1-1 By: Patterson S.B. No. 301
1-2 (In the Senate - Filed January 24, 1995; January 26, 1995,
1-3 read first time and referred to Committee on State Affairs;
1-4 March 27, 1995, reported adversely, with favorable Committee
1-5 Substitute; April 3, 1995, recommitted to Committee on State
1-6 Affairs; April 12, 1995, reported adversely, with favorable
1-7 Committee Substitute by the following vote: Yeas 9, Nays 4;
1-8 April 12, 1995, sent to printer.)
1-9 COMMITTEE SUBSTITUTE FOR S.B. No. 301 By: Wentworth
1-10 A BILL TO BE ENTITLED
1-11 AN ACT
1-12 relating to a voluntary, consensual encumbrance on homestead
1-13 property for the purpose of an equity loan.
1-14 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-15 SECTION 1. Subsection (b), Section 41.001, Property Code, is
1-16 amended to read as follows:
1-17 (b) Encumbrances may be properly fixed on homestead property
1-18 for:
1-19 (1) purchase money;
1-20 (2) taxes on the property; <or>
1-21 (3) work and material used in constructing
1-22 improvements on the property if contracted for in writing as
1-23 provided by Sections 53.059(a), (b), and (c); or
1-24 (4) an equity loan, as defined by Article 5A.01, Title
1-25 79, Revised Statutes (Article 5069-5A.01, Vernon's Texas Civil
1-26 Statutes).
1-27 SECTION 2. Title 79, Revised Statutes (Article 5069-1.01 et
1-28 seq., Vernon's Texas Civil Statutes), is amended by adding Chapter
1-29 5A to read as follows:
1-30 CHAPTER 5A. EQUITY LOANS
1-31 Art. 5A.01. DEFINITIONS. In this chapter:
1-32 (1) "Advance" means a draw or extension of credit as
1-33 described by Article 1.01(f) of this title under an equity loan
1-34 structured as a contract for an open-end account or as a reverse
1-35 mortgage.
1-36 (2) "Application" means an oral or written request for
1-37 an equity loan made according to procedures established by the
1-38 lender.
1-39 (3) "Blended equity loan" means an equity loan made
1-40 for:
1-41 (A) the payment or refinancing of all or part of
1-42 the purchase money of a homestead, taxes on homestead property, or
1-43 the work and material used in constructing improvements on a
1-44 homestead or for the refinancing of a valid lien given in renewal
1-45 and extension of a lien made for such a purpose; and
1-46 (B) another purpose.
1-47 (4) "Business day" means a day other than a Sunday or
1-48 a legal public holiday listed by 5 U.S.C. Section 6103(a).
1-49 (5) "Equity loan" means an extension of credit under a
1-50 written agreement, including a contract for an open-end account,
1-51 blended equity loan, or reverse mortgage, that is:
1-52 (A) secured in whole or in part by a voluntary
1-53 lien on or other consensual security interest in a homestead;
1-54 (B) created with the consent of each owner and
1-55 the spouse of each owner in accordance with applicable statutory
1-56 requirements; and
1-57 (C) without recourse for personal liability
1-58 against each owner and the spouse of each owner.
1-59 (6) "Reverse mortgage" means a nonrecourse equity
1-60 loan:
1-61 (A) under which advances are provided to a
1-62 borrower based on the equity in a borrower's residence homestead
1-63 property; and
1-64 (B) that requires no payment of principal or
1-65 interest until the entire loan becomes due and payable.
1-66 Art. 5A.02. CONSTRUCTION OF CHAPTER. (a) For the purposes
1-67 of this chapter, an equity loan is considered made on the earliest
1-68 date on which both of the following are executed:
2-1 (1) each promissory note, or contract for an open-end
2-2 account, evidencing the equity loan; and
2-3 (2) a deed of trust or other security instrument
2-4 securing the equity loan.
2-5 (b) In establishing the fair market value of homestead
2-6 property, a lender shall rely on an appraisal or evaluation,
2-7 whichever may be appropriate, prepared in accordance with a state
2-8 or federal requirement applicable to the lender. If no state or
2-9 federal appraisal or evaluation requirement applies to an equity
2-10 loan, the fair market value of the homestead property may be, at
2-11 the lender's option, the value estimate set forth in:
2-12 (1) the most recent ad valorem tax appraisal district
2-13 valuation letter for the homestead property; or
2-14 (2) an appraisal prepared by a licensed or certified
2-15 appraiser under the Texas Appraiser Licensing and Certification Act
2-16 (Article 6573a.2, Vernon's Texas Civil Statutes).
