BY AGREEMENT.
5-9 An equity loan may provide for funding to or for the benefit of the
5-10 borrower in one or more advances at a frequency and for a term to
5-11 which the parties agree. An equity loan may provide for repayment
5-12 in one or more payments on a payment schedule and in amounts to
5-13 which the parties agree.
5-14 Art. 5A.08. CREDIT CARD ACCOUNTS PROHIBITED. An equity loan
5-15 may not be in the form of an open-end account under which a credit
5-16 card may be used to debit the account.
5-17 Art. 5A.09. PERCENT OF VALUE LIMIT. The principal amount of
5-18 an equity loan plus the aggregate total of the outstanding balances
5-19 of other indebtedness secured by valid encumbrances of record
5-20 against the homestead property may not exceed 90 percent of the
5-21 fair market value of the homestead property on the date the equity
5-22 loan is made.
5-23 Art. 5A.10. ADVANCE NOT INCLUDED AS OUTSTANDING
5-24 INDEBTEDNESS. For the purposes of Article 5A.09 of this title, the
5-25 aggregate total of the outstanding balances of indebtedness secured
5-26 by valid encumbrances of record against the homestead property does
5-27 not include any advance made by a lender to protect a lien,
6-1 security interest, or other valid encumbrance on the homestead
6-2 property securing the loan, including the payment of hazard
6-3 insurance premiums, repairs to the homestead property, or payments
6-4 on any indebtedness secured by a prior valid encumbrance on the
6-5 homestead property.
6-6 Art. 5A.11. LIMIT ON COLLATERAL AND USE OF PROCEEDS. (a) A
6-7 lender may not require or accept real or personal property as
6-8 additional collateral on an equity loan, except for a manufactured
6-9 home, as defined in the Texas Manufactured Housing Standards Act
6-10 (Article 5221f, Vernon's Texas Civil Statutes), personal property
6-11 affixed or to be affixed to the homestead in a manner that would
6-12 make the property a fixture, or rents derived from homestead
6-13 property. Only the homestead property securing an equity loan may
6-14 be collateral for the equity loan.
6-15 (b) A lender may not:
6-16 (1) require or accept a borrower's homestead property,
6-17 regardless of whether the property was previously encumbered by an
6-18 existing equity loan, as collateral on a debt not described by
6-19 Section 41.001(b), Property Code;
6-20 (2) require a borrower to apply the proceeds of an
6-21 equity loan to repay a debt not described by Section 41.001(b),
6-22 Property Code; or
6-23 (3) seek recourse against or expose assets of a
6-24 borrower other than the property securing the equity loan for
6-25 payment or performance of an obligation of an equity loan.
6-26 (c) This article does not:
6-27 (1) prohibit or limit any statutory or common law lien
7-1 or right of offset; or
7-2 (2) prevent a lender from requiring insurance
7-3 authorized by this chapter as additional security for an equity
7-4 loan.
7-5 (d) Proceeds of a sale of the homestead or its fixtures, or
7-6 proceeds of insurance covering the property, are not considered
7-7 additional collateral and may be included as part of the security
7-8 for the loan.
7-9 (e) A provision of a deed of trust or other security
7-10 agreement that secures a loan other than an equity loan and that
7-11 makes the deed of trust or security agreement applicable to other
7-12 indebtedness of the borrower does not apply to an equity loan of
7-13 the borrower to the extent that the provision would cause the
7-14 equity loan to be secured by property other than the borrower's
7-15 homestead property. This subsection does not affect the validity
7-16 of the provision as applied to a loan other than an equity loan.
7-17 Art. 5A.12. ACCELERATION PROHIBITED. (a) A lender may not
7-18 accelerate the remaining payments of an equity loan or demand
7-19 payment of the loan in full because of a decrease in the market
7-20 value of the homestead property securing the equity loan, unless
7-21 the decrease in the market value is caused by substantial damage or
7-22 destruction to the property, a condemnation or other taking of the
7-23 property, the discovery of an environmental hazard on the property,
7-24 or the use of the property in a manner that constitutes waste on
7-25 the property or a nuisance. This article does not prohibit a
7-26 lender, if permitted by the loan documents, from refusing to make
7-27 additional advances under an equity loan, other than a reverse
8-1 mortgage, if the market value of the homestead property decreases,
8-2 regardless of the cause of the decrease.
