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