2-17 Art. 5A.03. APPLICABILITY OF CHAPTER. (a) A lender making,
2-18 negotiating, or arranging an equity loan, including a reverse
2-19 mortgage, is required to comply with:
2-20 (1) this chapter;
2-21 (2) any nonconflicting requirement of another law
2-22 relied on as authority for the rate or amount of interest provided
2-23 for in the loan; and
2-24 (3) applicable federal law.
2-25 (b) A loan made for the payment or refinancing of all or
2-26 part of the purchase money of a homestead, taxes on homestead
2-27 property, including the refinancing of valid and subsisting ad
2-28 valorem tax liens, federal tax liens, and maintenance fee liens, or
2-29 the work and material used in constructing improvements on a
2-30 homestead, or a loan made in renewal and extension of such a loan,
2-31 is not an equity loan, but may be made subject to this chapter if
2-32 the parties in the loan documents agree that the loan is to be
2-33 governed by this chapter. A blended equity loan is governed by
2-34 this chapter.
2-35 Art. 5A.04. AUTHORIZED LENDERS. (a) An equity loan may be
2-36 made only by:
2-37 (1) a bank, savings and loan association, savings
2-38 bank, or credit union doing business under the laws of this state
2-39 or of the United States;
2-40 (2) a person licensed under Chapter 3 of this title;
2-41 or
2-42 (3) a person approved as a mortgagee by the United
2-43 States Department of Housing and Urban Development to make insured
2-44 loans under the National Housing Act (12 U.S.C. Section 1701 et
2-45 seq.).
2-46 (b) A lender under Subsection (a) of this article may make
2-47 an equity loan in addition to any other loan authorized for that
2-48 lender.
2-49 Art. 5A.05. ELIGIBLE PROPERTY. An equity loan may not be
2-50 secured by homestead property that is designated for agricultural
2-51 use as provided by Subchapter C, Chapter 23, Tax Code.
2-52 Art. 5A.06. ONE EQUITY LOAN AUTHORIZED. At any time a
2-53 homestead may not be encumbered by more than one equity loan in
2-54 addition to a valid encumbrance on homestead property authorized by
2-55 Section 41.001(b)(1), (2), or (3), Property Code.
2-56 Art. 5A.07. ADVANCES AND REPAYMENT DETERMINED BY AGREEMENT.
2-57 An equity loan may provide for funding to or for the benefit of the
2-58 borrower in one or more advances at a frequency and for a term to
2-59 which the parties agree. An equity loan may provide for repayment
2-60 in one or more payments on a payment schedule and in amounts to
2-61 which the parties agree.
2-62 Art. 5A.08. LIMITATION ON EQUITY LOAN TO PERSON 65 YEARS OF
2-63 AGE OR OLDER. A lender may not make an equity loan other than a
2-64 reverse mortgage if a borrower under the loan is 65 years of age or
2-65 older.
2-66 Art. 5A.09. PERCENT OF VALUE LIMIT. The principal amount of
2-67 an equity loan plus the aggregate total of the outstanding balances
2-68 of other indebtedness secured by valid encumbrances of record
2-69 against the homestead property may not exceed 90 percent of the
2-70 fair market value of the homestead property on the date the equity
3-1 loan is made.
3-2 Art. 5A.10. ADVANCE NOT INCLUDED AS OUTSTANDING
3-3 INDEBTEDNESS. For the purposes of Article 5A.09 of this title, the
3-4 aggregate total of the outstanding balances of indebtedness secured
3-5 by valid encumbrances of record against the homestead property does
3-6 not include any advance made by a lender to protect a lien,
3-7 security interest, or other valid encumbrance on the homestead
3-8 property securing the loan, including the payment of hazard
3-9 insurance premiums, repairs to the homestead property, or payments
3-10 on any indebtedness secured by a prior valid encumbrance on the
3-11 homestead property.
3-12 Art. 5A.11. LIMIT ON COLLATERAL AND USE OF PROCEEDS. (a) A
3-13 lender may not require or accept real or personal property as
3-14 additional collateral on an equity loan, except for a manufactured
3-15 home, as defined in the Texas Manufactured Housing Standards Act
3-16 (Article 5221f, Vernon's Texas Civil Statutes), personal property
3-17 affixed or to be affixed to the homestead in a manner that would
3-18 make the property a fixture, or rents derived from homestead
3-19 property. Only the homestead property securing an equity loan may
3-20 be collateral for the equity loan.