8-3 (b) A lender may not accelerate the remaining payments of an
8-4 equity loan or demand payment of the loan in full because of the
8-5 borrower's default under any other indebtedness not secured by a
8-6 prior valid encumbrance on the homestead property, regardless of
8-7 whether the indebtedness is owed to the lender. This article does
8-8 not prohibit a lender, if permitted by the loan documents, from
8-9 refusing to make additional advances under an equity loan, other
8-10 than a reverse mortgage, if the borrower has defaulted in the
8-11 performance or payment of another indebtedness owed to the lender
8-12 or another creditor.
8-13 Art. 5A.13. NOTICE. (a) The lender in an equity loan shall
8-14 provide to a borrower the following notice in type that is
8-15 boldfaced, capitalized, underlined, or otherwise set out from
8-16 surrounding written material so as to be conspicuous:
8-17 "YOU ARE PLEDGING YOUR HOMESTEAD AS COLLATERAL TO
8-18 SECURE THE PAYMENT OF A LOAN. IF YOU DO NOT PAY OR IF
8-19 YOU FAIL TO PERFORM THE TERMS OF THE LOAN CONTRACT, THE
8-20 LENDER HAS THE RIGHT TO FORECLOSE ON YOUR HOMESTEAD AND
8-21 SELL IT TO PAY THE LOAN.
8-22 "YOUR HOMESTEAD MAY NOT BE PLEDGED TO SECURE THE
8-23 PAYMENT OF MORE THAN ONE EQUITY LOAN AT A TIME.
8-24 "ALL THE DEBTS AGAINST YOUR HOMESTEAD, INCLUDING
8-25 THE EQUITY LOAN, MAY NOT EXCEED 90 PERCENT OF THE VALUE
8-26 OF YOUR HOMESTEAD.
8-27 "YOUR LENDER MAY NOT ACCEPT ANY OTHER PROPERTY
9-1 YOU OWN, OTHER THAN A MANUFACTURED HOME, AS ADDITIONAL
9-2 COLLATERAL FOR YOUR LOAN.
9-3 "THIS LOAN IS MADE WITHOUT RECOURSE FOR PERSONAL
9-4 LIABILITY. IN THE EVENT OF DEFAULT, THE LENDER MAY
9-5 FORECLOSE ONLY ON THE PROPERTY SECURING THE LOAN.
9-6 "YOU HAVE AT LEAST 12 DAYS FROM THE DATE YOU
9-7 REQUESTED THE LOAN TO CHANGE YOUR MIND ABOUT THE LOAN
9-8 BEFORE YOU CAN SIGN THE LOAN DOCUMENTS. IN ADDITION,
9-9 YOU HAVE THREE BUSINESS DAYS AFTER YOU SIGN THE LOAN
9-10 DOCUMENTS TO CHANGE YOUR MIND ABOUT THE LOAN. IF YOU
9-11 DECIDE NOT TO TAKE THE LOAN DURING ONE OF THESE
9-12 PERIODS, YOU WILL HAVE NO FURTHER OBLIGATION TO THE
9-13 LENDER.
9-14 "THE LOAN DOCUMENT MAY NOT BE SIGNED AT YOUR
9-15 HOME, AND MAY BE SIGNED ONLY AT THE LENDER'S OFFICE, AT
9-16 A TITLE COMPANY, OR AT A TEXAS ATTORNEY'S OFFICE.
9-17 "UNLESS THE INFORMATION IS CONTAINED IN YOUR NOTE
9-18 OR ANOTHER LOAN DOCUMENT, YOUR LENDER IS REQUIRED TO
9-19 GIVE YOU A WRITTEN STATEMENT WITH ITS NAME AND ADDRESS
9-20 AND YOUR NAME AND ADDRESS EITHER BEFORE OR WHEN YOU
9-21 SIGN THE LOAN DOCUMENTS. THE STATEMENT MUST ALSO
9-22 INCLUDE A DESCRIPTION OF ANY INSURANCE YOU PURCHASED,
9-23 AND HOW MUCH YOU PAID, IN CONNECTION WITH THE LOAN.
