By Patterson S.B. No. 995
74R5614 DWS-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to requirements applicable to a homestead improvement
1-3 loan.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Title 79, Revised Statutes (Article 5069-1.01 et
1-6 seq., Vernon's Texas Civil Statutes), is amended by adding Chapter
1-7 5B to read as follows:
1-8 CHAPTER 5B. HOMESTEAD IMPROVEMENT LOANS
1-9 Art. 5B.01. DEFINITIONS. In this chapter:
1-10 (1) "Application" means an oral or written request for
1-11 a homestead improvement loan made according to procedures
1-12 established by the lender.
1-13 (2) "Blended homestead improvement loan" means a loan
1-14 made for:
1-15 (A) the payment or refinancing of all or part of
1-16 the purchase money of a homestead or taxes on homestead property or
1-17 for the refinancing of a valid lien given in renewal and extension
1-18 of a lien made for such a purpose; and
1-19 (B) the work and material used in constructing
1-20 improvements on a homestead.
1-21 (3) "Business day" means a day other than a Sunday or
1-22 a legal public holiday listed by 5 U.S.C. Section 6103(a).
1-23 (4) "Homestead improvement loan" means a loan for
1-24 work or materials used in constructing improvements on a homestead
2-1 that is secured in whole or in part by a voluntary lien on or other
2-2 consensual security interest in a homestead created with the
2-3 consent of each owner and the spouse of each owner in accordance
2-4 with applicable statutory requirements.
2-5 Art. 5B.02. CONSTRUCTION OF CHAPTER. (a) For the purposes
2-6 of this chapter, a homestead improvement loan is considered made on
2-7 the earliest date on which both of the following are executed:
2-8 (1) each promissory note evidencing the homestead
2-9 improvement loan; and
2-10 (2) a deed of trust or other security instrument
2-11 securing the homestead improvement loan.
2-12 (b) In establishing the fair market value of homestead
2-13 property, a lender shall rely on an appraisal or evaluation,
2-14 whichever may be appropriate, prepared in accordance with a state
2-15 or federal requirement applicable to the lender. If no state or
2-16 federal appraisal or evaluation requirement applies to a homestead
2-17 improvement loan, the fair market value of the homestead property
2-18 may be, at the lender's option, the value estimate set forth in:
2-19 (1) the most recent ad valorem tax appraisal district
2-20 valuation letter for the homestead property; or
2-21 (2) an appraisal prepared by a licensed or certified
2-22 appraiser under the Texas Appraiser Licensing and Certification Act
2-23 (Article 6573a.2, Vernon's Texas Civil Statutes).
2-24 Art. 5B.03. APPLICABILITY OF CHAPTER. (a) A lender making,
2-25 negotiating, or arranging a homestead improvement loan is required
2-26 to comply with:
2-27 (1) this chapter;
3-1 (2) any nonconflicting requirement of another law
3-2 relied on as authority for the rate or amount of interest provided
3-3 for in the loan; and
3-4 (3) applicable federal law.
3-5 (b) A loan made for the payment or refinancing of all or
3-6 part of the purchase money of a homestead or taxes on homestead
3-7 property, including the refinancing of valid and subsisting ad
3-8 valorem tax liens, federal tax liens, and maintenance fee liens, or
3-9 a loan made in renewal and extension of such a loan, may be made
3-10 subject to this chapter if the parties in the loan documents agree
3-11 that the loan is to be governed by this chapter. A blended
3-12 homestead improvement loan is governed by this chapter.
3-13 Art. 5B.04. AUTHORIZED LENDERS. (a) A homestead
3-14 improvement loan may be made only by:
3-15 (1) a bank, savings and loan association, savings
3-16 bank, or credit union doing business under the laws of this state
3-17 or of the United States;
3-18 (2) a person licensed under Chapter 3 of this title;
3-19 or
3-20 (3) a person approved as a mortgagee by the United
3-21 States Department of Housing and Urban Development to make insured
3-22 loans under the National Housing Act (12 U.S.C. Section 1701 et
3-23 seq.).