3-21 (b) A lender may not:
3-22 (1) require or accept a borrower's homestead property,
3-23 regardless of whether the property was previously encumbered by an
3-24 existing equity loan, as collateral on a debt not described by
3-25 Section 41.001(b), Property Code;
3-26 (2) require a borrower to apply the proceeds of an
3-27 equity loan to repay a debt not described by Section 41.001(b),
3-28 Property Code; or
3-29 (3) seek recourse against or expose assets of a
3-30 borrower other than the property securing the equity loan for
3-31 payment or performance of an obligation of an equity loan.
3-32 (c) This article does not:
3-33 (1) prohibit or limit any statutory or common law lien
3-34 or right of offset; or
3-35 (2) prevent a lender from requiring insurance
3-36 authorized by this chapter as additional security for an equity
3-37 loan.
3-38 (d) Proceeds of a sale of the homestead or its fixtures, or
3-39 proceeds of insurance covering the property, are not considered
3-40 additional collateral and may be included as part of the security
3-41 for the loan.
3-42 (e) A provision of a deed of trust or other security
3-43 agreement that secures a loan other than an equity loan and that
3-44 makes the deed of trust or security agreement applicable to other
3-45 indebtedness of the borrower does not apply to an equity loan of
3-46 the borrower to the extent that the provision would cause the
3-47 equity loan to be secured by property other than the borrower's
3-48 homestead property. This subsection does not affect the validity
3-49 of the provision as applied to a loan other than an equity loan.
3-50 Art. 5A.12. ACCELERATION PROHIBITED. (a) A lender may not
3-51 accelerate the remaining payments of an equity loan or demand
3-52 payment of the loan in full because of a decrease in the market
3-53 value of the homestead property securing the equity loan, unless
3-54 the decrease in the market value is caused by substantial damage or
3-55 destruction to the property, a condemnation or other taking of the
3-56 property, the discovery of an environmental hazard on the property,
3-57 or the use of the property in a manner that constitutes waste on
3-58 the property or a nuisance. This article does not prohibit a
3-59 lender, if permitted by the loan documents, from refusing to make
3-60 additional advances under an equity loan, other than a reverse
3-61 mortgage, if the market value of the homestead property decreases,
3-62 regardless of the cause of the decrease.
3-63 (b) A lender may not accelerate the remaining payments of an
3-64 equity loan or demand payment of the loan in full because of the
3-65 borrower's default under any other indebtedness not secured by a
3-66 prior valid encumbrance on the homestead property, regardless of
3-67 whether the indebtedness is owed to the lender. This article does
3-68 not prohibit a lender, if permitted by the loan documents, from
3-69 refusing to make additional advances under an equity loan, other
3-70 than a reverse mortgage, if the borrower has defaulted in the
4-1 performance or payment of another indebtedness owed to the lender
4-2 or another creditor.
4-3 Art. 5A.13. NOTICE. (a) The lender in an equity loan shall
4-4 provide to a borrower the following notice in type that is
4-5 boldfaced, capitalized, underlined, or otherwise set out from
4-6 surrounding written material so as to be conspicuous:
4-7 "YOU ARE PLEDGING YOUR HOMESTEAD AS COLLATERAL TO SECURE THE
4-8 PAYMENT OF A LOAN. IF YOU DO NOT PAY OR IF YOU FAIL TO PERFORM THE
4-9 TERMS OF THE LOAN CONTRACT, THE LENDER HAS THE RIGHT TO FORECLOSE
4-10 ON YOUR HOMESTEAD AND SELL IT TO PAY THE LOAN.
4-11 "YOUR HOMESTEAD MAY NOT BE PLEDGED TO SECURE THE PAYMENT OF
4-12 MORE THAN ONE EQUITY LOAN AT A TIME.
4-13 "ALL THE DEBTS AGAINST YOUR HOMESTEAD, INCLUDING THE EQUITY
4-14 LOAN, MAY NOT EXCEED 90 PERCENT OF THE VALUE OF YOUR HOMESTEAD.
4-15 "YOUR LENDER MAY NOT ACCEPT ANY OTHER PROPERTY YOU OWN, OTHER
4-16 THAN A MANUFACTURED HOME, AS ADDITIONAL COLLATERAL FOR YOUR LOAN.
4-17 "THIS LOAN IS MADE WITHOUT RECOURSE FOR PERSONAL LIABILITY.
4-18 IN THE EVENT OF DEFAULT, THE LENDER MAY FORECLOSE ONLY ON THE
4-19 PROPERTY SECURING THE LOAN.