9-24 "ON YOUR REQUEST, YOUR LENDER IS REQUIRED TO GIVE
9-25 YOU A RECEIPT IF YOU MAKE A PAYMENT ON THE LOAN IN
9-26 CASH."
9-27 (b) The lender shall provide the notice when the lender
10-1 receives a completed application for the loan.
10-2 Art. 5A.14. WAITING PERIOD; RESCISSION. (a) An equity loan
10-3 may not be closed before the 12th day after the date the lender
10-4 receives a completed application for the loan.
10-5 (b) Each owner of residential homestead property securing an
10-6 equity loan may rescind the loan. Compliance with all applicable
10-7 state and federal law regarding the right to rescind, including 12
10-8 C.F.R. Sections 226.15 et seq. and 226.23 et seq., is considered
10-9 compliance with this chapter regarding rescission.
10-10 (c) The right of rescission provided by this article applies
10-11 to each equity loan made under this chapter, regardless of the
10-12 purpose of the loan. An owner of the residential homestead
10-13 property securing an equity loan may not waive the right of
10-14 rescission required by this article, regardless of whether
10-15 applicable state or federal law provides for a waiver.
10-16 Art. 5A.15. LOCATION OF CLOSING. An equity loan may not be
10-17 closed at the residence of the borrower and shall be closed only at
10-18 an office of the lender, a title company, or an attorney licensed
10-19 to practice law in this state. For the purposes of this chapter,
10-20 "closing" means the execution by the borrower of a promissory note
10-21 and the security instruments securing the loan.
10-22 Art. 5A.16. GENERAL PROVISIONS RELATING TO REVERSE
10-23 MORTGAGES. (a) Notwithstanding any other provision of this
10-24 chapter, payment in whole or in part shall be permitted without
10-25 penalty at any time during the term of a reverse mortgage.
10-26 (b) Advances made under a reverse mortgage and interest on
10-27 those advances have priority over a lien filed for record in the
11-1 real property records in the county where the residence homestead
11-2 property is located after the reverse mortgage is filed for record
11-3 in the real property records of that county.
11-4 (c) A reverse mortgage may provide for an interest rate that
11-5 is fixed or adjustable and may also provide for interest that is
11-6 contingent on appreciation in the fair market value of the
11-7 homestead property.
11-8 (d) If a reverse mortgage provides for periodic advances to
11-9 a borrower, the advances may not be reduced in amount or number
11-10 because of an adjustment in the interest rate.
11-11 (e) A lender who fails to make loan advances as required in
11-12 the loan documents, and who fails to cure the default as required
11-13 in the loan documents, forfeits any right to collect all interest.
11-14 Art. 5A.17. REPAYMENT OF REVERSE MORTGAGE. (a) A reverse
11-15 mortgage becomes due and payable if:
11-16 (1) the homestead property securing the loan is sold;
11-17 (2) all borrowers cease occupying the homestead
11-18 property as a principal residence;
11-19 (3) any fixed maturity date agreed to by the lender
11-20 and the borrower is reached; or
11-21 (4) an event that is specified in the loan documents,
11-22 including the death of all borrowers, occurs and jeopardizes the
11-23 lender's security.
11-24 (b) Temporary absences from the homestead property by all
11-25 borrowers for a period not exceeding 60 consecutive calendar days
11-26 may not cause the reverse mortgage to become due and payable.
11-27 Temporary absences from the homestead property by all borrowers for
12-1 a period exceeding 60 consecutive calendar days but not exceeding
12-2 one year may not cause the reverse mortgage to become due and
12-3 payable if the borrower has taken prior action to secure the home
12-4 in a manner satisfactory to the lender.
12-5 (c) The lender's right to collect reverse mortgage payments
12-6 is subject to the applicable statute of limitations for a debt
12-7 provided by Section 16.004(a), Civil Practice and Remedies Code,
12-8 and by Section 3.122, Business & Commerce Code, except that the
12-9 period of limitations begins on the date the reverse mortgage
12-10 becomes due and payable.
12-11 (d) In the loan documents, the lender must prominently
12-12 disclose any interest or fee to be charged during the period that
12-13 begins on the date the reverse mortgage becomes due and payable and
12-14 ends when repayment is made in full.