3-24 (b) A lender under Subsection (a) of this section may make a
3-25 homestead improvement loan in addition to any other loan authorized
3-26 for that lender.
3-27 Art. 5B.05. ONE HOMESTEAD IMPROVEMENT LOAN AUTHORIZED. At
4-1 any time a homestead may not be encumbered by more than one
4-2 homestead improvement loan in addition to a valid encumbrance on
4-3 homestead property authorized by Section 41.001(b)(1) or (2),
4-4 Property Code.
4-5 Art. 5B.06. ADVANCES AND REPAYMENT DETERMINED BY AGREEMENT.
4-6 A homestead improvement loan may provide for funding to or for the
4-7 benefit of the borrower in one or more advances at a frequency and
4-8 for a term to which the parties agree. A homestead improvement
4-9 loan may provide for repayment in one or more payments on a payment
4-10 schedule and in amounts to which the parties agree.
4-11 Art. 5B.07. LIMITATION ON HOMESTEAD IMPROVEMENT LOAN TO
4-12 PERSON 65 YEARS OF AGE OR OLDER. A lender may not make a homestead
4-13 improvement loan if a borrower under the loan is 65 years of age or
4-14 older.
4-15 Art. 5B.08. PERCENT OF VALUE LIMIT. The principal amount
4-16 of a homestead improvement loan plus the aggregate total of the
4-17 outstanding balances of other indebtedness secured by valid
4-18 encumbrances of record against the homestead property may not
4-19 exceed 90 percent of the fair market value of the homestead
4-20 property on the date the homestead improvement loan is made. The
4-21 principal amount of a blended homestead improvement loan may not
4-22 exceed 90 percent of the fair market value of the homestead
4-23 property on the date the blended homestead improvement loan is
4-24 made.
4-25 Art. 5B.09. ADVANCE NOT INCLUDED AS OUTSTANDING
4-26 INDEBTEDNESS. For the purposes of Article 5B.08 of this title, the
4-27 aggregate total of the outstanding balances of indebtedness secured
5-1 by valid encumbrances of record against the homestead property does
5-2 not include any advance made by a lender to protect a lien,
5-3 security interest, or other valid encumbrance on the homestead
5-4 property securing the loan, including the payment of hazard
5-5 insurance premiums, repairs to the homestead property, or payments
5-6 on any indebtedness secured by a prior valid encumbrance on the
5-7 homestead property.
5-8 Art. 5B.10. LIMIT ON COLLATERAL AND USE OF PROCEEDS. (a) A
5-9 lender may not require or accept real or personal property as
5-10 additional collateral on a homestead improvement loan, except for a
5-11 manufactured home, as defined in the Texas Manufactured Housing
5-12 Standards Act (Article 5221f, Vernon's Texas Civil Statutes),
5-13 personal property affixed or to be affixed to the homestead in a
5-14 manner that would make the property a fixture, or rents derived
5-15 from homestead property. Only the homestead property securing a
5-16 homestead improvement loan may be collateral for the homestead
5-17 improvement loan.
5-18 (b) A lender may not:
5-19 (1) require or accept a borrower's homestead property,
5-20 regardless of whether the property was previously encumbered by an
5-21 existing homestead improvement loan, as collateral on a debt not
5-22 described by Section 41.001(b), Property Code; or
5-23 (2) require a borrower to apply the proceeds of a
5-24 homestead improvement loan to repay a debt not described by Section
5-25 41.001(b), Property Code.
5-26 (c) This section does not:
5-27 (1) prohibit or limit any statutory or common law lien
6-1 or right of offset; or
6-2 (2) prevent a lender from requiring insurance
6-3 authorized by this chapter as additional security for a homestead
6-4 improvement loan.
6-5 (d) Proceeds of a sale of the homestead or its fixtures, or
6-6 proceeds of insurance covering the property, are not considered
6-7 additional collateral and may be included as part of the security
6-8 for the loan.