4-20 "YOU HAVE AT LEAST 12 DAYS FROM THE DATE YOU REQUESTED THE
4-21 LOAN TO CHANGE YOUR MIND ABOUT THE LOAN BEFORE YOU CAN SIGN THE
4-22 LOAN DOCUMENTS. IN ADDITION, YOU HAVE THREE BUSINESS DAYS AFTER
4-23 YOU SIGN THE LOAN DOCUMENTS TO CHANGE YOUR MIND ABOUT THE LOAN. IF
4-24 YOU DECIDE NOT TO TAKE THE LOAN DURING ONE OF THESE PERIODS, YOU
4-25 WILL HAVE NO FURTHER OBLIGATION TO THE LENDER.
4-26 "THE LOAN DOCUMENT MAY NOT BE SIGNED AT YOUR HOME, AND MAY BE
4-27 SIGNED ONLY AT THE LENDER'S OFFICE, AT A TITLE COMPANY, OR AT A
4-28 TEXAS ATTORNEY'S OFFICE.
4-29 "UNLESS THE INFORMATION IS CONTAINED IN YOUR NOTE OR ANOTHER
4-30 LOAN DOCUMENT, YOUR LENDER IS REQUIRED TO GIVE YOU A WRITTEN
4-31 STATEMENT WITH ITS NAME AND ADDRESS AND YOUR NAME AND ADDRESS
4-32 EITHER BEFORE OR WHEN YOU SIGN THE LOAN DOCUMENTS. THE STATEMENT
4-33 MUST ALSO INCLUDE A DESCRIPTION OF ANY INSURANCE YOU PURCHASED, AND
4-34 HOW MUCH YOU PAID, IN CONNECTION WITH THE LOAN.
4-35 "ON YOUR REQUEST, YOUR LENDER IS REQUIRED TO GIVE YOU A
4-36 RECEIPT IF YOU MAKE A PAYMENT ON THE LOAN IN CASH."
4-37 (b) The lender shall provide the notice when the lender
4-38 receives a completed application for the loan.
4-39 Art. 5A.14. WAITING PERIOD; RESCISSION. (a) An equity loan
4-40 may not be closed before the 12th day after the date the lender
4-41 receives a completed application for the loan.
4-42 (b) Each owner of residential homestead property securing an
4-43 equity loan may rescind the loan. Compliance with all applicable
4-44 state and federal law regarding the right to rescind, including 12
4-45 C.F.R. Sections 226.15 et seq. and 226.23 et seq., is considered
4-46 compliance with this chapter regarding rescission.
4-47 (c) The right of rescission provided by this article applies
4-48 to each equity loan made under this chapter, regardless of the
4-49 purpose of the loan. An owner of the residential homestead
4-50 property securing an equity loan may not waive the right of
4-51 rescission required by this article, regardless of whether
4-52 applicable state or federal law provides for a waiver.
4-53 Art. 5A.15. LOCATION OF CLOSING. An equity loan may not be
4-54 closed at the residence of the borrower and shall be closed only at
4-55 an office of the lender, a title company, or an attorney licensed
4-56 to practice law in this state. For the purposes of this chapter,
4-57 "closing" means the execution by the borrower of a promissory note
4-58 and the security instruments securing the loan.
4-59 Art. 5A.16. GENERAL PROVISIONS RELATING TO REVERSE
4-60 MORTGAGES. (a) Notwithstanding any other provision of this
4-61 chapter, payment in whole or in part shall be permitted without
4-62 penalty at any time during the term of a reverse mortgage.
4-63 (b) Advances made under a reverse mortgage and interest on
4-64 those advances have priority over a lien filed for record in the
4-65 real property records in the county where the residence homestead
4-66 property is located after the reverse mortgage is filed for record
4-67 in the real property records of that county.
4-68 (c) A reverse mortgage may provide for an interest rate that
4-69 is fixed or adjustable and may also provide for interest that is
4-70 contingent on appreciation in the fair market value of the
5-1 homestead property.
5-2 (d) If a reverse mortgage provides for periodic advances to
5-3 a borrower, the advances may not be reduced in amount or number
5-4 because of an adjustment in the interest rate.
5-5 (e) A lender who fails to make loan advances as required in
5-6 the loan documents, and who fails to cure the default as required
5-7 in the loan documents, forfeits any right to collect all interest.
5-8 Art. 5A.17. REPAYMENT OF REVERSE MORTGAGE. (a) A reverse
5-9 mortgage becomes due and payable if:
5-10 (1) the homestead property securing the loan is sold;
5-11 (2) all borrowers cease occupying the homestead
5-12 property as a principal residence;
5-13 (3) any fixed maturity date agreed to by the lender
5-14 and the borrower is reached; or
5-15 (4) an event that is specified in the loan documents,
5-16 including the death of all borrowers, occurs and jeopardizes the
5-17 lender's security.