12-15 Art. 5A.18. INAPPLICABILITY OF OTHER STATUTES TO REVERSE
12-16 MORTGAGE. A reverse mortgage loan may be made or acquired without
12-17 regard to the following provisions of any applicable state or
12-18 federal statute:
12-19 (1) a limitation on the purpose and use of future
12-20 advances or other mortgage proceeds;
12-21 (2) a limitation on future advances to a term of years
12-22 or a limitation on the term of open-end account advances;
12-23 (3) a limitation on the term during which future
12-24 advances take priority over intervening advances;
12-25 (4) a requirement that a maximum loan amount be stated
12-26 in the reverse mortgage loan documents;
12-27 (5) a limitation on loan-to-value ratios, other than a
13-1 limitation provided by this chapter;
13-2 (6) a prohibition on balloon payments;
13-3 (7) a prohibition on compound interest and interest on
13-4 interest;
13-5 (8) a prohibition on contracting for, charging, or
13-6 receiving any rate of interest authorized under Article 1.04 of
13-7 this title or under any other statute authorizing a lender to
13-8 contract for a rate of interest; and
13-9 (9) a requirement that a percentage of the reverse
13-10 mortgage proceeds be advanced before the assignment of the reverse
13-11 mortgage.
13-12 Art. 5A.19. STATUS OF REVERSE MORTGAGE LOAN UNDER PUBLIC
13-13 ASSISTANCE PROGRAM. For the purposes of determining eligibility
13-14 under any statute relating to payments, allowance, benefits, or
13-15 services provided on a means-tested basis by this state, including
13-16 supplemental security income, low-income energy assistance,
13-17 property tax relief, medical assistance, and general assistance:
13-18 (1) reverse mortgage loan advances made to a borrower
13-19 are considered proceeds from a loan, and not income; and
13-20 (2) undisbursed funds under a reverse mortgage loan
13-21 are considered equity in a borrower's home and not proceeds from a
13-22 loan.
13-23 Art. 5A.20. REVERSE MORTGAGE LOAN INFORMATION AND
13-24 COUNSELING. A lender may not make a reverse mortgage commitment
13-25 unless the loan applicant attests in writing that the applicant
13-26 received from the lender, at the time the notice is required by
13-27 Article 5A.13 of this title, a statement prepared by the consumer
14-1 credit commissioner regarding the advisability and availability of
14-2 independent information and counseling services on reverse
14-3 mortgages. The consumer credit commissioner shall:
14-4 (1) develop the content and format of the statement;
14-5 (2) provide independent consumer information on
14-6 reverse mortgages and their alternatives; and
14-7 (3) refer consumers to independent counseling services
14-8 with expertise in reverse mortgages.
14-9 Art. 5A.21. INTEREST. A lender may contract for and receive
14-10 on an equity loan any fixed or variable rate of interest that does
14-11 not exceed the maximum rate of interest authorized under Article
14-12 1.04 of this title or under any other state or federal statute
14-13 authorizing the lender to contract for a rate of interest.
14-14 Interest shall be accrued and earned by applying the simple annual
14-15 interest rate or rates under the loan contract to the principal
14-16 balance, which may include unpaid interest and additions to
14-17 principal authorized by the loan contract. In determining the
14-18 amount of interest accrued, the lender may assume that the payments
14-19 have been made as originally scheduled and ignore any difference
14-20 created by late or early payments. Although payment of principal
14-21 or interest is not required under a reverse mortgage until the
14-22 entire loan becomes due and payable, interest accrues and may be
14-23 compounded during the existence of the loan as provided by the
14-24 reverse mortgage loan agreement.
14-25 Art. 5A.22. CLOSED-END EQUITY LOANS. (a) Each closed-end
14-26 equity loan shall be scheduled to be repaid in substantially equal
14-27 successive monthly installments, except that the first installment
15-1 may be scheduled beyond one month from the date of the loan but not
15-2 beyond two months from the date of the loan.
15-3 (b) The amount of each installment under the schedule of
15-4 payments in a closed-end equity loan shall equal or exceed the
15-5 amount of interest scheduled to accrue as of the date of the
15-6 installment or that would accrue as of the installment date through
15-7 amortization of the loan on the date of the loan.