6-9 (e) A provision of a deed of trust or other security
6-10 agreement that secures a loan other than a homestead improvement
6-11 loan and that makes the deed of trust or security interest
6-12 applicable to other indebtedness of the borrower does not apply to
6-13 a homestead improvement loan of the borrower to the extent that the
6-14 provision would cause the homestead improvement loan to be secured
6-15 by property other than the borrower's homestead property. This
6-16 subsection does not affect the validity of the provision as applied
6-17 to a loan other than a homestead improvement loan.
6-18 Art. 5B.11. ACCELERATION PROHIBITED. (a) A lender may not
6-19 accelerate the remaining payments of a homestead improvement loan
6-20 or demand payment of the loan in full because of a decrease in the
6-21 market value of the homestead property securing the homestead
6-22 improvement loan, unless the decrease in the market value is caused
6-23 by substantial damage or destruction to the property, a
6-24 condemnation or other taking of the property, the discovery of an
6-25 environmental hazard on the property, or the use of the property in
6-26 a manner that constitutes waste on the property or a nuisance.
6-27 This section does not prohibit a lender, if permitted by the loan
7-1 documents, from refusing to make additional advances under a
7-2 homestead improvement loan if the market value of the homestead
7-3 property decreases, regardless of the cause of the decrease.
7-4 (b) A lender may not accelerate the remaining payments of a
7-5 homestead improvement loan or demand payment of the loan in full
7-6 because of the borrower's default under any other indebtedness not
7-7 secured by a prior valid encumbrance on the homestead property,
7-8 regardless of whether the indebtedness is owed to the lender. This
7-9 section does not prohibit a lender, if permitted by the loan
7-10 documents, from refusing to make additional advances under a
7-11 homestead improvement loan if the borrower has defaulted in the
7-12 performance or payment of another indebtedness owed to the lender
7-13 or another creditor.
7-14 Art. 5B.12. NOTICE. (a) The lender in a homestead
7-15 improvement loan shall provide to a borrower a notice, in boldface
7-16 type and all capital letters, as follows:
7-17 "YOU ARE PLEDGING YOUR HOMESTEAD AS COLLATERAL TO
7-18 SECURE THE PAYMENT OF A LOAN. IF YOU DO NOT PAY OR IF
7-19 YOU FAIL TO PERFORM THE TERMS OF THE LOAN CONTRACT, THE
7-20 LENDER HAS THE RIGHT TO FORECLOSE ON YOUR HOMESTEAD AND
7-21 SELL IT TO PAY THE LOAN.
7-22 "YOUR HOMESTEAD MAY NOT BE PLEDGED TO SECURE THE
7-23 PAYMENT OF MORE THAN ONE HOMESTEAD IMPROVEMENT LOAN AT
7-24 A TIME.
7-25 "ALL THE DEBTS AGAINST YOUR HOMESTEAD, INCLUDING
7-26 THE HOMESTEAD IMPROVEMENT LOAN, MAY NOT EXCEED 90
7-27 PERCENT OF THE VALUE OF YOUR HOMESTEAD.
8-1 "YOUR LENDER MAY NOT ACCEPT ANY OTHER PROPERTY
8-2 YOU OWN, OTHER THAN A MANUFACTURED HOME, AS ADDITIONAL
8-3 COLLATERAL FOR YOUR LOAN.
8-4 "YOU HAVE AT LEAST 15 DAYS FROM THE DATE YOU
8-5 REQUESTED THE LOAN TO CHANGE YOUR MIND ABOUT THE LOAN
8-6 BEFORE YOU CAN SIGN THE LOAN DOCUMENTS. IN ADDITION,
8-7 YOU HAVE THREE BUSINESS DAYS AFTER YOU SIGN THE LOAN
8-8 DOCUMENTS TO CHANGE YOUR MIND ABOUT THE LOAN. IF YOU
8-9 DECIDE NOT TO TAKE THE LOAN DURING ONE OF THESE
8-10 PERIODS, YOU WILL HAVE NO FURTHER OBLIGATION TO THE
8-11 LENDER.