5-18 (b) Temporary absences from the homestead property by all
5-19 borrowers for a period not exceeding 60 consecutive calendar days
5-20 may not cause the reverse mortgage to become due and payable.
5-21 Temporary absences from the homestead property by all borrowers for
5-22 a period exceeding 60 consecutive calendar days but not exceeding
5-23 one year may not cause the reverse mortgage to become due and
5-24 payable if the borrower has taken prior action to secure the home
5-25 in a manner satisfactory to the lender.
5-26 (c) The lender's right to collect reverse mortgage payments
5-27 is subject to the applicable statute of limitations for a debt
5-28 provided by Section 16.004(a), Civil Practice and Remedies Code,
5-29 and by Section 3.122, Business & Commerce Code, except that the
5-30 period of limitations begins on the date the reverse mortgage
5-31 becomes due and payable.
5-32 (d) In the loan documents, the lender must prominently
5-33 disclose any interest or fee to be charged during the period that
5-34 begins on the date the reverse mortgage becomes due and payable and
5-35 ends when repayment is made in full.
5-36 Art. 5A.18. INAPPLICABILITY OF OTHER STATUTES TO REVERSE
5-37 MORTGAGE. A reverse mortgage loan may be made or acquired without
5-38 regard to the following provisions of any applicable state or
5-39 federal statute:
5-40 (1) a limitation on the purpose and use of future
5-41 advances or other mortgage proceeds;
5-42 (2) a limitation on future advances to a term of years
5-43 or a limitation on the term of open-end account advances;
5-44 (3) a limitation on the term during which future
5-45 advances take priority over intervening advances;
5-46 (4) a requirement that a maximum loan amount be stated
5-47 in the reverse mortgage loan documents;
5-48 (5) a limitation on loan-to-value ratios, other than a
5-49 limitation provided by this chapter;
5-50 (6) a prohibition on balloon payments;
5-51 (7) a prohibition on compound interest and interest on
5-52 interest;
5-53 (8) a prohibition on contracting for, charging, or
5-54 receiving any rate of interest authorized under Article 1.04 of
5-55 this title or under any other statute authorizing a lender to
5-56 contract for a rate of interest; and
5-57 (9) a requirement that a percentage of the reverse
5-58 mortgage proceeds be advanced before the assignment of the reverse
5-59 mortgage.
5-60 Art. 5A.19. STATUS OF REVERSE MORTGAGE LOAN UNDER PUBLIC
5-61 ASSISTANCE PROGRAM. For the purposes of determining eligibility
5-62 under any statute relating to payments, allowance, benefits, or
5-63 services provided on a means-tested basis by this state, including
5-64 supplemental security income, low-income energy assistance,
5-65 property tax relief, medical assistance, and general assistance:
5-66 (1) reverse mortgage loan advances made to a borrower
5-67 are considered proceeds from a loan, and not income; and
5-68 (2) undisbursed funds under a reverse mortgage loan
5-69 are considered equity in a borrower's home and not proceeds from a
5-70 loan.
6-1 Art. 5A.20. REVERSE MORTGAGE LOAN INFORMATION AND
6-2 COUNSELING. A lender may not make a reverse mortgage commitment
6-3 unless the loan applicant attests in writing that the applicant
6-4 received from the lender, at the time the notice is required by
6-5 Article 5A.13 of this title, a statement prepared by the consumer
6-6 credit commissioner regarding the advisability and availability of
6-7 independent information and counseling services on reverse
6-8 mortgages. The consumer credit commissioner shall:
6-9 (1) develop the content and format of the statement;
6-10 (2) provide independent consumer information on
6-11 reverse mortgages and their alternatives; and
6-12 (3) refer consumers to independent counseling services
6-13 with expertise in reverse mortgages.
6-14 Art. 5A.21. INTEREST. A lender may contract for and receive
6-15 on an equity loan any fixed or variable rate of interest that does
6-16 not exceed the maximum rate of interest authorized under Article
6-17 1.04 of this title or under any other state or federal statute
6-18 authorizing the lender to contract for a rate of interest.
6-19 Interest shall be accrued and earned by applying the simple annual
6-20 interest rate or rates under the loan contract to the principal
6-21 balance, which may include unpaid interest and additions to
6-22 principal authorized by the loan contract. In determining the
6-23 amount of interest accrued, the lender may assume that the payments
6-24 have been made as originally scheduled and ignore any difference
6-25 created by late or early payments. Although payment of principal
6-26 or interest is not required under a reverse mortgage until the
6-27 entire loan becomes due and payable, interest accrues and may be
6-28 compounded during the existence of the loan as provided by the
6-29 reverse mortgage loan agreement.