15-8 Art. 5A.23. CHARGES AND FEES. A contract for an equity loan
15-9 may permit a lender to collect the following fees and charges in
15-10 connection with the loan:
15-11 (1) a reasonable expense or cost paid, or that will be
15-12 paid, to a third party that is not an employee or affiliate of the
15-13 lender if the expense or cost is:
15-14 (A) for an abstract, a title report, attorney's
15-15 fees for a legal opinion or document preparation, title insurance,
15-16 escrow for future payments of taxes and insurance, an annuity, an
15-17 appraisal or evaluation, a survey, or a credit report; or
15-18 (B) actually incurred in the making or servicing
15-19 of an equity loan and necessary or proper for the protection of the
15-20 lender;
15-21 (2) a fee prescribed by law paid, or that will be
15-22 paid, to a public official for determining the existence of or for
15-23 recording, releasing, or satisfying a lien, security interest, or
15-24 other valid encumbrance related to an equity loan;
15-25 (3) a bona fide commitment fee for the separate
15-26 consideration of committing to make an equity loan in the future;
15-27 (4) any other fee required by federal statute;
16-1 (5) a reasonable fee or charge paid to the trustee in
16-2 connection with a deed of trust or similar instrument executed in
16-3 connection with the equity loan, including a fee for enforcing the
16-4 lien, posting for sale, selling, or releasing the property secured
16-5 by the deed of trust;
16-6 (6) a reasonable fee paid to an attorney who is not an
16-7 employee of the lender in the collection of a delinquent equity
16-8 loan and any court cost or fee incurred in the collection or
16-9 foreclosure of a lien created by the loan;
16-10 (7) a fee not to exceed the amount permitted by law
16-11 for the return by a depository institution of a dishonored check,
16-12 negotiable order of withdrawal, share draft, or deposit draft
16-13 offered in full or partial payment of an equity loan;
16-14 (8) a late charge or penalty, if all or part of a
16-15 scheduled payment continues unpaid for 10 or more days after the
16-16 date the payment was due, except that:
16-17 (A) only one late charge or penalty authorized
16-18 by this article may be charged for each scheduled payment that is
16-19 past due; and
16-20 (B) the late charge or penalty may not exceed
16-21 five percent of the unpaid amount of the scheduled payment that is
16-22 past due; and
16-23 (9) the premiums received in connection with the sale
16-24 of insurance as provided by Article 5A.24 of this title.
16-25 Art. 5A.24. INSURANCE. (a) Under an equity loan, a lender
16-26 may request or require a borrower to provide insurance:
16-27 (1) in the amounts and under the conditions that apply
17-1 to secondary mortgage loans as provided by Articles 5.02 and 5.03
17-2 of this title;
17-3 (2) in the amounts and under the terms and conditions
17-4 of the Home Equity Conversion Mortgage Insurance program (Housing
17-5 and Community Development Act of 1987, Pub. L. 100-242), Section
17-6 255 of the National Housing Act (12 U.S.C. Section 1715z-20), and
17-7 24 C.F.R. Section 206 et seq.; and
17-8 (3) in the amounts and under the terms and conditions
17-9 provided for by any state or federal statute authorizing or
17-10 requiring any type of insurance relating to a loan or other
17-11 extension of credit, including insurance authorized under Chapters
17-12 3, 4, 5, and 15 of this title.
17-13 (b) Premiums for insurance under this article may be added
17-14 to the loan contract.
17-15 Art. 5A.25. LENDER'S DUTY TO BORROWER. (a) The lender
17-16 under an equity loan shall deliver to the borrower, or to one of
17-17 the borrowers if more than one, a copy of the note or the contract
17-18 for an open-end account, a copy of all other documents signed by
17-19 the borrower or borrowers, and a written statement of:
17-20 (1) the name and address of each borrower and of the
17-21 lender; and
17-22 (2) each type of insurance, if any, for which a charge
17-23 to a borrower is included in the loan agreement and the amount of
17-24 the charge for the insurance.
17-25 (b) If the note or another loan document contains the
17-26 information required by Subsection (a) of this article, a copy of
17-27 the note or document may be delivered to the borrower rather than
18-1 the separate written statement.