8-12 "THE LOAN DOCUMENT MAY NOT BE SIGNED AT YOUR
8-13 HOME, AND MAY BE SIGNED ONLY AT THE LENDER'S OFFICE, AT
8-14 A TITLE COMPANY, OR AT A TEXAS ATTORNEY'S OFFICE.
8-15 "UNLESS THE INFORMATION IS CONTAINED IN YOUR NOTE
8-16 OR ANOTHER LOAN DOCUMENT, YOUR LENDER IS REQUIRED TO
8-17 GIVE YOU A WRITTEN STATEMENT WITH ITS NAME AND ADDRESS
8-18 AND YOUR NAME AND ADDRESS EITHER BEFORE OR WHEN YOU
8-19 SIGN THE LOAN DOCUMENTS. THE STATEMENT MUST ALSO
8-20 INCLUDE A DESCRIPTION OF ANY INSURANCE YOU PURCHASED,
8-21 AND HOW MUCH YOU PAID, IN CONNECTION WITH THE LOAN.
8-22 "ON YOUR REQUEST, YOUR LENDER IS REQUIRED TO GIVE
8-23 YOU A RECEIPT IF YOU MAKE A PAYMENT ON THE LOAN IN
8-24 CASH."
8-25 (b) The lender shall provide the notice when the lender
8-26 receives an application for the loan.
8-27 Art. 5B.13. WAITING PERIOD; RESCISSION. (a) A homestead
9-1 improvement loan may not be made before the 16th day after the date
9-2 the lender receives an application for the loan.
9-3 (b) Each owner of residential homestead property securing a
9-4 homestead improvement loan may rescind the loan. Compliance with
9-5 all applicable state and federal law regarding the right to
9-6 rescind, including 12 C.F.R. Sections 226.15 et seq. and 226.23 et
9-7 seq., is considered compliance with this chapter regarding
9-8 rescission.
9-9 (c) The right of rescission provided by this section applies
9-10 to each homestead improvement loan made under this chapter,
9-11 regardless of the purpose of the loan. An owner of the residential
9-12 homestead property securing a homestead improvement loan may not
9-13 waive the right of rescission required by this section, regardless
9-14 of whether applicable state or federal law provides for a waiver.
9-15 (d) If a homestead improvement loan is made before the
9-16 expiration of the waiting period provided by Subsection (a) of this
9-17 section, the period for rescission is extended by a number of days
9-18 equal to the number of days before the end of the waiting period
9-19 that the loan is made.
9-20 Art. 5B.14. LOCATION OF CLOSING. A homestead improvement
9-21 loan may not be closed at the residence of the borrower and shall
9-22 be closed only at an office of the lender, a title company, or an
9-23 attorney licensed to practice law in this state. For the purposes
9-24 of this section, "closing" means the execution by the borrower of a
9-25 promissory note and the security instruments securing the loan.
9-26 Art. 5B.15. INTEREST. A lender may contract for and receive
9-27 on a homestead improvement loan any fixed or variable rate of
10-1 interest that does not exceed the maximum rate of interest
10-2 authorized under Article 1.04 of this title or under any other
10-3 state or federal statute authorizing the lender to contract for a
10-4 rate of interest. Interest shall be accrued and earned by applying
10-5 the simple annual interest rate or rates under the loan contract to
10-6 the principal balance, including additions to principal authorized
10-7 by the loan contract and unpaid interest, from time to time unpaid
10-8 until the date of payment in full.