6-30 Art. 5A.22. CLOSED-END EQUITY LOANS. (a) Each closed-end
6-31 equity loan shall be scheduled to be repaid in substantially equal
6-32 successive monthly installments, except that the first installment
6-33 may be scheduled beyond one month from the date of the loan but not
6-34 beyond two months from the date of the loan.
6-35 (b) The amount of each installment under the schedule of
6-36 payments in a closed-end equity loan shall equal or exceed the
6-37 amount of interest scheduled to accrue as of the date of the
6-38 installment or that would accrue as of the installment date through
6-39 amortization of the loan on the date of the loan.
6-40 Art. 5A.23. CHARGES AND FEES. A contract for an equity loan
6-41 may permit a lender to collect the following fees and charges in
6-42 connection with the loan:
6-43 (1) a reasonable expense or cost paid, or that will be
6-44 paid, to a third party that is not an employee or affiliate of the
6-45 lender if the expense or cost is:
6-46 (A) for an abstract, a title report, attorney's
6-47 fees for a legal opinion or document preparation, title insurance,
6-48 escrow for future payments of taxes and insurance, an annuity, an
6-49 appraisal or evaluation, a survey, or a credit report; or
6-50 (B) actually incurred in the making or servicing
6-51 of an equity loan and necessary or proper for the protection of the
6-52 lender;
6-53 (2) a fee prescribed by law paid, or that will be
6-54 paid, to a public official for determining the existence of or for
6-55 recording, releasing, or satisfying a lien, security interest, or
6-56 other valid encumbrance related to an equity loan;
6-57 (3) a bona fide commitment fee for the separate
6-58 consideration of committing to make an equity loan in the future;
6-59 (4) any other fee required by federal statute;
6-60 (5) a reasonable fee or charge paid to the trustee in
6-61 connection with a deed of trust or similar instrument executed in
6-62 connection with the equity loan, including a fee for enforcing the
6-63 lien, posting for sale, selling, or releasing the property secured
6-64 by the deed of trust;
6-65 (6) a reasonable fee paid to an attorney who is not an
6-66 employee of the lender in the collection of a delinquent equity
6-67 loan and any court cost or fee incurred in the collection or
6-68 foreclosure of a lien created by the loan;
6-69 (7) a fee not to exceed the amount permitted by law
6-70 for the return by a depository institution of a dishonored check,
7-1 negotiable order of withdrawal, share draft, or deposit draft
7-2 offered in full or partial payment of an equity loan;
7-3 (8) a late charge or penalty, if all or part of a
7-4 scheduled payment continues unpaid for 10 or more days after the
7-5 date the payment was due, except that:
7-6 (A) only one late charge or penalty authorized
7-7 by this article may be charged for each scheduled payment that is
7-8 past due; and
7-9 (B) the late charge or penalty may not exceed
7-10 five percent of the unpaid amount of the scheduled payment that is
7-11 past due; and
7-12 (9) the premiums received in connection with the sale
7-13 of insurance as provided by Article 5A.24 of this title.
7-14 Art. 5A.24. INSURANCE. (a) Under an equity loan, a lender
7-15 may request or require a borrower to provide insurance:
7-16 (1) in the amounts and under the conditions that apply
7-17 to secondary mortgage loans as provided by Articles 5.02 and 5.03
7-18 of this title;
7-19 (2) in the amounts and under the terms and conditions
7-20 of the Home Equity Conversion Mortgage Insurance program (Housing
7-21 and Community Development Act of 1987, Pub. L. 100-242), Section
7-22 255 of the National Housing Act (12 U.S.C. Section 1715z-20), and
7-23 24 C.F.R. Section 206 et seq.; and
7-24 (3) in the amounts and under the terms and conditions
7-25 provided for by any state or federal statute authorizing or
7-26 requiring any type of insurance relating to a loan or other
7-27 extension of credit, including insurance authorized under Chapters
7-28 3, 4, 5, and 15 of this title.
7-29 (b) Premiums for insurance under this article may be added
7-30 to the loan contract.
7-31 Art. 5A.25. LENDER'S DUTY TO BORROWER. (a) The lender
7-32 under an equity loan shall deliver to the borrower, or to one of
7-33 the borrowers if more than one, a copy of the note or the contract
7-34 for an open-end account, a copy of all other documents signed by
7-35 the borrower or borrowers, and a written statement of:
7-36 (1) the name and address of each borrower and of the
7-37 lender; and
7-38 (2) each type of insurance, if any, for which a charge
7-39 to a borrower is included in the loan agreement and the amount of
7-40 the charge for the insurance.