18-2 (c) If requested by the borrower, the lender shall give a
18-3 receipt to a person making a cash payment on an equity loan.
18-4 (d) A prepayment fee, charge, or penalty may not be
18-5 collected on any equity loan, except as authorized by Article 1.07
18-6 of this title.
18-7 (e) On termination and full payment of an equity loan, the
18-8 holder shall within a reasonable time:
18-9 (1) cancel and return any note to the borrower and
18-10 give the borrower a release of any mortgage, deed of trust,
18-11 security instrument, or other instrument securing the loan; or
18-12 (2) endorse the note and assign any mortgage, deed of
18-13 trust, or other security instrument to a refinancing lender who
18-14 advances funds to discharge the equity loan indebtedness at the
18-15 request of the borrower and in renewal and extension of the
18-16 security instrument.
18-17 Art. 5A.26. PROHIBITED PRACTICES. (a) A lender may not
18-18 accept an assignment of wages as security for a loan made under
18-19 this chapter.
18-20 (b) In connection with an equity loan, a lender may not
18-21 accept a confession of judgment or power of attorney running to
18-22 the lender or to a third person to confess judgment or to appear
18-23 for a borrower in a judicial proceeding.
18-24 (c) A lender may not accept an instrument in which blanks
18-25 are left to be filled in after an equity loan is executed.
18-26 Art. 5A.27. OWNER ACKNOWLEDGMENT. A lienholder or assignee
18-27 for value may conclusively rely on an acknowledgment by the owner
19-1 of homestead property and the owner's spouse, if the owner is
19-2 married, of compliance with applicable requirements for an equity
19-3 loan secured by a mortgage, trust deed, or other lien on a
19-4 homestead.
19-5 Art. 5A.28. REPORT BY LENDERS. (a) Before March 1 of each
19-6 year, a lender that makes an equity loan shall submit to the
19-7 director of the division of access to financial services a report
19-8 of the lender's home equity loan activity during the calendar year
19-9 preceding the year the report is submitted. For each home equity
19-10 loan for which the lender received an application, the report must
19-11 state the purpose of the loan, whether the loan was granted, and
19-12 the applicant's income and census tract. The director of the
19-13 division of access to financial services may set and collect from
19-14 the lender a reasonable filing fee in connection with the
19-15 submission of the report in an amount necessary and reasonable to
19-16 enable the director of the division of access to financial services
19-17 to carry out this article.
19-18 (b) The director of the division of access to financial
19-19 services may accept a copy of a report submitted by the lender to a
19-20 federal agency instead of the report required under Subsection (a)
19-21 of this article if the report submitted to the federal agency
19-22 contains the information required for a report under Subsection (a)
19-23 of this article.
19-24 (c) A lender that does not make a home equity loan during
19-25 the period covered by a report is not required to submit the
19-26 report.
19-27 Art. 5A.29. EQUITY LOAN RECOVERY FUND. (a) The consumer
20-1 credit commissioner shall establish and maintain an equity loan
20-2 recovery fund. The fund shall be used for reimbursing aggrieved
20-3 persons who suffer actual damages as a result of misrepresentation,
20-4 dishonesty, or fraud committed by an authorized lender in the
20-5 course of making an equity loan, provided the recovery is ordered
20-6 by a court of competent jurisdiction against the lender and the
20-7 court determines that the lender is unable to make the payment.
20-8 (b) The sums received by the consumer credit commissioner
20-9 for deposit in the equity loan recovery fund shall be held by the
20-10 consumer credit commissioner in trust for carrying out the purposes
20-11 of the equity loan recovery fund.
20-12 (c) The Finance Commission shall establish and collect
20-13 reasonable and necessary fees from authorized lenders for each home
20-14 equity loan originated by the lender to accomplish the purposes of
20-15 this article. Fees collected shall be deposited into the fund.
20-16 (d) The Finance Commission shall adopt rules necessary to
20-17 implement this article.
20-18 SECTION 3. Chapter 2, Title 79, Revised Statutes (Article
20-19 5069-2.01 et seq., Vernon's Texas Civil Statutes), is amended by
20-20 adding Article 2.02E to read as follows:
20-21 Art. 2.02E. DIVISION OF ACCESS TO FINANCIAL SERVICES.