10-9 Art. 5B.16. CHARGES AND FEES. A contract for a homestead
10-10 improvement loan may permit a lender to collect the following fees
10-11 and charges in connection with the loan:
10-12 (1) a reasonable expense or cost paid, or that will be
10-13 paid, to a third party that is not an employee or affiliate of the
10-14 lender if the expense or cost is:
10-15 (A) for an abstract, a title report, attorney's
10-16 fees for a legal opinion or document preparation, title insurance,
10-17 property damage insurance, credit life insurance, accident
10-18 insurance, health insurance, escrow for future payments of taxes
10-19 and insurance, an annuity, an appraisal or evaluation, a survey, or
10-20 a credit report; or
10-21 (B) actually incurred in the making or servicing
10-22 of a homestead improvement loan and necessary or proper for the
10-23 protection of the lender;
10-24 (2) a fee prescribed by law paid, or that will be
10-25 paid, to a public official for determining the existence of or for
10-26 recording, releasing, or satisfying a lien, security interest, or
10-27 other valid encumbrance related to a homestead improvement loan;
11-1 (3) a bona fide commitment fee for the separate
11-2 consideration of committing to make a homestead improvement loan in
11-3 the future;
11-4 (4) any other fee required by federal statute;
11-5 (5) a reasonable fee or charge paid to the trustee in
11-6 connection with a deed of trust or similar instrument executed in
11-7 connection with the homestead improvement loan, including a fee for
11-8 enforcing the lien, posting for sale, selling, or releasing the
11-9 property secured by the deed of trust;
11-10 (6) a reasonable fee paid to an attorney who is not an
11-11 employee of the lender in the collection of a delinquent homestead
11-12 improvement loan and any court cost or fee incurred in the
11-13 collection or foreclosure of a lien created by the loan;
11-14 (7) a fee not to exceed the amount permitted by law
11-15 for the return by a depository institution of a dishonored check,
11-16 negotiable order of withdrawal, share draft, or deposit draft
11-17 offered in full or partial payment of a homestead improvement loan;
11-18 and
11-19 (8) a late charge or penalty, if all or part of a
11-20 scheduled payment continues unpaid for 10 or more days after the
11-21 date the payment was due, except that:
11-22 (A) only one late charge or penalty authorized
11-23 by this article may be charged for each scheduled payment that is
11-24 past due;
11-25 (B) the late charge or penalty may not exceed
11-26 five percent of the unpaid amount of the scheduled payment that is
11-27 past due; and
12-1 (C) the late charge or penalty must be in lieu
12-2 of interest on the past due payment.
12-3 Art. 5B.17. INSURANCE. (a) Under a homestead improvement
12-4 loan, a lender may request or require a borrower to provide
12-5 insurance:
12-6 (1) in the amounts and under the conditions that apply
12-7 to secondary mortgage loans as provided by Articles 5.02 and 5.03
12-8 of this title;
12-9 (2) in the amounts and under the terms and conditions
12-10 of the Home Equity Conversion Mortgage Insurance program (Housing
12-11 and Community Development Act of 1987), Pub. L. 100-242, National
12-12 Housing Act (12 U.S.C. Section 1715z-20), and 24 C.F.R. Section 206
12-13 et seq.; and
12-14 (3) in the amounts and under the terms and conditions
12-15 provided for by any state or federal statute authorizing or
12-16 requiring any type of insurance relating to a loan or other
12-17 extension of credit, including insurance authorized under Chapters
12-18 1-7 and Chapter 15 of this title.
12-19 (b) Premiums for insurance under this article may be added
12-20 to the loan contract.
12-21 Art. 5B.18. LENDER'S DUTY TO BORROWER. (a) The lender
12-22 under a homestead improvement loan shall deliver to the borrower,
12-23 or to one of the borrowers if more than one, a copy of the note, a
12-24 copy of all other documents signed by the borrower or borrowers,
12-25 and a written statement of:
12-26 (1) the name and address of each borrower and of the
12-27 lender; and
13-1 (2) each type of insurance, if any, for which a charge
13-2 to a borrower is included in the loan agreement and the amount of
13-3 the charge for the insurance.
13-4 (b) If the note or another loan document contains the
13-5 information required by Subsection (a) of this article, a copy of
13-6 the note or document rather than the separate written statement may
13-7 be delivered to the borrower.