7-41 (b) If the note or another loan document contains the
7-42 information required by Subsection (a) of this article, a copy of
7-43 the note or document may be delivered to the borrower rather than
7-44 the separate written statement.
7-45 (c) If requested by the borrower, the lender shall give a
7-46 receipt to a person making a cash payment on an equity loan.
7-47 (d) A prepayment fee, charge, or penalty may not be
7-48 collected on any equity loan, except as authorized by Article 1.07
7-49 of this title.
7-50 (e) On termination and full payment of an equity loan, the
7-51 holder shall within a reasonable time:
7-52 (1) cancel and return any note to the borrower and
7-53 give the borrower a release of any mortgage, deed of trust,
7-54 security instrument, or other instrument securing the loan; or
7-55 (2) endorse the note and assign any mortgage, deed of
7-56 trust, or other security instrument to a refinancing lender who
7-57 advances funds to discharge the equity loan indebtedness at the
7-58 request of the borrower and in renewal and extension of the
7-59 security instrument.
7-60 Art. 5A.26. PROHIBITED PRACTICES. (a) A lender may not
7-61 accept an assignment of wages as security for a loan made under
7-62 this chapter.
7-63 (b) In connection with an equity loan, a lender may not
7-64 accept a confession of judgment or power of attorney running to
7-65 the lender or to a third person to confess judgment or to appear
7-66 for a borrower in a judicial proceeding.
7-67 (c) A lender may not accept an instrument in which blanks
7-68 are left to be filled in after an equity loan is executed.
7-69 Art. 5A.27. OWNER ACKNOWLEDGMENT. A lienholder or assignee
7-70 for value may conclusively rely on an acknowledgment by the owner
8-1 of homestead property and the owner's spouse, if the owner is
8-2 married, of compliance with applicable requirements for an equity
8-3 loan secured by a mortgage, trust deed, or other lien on a
8-4 homestead.
8-5 Art. 5A.28. REPORT BY LENDERS. (a) Before March 1 of each
8-6 year, a lender that makes an equity loan shall submit to the
8-7 director of the division of access to financial services a report
8-8 of the lender's home equity loan activity during the calendar year
8-9 preceding the year the report is submitted. For each home equity
8-10 loan for which the lender received an application, the report must
8-11 state the purpose of the loan, whether the loan was granted, and
8-12 the applicant's income and census tract. The director of the
8-13 division of access to financial services may set and collect from
8-14 the lender a reasonable filing fee in connection with the
8-15 submission of the report in an amount necessary and reasonable to
8-16 enable the director of the division of access to financial services
8-17 to carry out this article.
8-18 (b) The director of the division of access to financial
8-19 services may accept a copy of a report submitted by the lender to a
8-20 federal agency instead of the report required under Subsection (a)
8-21 of this article if the report submitted to the federal agency
8-22 contains the information required for a report under Subsection (a)
8-23 of this article.
8-24 (c) A lender that does not make a home equity loan during
8-25 the period covered by a report is not required to submit the
8-26 report.
8-27 Art. 5A.29. EQUITY LOAN RECOVERY FUND. (a) The consumer
8-28 credit commissioner shall establish and maintain an equity loan
8-29 recovery fund. The fund shall be used for reimbursing aggrieved
8-30 persons who suffer actual damages as a result of misrepresentation,
8-31 dishonesty, or fraud committed by an authorized lender in the
8-32 course of making an equity loan, provided the recovery is ordered
8-33 by a court of competent jurisdiction against the lender and the
8-34 court determines that the lender is unable to make the payment.
8-35 (b) The sums received by the consumer credit commissioner
8-36 for deposit in the equity loan recovery fund shall be held by the
8-37 consumer credit commissioner in trust for carrying out the purposes
8-38 of the equity loan recovery fund.
8-39 (c) The Finance Commission shall establish and collect
8-40 reasonable and necessary fees from authorized lenders for each home
8-41 equity loan originated by the lender to accomplish the purposes of
8-42 this article. Fees collected shall be deposited into the fund.
8-43 (d) The Finance Commission shall adopt rules necessary to
8-44 implement this article.
8-45 SECTION 3. Chapter I, The Texas Banking Code (Article
8-46 342-101 et seq., Vernon's Texas Civil Statutes), is amended by
8-47 adding Article 11D to read as follows:
8-48 Art. 11D. DIVISION OF ACCESS TO FINANCIAL SERVICES.