20-22 (a) The division of access to financial services is created in the
20-23 Office of Consumer Credit Commissioner to inform, monitor, and
20-24 report on the availability and quality of home equity loans,
20-25 including home equity loans offered by financial institutions in
20-26 the state to agricultural businesses, small businesses, and
20-27 individual consumers in the state.
21-1 (b) The division shall be headed by a director appointed by
21-2 the consumer credit commissioner.
21-3 (c) The director of the division of access to financial
21-4 services shall adequately staff the division to carry out the
21-5 division's functions under this article.
21-6 (d) The division shall:
21-7 (1) conduct research on the effect of home equity
21-8 lending on the availability, quality, and cost of home equity
21-9 lending for agricultural businesses, small businesses, and
21-10 individual consumers in various regions of the state;
21-11 (2) conduct research on the effect of the practices of
21-12 business entities in the state that provide home equity loans to
21-13 agricultural businesses, small businesses, and individual consumers
21-14 in the state;
21-15 (3) conduct a public information campaign to provide
21-16 low-income and elderly consumers with information and counseling
21-17 about the benefits and liabilities associated with home equity
21-18 loans;
21-19 (4) compile a summary of the information received from
21-20 each lender under Article 5A.28, Title 79, Revised Statutes
21-21 (Article 5069-5A.28, Vernon's Texas Civil Statutes), including an
21-22 analysis of census tract demographic data, to produce reports on
21-23 home equity lending patterns with regard to the rate of application
21-24 and loan acceptance by income and census tract of the home;
21-25 (5) not later than December 1 of each even-numbered
21-26 year, provide to the legislature a report detailing the findings of
21-27 the division and recommending any action the division believes is
22-1 necessary to protect consumers with respect to home equity lending;
22-2 and
22-3 (6) prepare information of public interest describing
22-4 the functions of the division. The division shall make the
22-5 information available to the public and appropriate state and
22-6 federal agencies.
22-7 (e) The division shall have the authority to apply for and
22-8 receive public and private grants and gifts.
22-9 (f) The division shall have the authority to contract with
22-10 public and private entities to carry out studies and analyses under
22-11 this article.
22-12 (g) The consumer credit commissioner shall establish and
22-13 collect reasonable and necessary fees to accomplish the purposes of
22-14 this article.
22-15 SECTION 4. (a) After May 1, 1998, the director of the
22-16 division of access to financial services shall conduct a study of
22-17 homestead equity lending under Chapter 5A, Title 79, Revised
22-18 Statutes (Article 5069-5A.01 et seq., Vernon's Texas Civil
22-19 Statutes), as added by this Act.
22-20 (b) Before January 1, 1999, the director of the division of
22-21 access to financial services shall submit a report on its study to
22-22 the governor, lieutenant governor, and speaker of the house of
22-23 representatives. The report must include:
22-24 (1) a summary of the information received by the
22-25 director of the division of access to financial services under
22-26 Article 5A.28, Title 79, Revised Statutes (Article 5069-5A.28,
22-27 Vernon's Texas Civil Statutes), as added by this Act;
23-1 (2) an analysis of the effectiveness of the provisions
23-2 of Chapter 5A, Title 79, Revised Statutes (Article 5069-5A.01 et
23-3 seq., Vernon's Texas Civil Statutes), intended to protect
23-4 borrowers, as added by this Act; and
23-5 (3) other information the director of the division of
23-6 access to financial services considers relevant to the regulation
23-7 of equity loans.
23-8 SECTION 5. This Act takes effect May 1, 1996, but only if
23-9 the constitutional amendment proposed by S.J.R. No. 25, Acts of the
23-10 74th Legislature, Regular Session, 1995, allowing voluntary,
23-11 consensual encumbrances on homestead property for the purpose of
23-12 home equity loans, is approved by the voters. If that amendment is
23-13 not approved by the voters, this Act has no effect.
23-14 SECTION 6. The importance of this legislation and the
23-15 crowded condition of the calendars in both houses create an
23-16 emergency and an imperative public necessity that the
23-17 constitutional rule requiring bills to be read on three several
23-18 days in each house be suspended, and this rule is hereby suspended.