13-8 (c) If requested by the borrower, the lender shall give a
13-9 receipt to a person making a cash payment on a homestead
13-10 improvement loan.
13-11 (d) A prepayment fee, charge, or penalty may not be
13-12 collected on any homestead improvement loan, except as authorized
13-13 by Article 1.07 of this title.
13-14 (e) On termination and full payment of a homestead
13-15 improvement loan, the holder shall within a reasonable time:
13-16 (1) cancel and return any note to the borrower and
13-17 give the borrower a release of any mortgage, deed of trust,
13-18 security instrument, or other instrument securing the loan; or
13-19 (2) endorse the note and assign any mortgage, deed of
13-20 trust, or other security instrument to a refinancing lender who
13-21 advances funds to discharge the homestead improvement loan
13-22 indebtedness at the request of the borrower and in renewal and
13-23 extension of the security instrument.
13-24 Art. 5B.19. PROHIBITED PRACTICES. (a) A lender may not
13-25 accept an assignment of wages as security for a loan made under
13-26 this chapter.
13-27 (b) In connection with a homestead improvement loan, a
14-1 lender may not accept a confession of judgment or power of
14-2 attorney running to the lender or to a third person to confess
14-3 judgment or to appear for a borrower in a judicial proceeding.
14-4 (c) A lender may not accept an instrument in which blanks
14-5 are left to be filled in after a homestead improvement loan is
14-6 executed.
14-7 Art. 5B.20. REPORT BY LENDERS. (a) Before March 1 of each
14-8 odd-numbered year, a lender that makes a homestead improvement loan
14-9 shall submit to the consumer credit commissioner a report of the
14-10 lender's homestead improvement loan activity during the two-year
14-11 period ending on December 31 of the year preceding the year the
14-12 report is submitted. For each homestead improvement loan for which
14-13 the lender received an application, the report must state whether
14-14 the loan was granted and the applicant's race or national origin,
14-15 sex, income, and zip code.
14-16 (b) The consumer credit commissioner may accept a copy of a
14-17 report submitted by the lender to a federal agency instead of the
14-18 report required under Subsection (a) of this article if the report
14-19 submitted to the federal agency contains the information required
14-20 for a report under Subsection (a) of this article.
14-21 (c) A lender that does not make a homestead improvement loan
14-22 during the period covered by a report is not required to submit the
14-23 report.
14-24 (d) In this article, "consumer credit commissioner" means
14-25 the Office of Consumer Credit Commissioner established under
14-26 Chapter 2 of this title.
14-27 SECTION 2. (a) After May 1, 1998, the consumer credit
15-1 commissioner shall conduct a study of homestead improvement lending
15-2 under Chapter 5B, Title 79, Revised Statutes, as added by this Act.
15-3 (b) Before January 1, 1999, the consumer credit commissioner
15-4 shall submit a report on its study to the governor, lieutenant
15-5 governor, and speaker of the house of representatives. The report
15-6 must include:
15-7 (1) a summary of the information received by the
15-8 consumer credit commissioner under Article 5B.20, Title 79, Revised
15-9 Statutes, as added by this Act;
15-10 (2) an analysis of the effectiveness of the provisions
15-11 of Chapter 5B, Title 79, Revised Statutes, intended to protect
15-12 borrowers, as added by this Act; and
15-13 (3) other information the consumer credit commissioner
15-14 considers relevant to the regulation of homestead improvement
15-15 loans.
15-16 (c) In this section, "consumer credit commissioner" means
15-17 the Office of Consumer Credit Commissioner established under
15-18 Chapter 2, Title 79, Revised Statutes.
15-19 SECTION 3. This Act takes effect May 1, 1996.
15-20 SECTION 4. The importance of this legislation and the
15-21 crowded condition of the calendars in both houses create an
15-22 emergency and an imperative public necessity that the
15-23 constitutional rule requiring bills to be read on three several
15-24 days in each house be suspended, and this rule is hereby suspended.