8-49 (a) The division of access to financial services is created in the
8-50 Office of Consumer Credit Commissioner to inform, monitor, and
8-51 report on the availability and quality of home equity loans,
8-52 including home equity loans offered by financial institutions in
8-53 the state to agricultural businesses, small businesses, and
8-54 individual consumers in the state.
8-55 (b) The division shall be headed by a director appointed by
8-56 the Finance Commission.
8-57 (c) The director of the division of access to financial
8-58 services shall adequately staff the division to carry out the
8-59 division's functions under this article.
8-60 (d) The division shall:
8-61 (1) conduct research on the effect of home equity
8-62 lending on the availability, quality, and cost of home equity
8-63 lending for agricultural businesses, small businesses, and
8-64 individual consumers in various regions of the state;
8-65 (2) conduct research on the effect of the practices of
8-66 business entities in the state that provide home equity loans to
8-67 agricultural businesses, small businesses, and individual consumers
8-68 in the state;
8-69 (3) conduct a public information campaign to provide
8-70 low-income and elderly consumers with information and counseling
9-1 about the benefits and liabilities associated with home equity
9-2 loans;
9-3 (4) compile a summary of the information received from
9-4 each lender under Article 5A.28, Title 79, Revised Statutes
9-5 (Article 5069-5A.28, Vernon's Texas Civil Statutes), including an
9-6 analysis of census tract demographic data, to produce reports on
9-7 home equity lending patterns with regard to the rate of application
9-8 and loan acceptance by income and census tract of the home;
9-9 (5) not later than December 1 of each even-numbered
9-10 year, provide to the legislature a report detailing the findings of
9-11 the division and recommending any action the division believes is
9-12 necessary to protect consumers with respect to home equity lending;
9-13 and
9-14 (6) prepare information of public interest describing
9-15 the functions of the division. The division shall make the
9-16 information available to the public and appropriate state and
9-17 federal agencies.
9-18 (e) The division shall have the authority to apply for and
9-19 receive public and private grants and gifts.
9-20 (f) The division shall have the authority to contract with
9-21 public and private entities to carry out studies and analyses under
9-22 this article.
9-23 (g) The Finance Commission shall establish and collect
9-24 reasonable and necessary fees to accomplish the purposes of this
9-25 article.
9-26 SECTION 4. (a) After May 1, 1998, the director of the
9-27 division of access to financial services shall conduct a study of
9-28 homestead equity lending under Chapter 5A, Title 79, Revised
9-29 Statutes (Article 5069-5A.01 et seq., Vernon's Texas Civil
9-30 Statutes), as added by this Act.
9-31 (b) Before January 1, 1999, the director of the division of
9-32 access to financial services shall submit a report on its study to
9-33 the governor, lieutenant governor, and speaker of the house of
9-34 representatives. The report must include:
9-35 (1) a summary of the information received by the
9-36 director of the division of access to financial services under
9-37 Article 5A.28, Title 79, Revised Statutes (Article 5069-5A.28,
9-38 Vernon's Texas Civil Statutes), as added by this Act;
9-39 (2) an analysis of the effectiveness of the provisions
9-40 of Chapter 5A, Title 79, Revised Statutes (Article 5069-5A.01 et
9-41 seq., Vernon's Texas Civil Statutes), intended to protect
9-42 borrowers, as added by this Act; and
9-43 (3) other information the director of the division of
9-44 access to financial services considers relevant to the regulation
9-45 of equity loans.
9-46 SECTION 5. This Act takes effect May 1, 1996, but only if
9-47 the constitutional amendment proposed by S.J.R. No. 25, Acts of the
9-48 74th Legislature, Regular Session, 1995, allowing voluntary,
9-49 consensual encumbrances on homestead property for the purpose of
9-50 home equity loans, is approved by the voters. If that amendment is
9-51 not approved by the voters, this Act has no effect.
9-52 SECTION 6. The importance of this legislation and the
9-53 crowded condition of the calendars in both houses create an
9-54 emergency and an imperative public necessity that the
9-55 constitutional rule requiring bills to be read on three several
9-56 days in each house be suspended, and this rule is hereby suspended.
9-57 * * * * *
9-58 not approved by the voters, this Act has no effect.
9-59 SECTION 6. The importance of this legislation and the
9-60 crowded condition of the calendars in both houses create an
9-61 emergency and an imperative public necessity that the
9-62 constitutional rule requiring bills to be read on three several
9-63 days in each house be suspended, and this rule is hereby suspended.
9-64 * * * * *