By Patterson S.J.R. No. 25
74R3641 DWS-F
A JOINT RESOLUTION
1-1 proposing a constitutional amendment authorizing a voluntary,
1-2 consensual encumbrance on homestead property for the purpose of an
1-3 equity loan.
1-4 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 50, Article XVI, Texas Constitution, is
1-6 amended to read as follows:
1-7 Sec. 50. (a) The homestead of a family, or of a single
1-8 adult person, shall be, and is hereby protected from forced sale,
1-9 for the payment of all debts except for:
1-10 (1) the purchase money thereof, or a part of such
1-11 purchase money;
1-12 (2) <,> the taxes due thereon;
1-13 (3) <, or for> work and material used in constructing
1-14 improvements thereon, if <and in this last case only when> the work
1-15 and material are contracted for in writing, with the consent of
1-16 both spouses, in the case of a family homestead, given in the same
1-17 manner as is required in making a sale and conveyance of the
1-18 homestead; or
1-19 (4) an equity loan.
1-20 (b) The <nor may the> owner or claimant of the property
1-21 claimed as homestead, if married, may not sell or abandon the
1-22 homestead without the consent of each owner and the <other> spouse
1-23 of each owner, given in such manner as may be prescribed by law.
1-24 (c) No mortgage, trust deed, or other lien on the homestead
2-1 shall ever be valid unless it secures a debt described by this
2-2 section, <except for the purchase money therefor, or improvements
2-3 made thereon, as hereinbefore provided,> whether such mortgage, or
2-4 trust deed, or other lien, shall have been created by the owner
2-5 alone, or together with his or her spouse, in case the owner is
2-6 married. All pretended sales of the homestead involving any
2-7 condition of defeasance shall be void.
2-8 (d) An equity loan may 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) At any time a homestead may not be encumbered by more
2-18 than one equity loan in addition to a valid encumbrance on the
2-19 homestead property authorized by Subsection (a)(1), (a)(2), or
2-20 (a)(3) of this section.
2-21 (f) A lender may not make an equity loan other than a
2-22 reverse mortgage if a borrower under the loan is 65 years of age or
2-23 older.
2-24 (g) A lender may not require or accept real or personal
2-25 property as additional collateral on an equity loan, except for a
2-26 manufactured home, personal property affixed or to be affixed to
2-27 the homestead in a manner that would make the property a fixture,
3-1 or rents derived from the homestead property. Only the homestead
3-2 property securing an equity loan may be collateral for the equity
3-3 loan.
3-4 (h) A lender may not require or accept a borrower's
3-5 homestead property, regardless of whether the property was
3-6 previously encumbered by an existing equity loan, as collateral on
3-7 a debt not described by Subsection (a) of this section.
3-8 (i) The principal amount of an equity loan plus the
3-9 aggregate total of the outstanding balances of other indebtedness
3-10 secured by valid encumbrances of record against the homestead
3-11 property may not exceed 90 percent of the fair market value of the
3-12 homestead property on the date the equity loan is made. The
3-13 principal amount of a blended equity loan may not exceed 90 percent
3-14 of the fair market value of the homestead property on the date the
3-15 blended equity loan is made.
3-16 (j) For the purposes of Subsection (i) of this section, the
3-17 aggregate total of the outstanding balances of indebtedness secured
3-18 by valid encumbrances of record against the homestead property does
3-19 not include any advance made by a lender to protect a lien,
3-20 security interest, or other valid encumbrance on the homestead
3-21 property securing the loan, including the payment of hazard
3-22 insurance premiums, repairs to the homestead property, or payments
3-23 on any indebtedness secured by a prior valid encumbrance on the
3-24 homestead property.
3-25 (k) A lender may not accelerate the remaining payments of an
3-26 equity loan or demand payment of the loan in full because of a
3-27 decrease in the market value of the homestead property securing the
4-1 equity loan, unless the decrease in the market value is caused by
4-2 substantial damage or destruction to the property, condemnation or
4-3 other taking of the property, the discovery of an environmental
4-4 hazard on the property, or the use of the property in a manner that
4-5 constitutes waste on the property or a nuisance. This section does
4-6 not prohibit a lender, if permitted by the loan documents, from
4-7 refusing to make additional advances under an equity loan other
4-8 than a reverse mortgage, if the value of the homestead property
4-9 decreases, regardless of the cause of the decrease.
4-10 (l) A lender may not accelerate the remaining payments of an
4-11 equity loan or demand payment of the loan in full because of the
4-12 borrower's default under any other indebtedness not secured by a
4-13 prior valid encumbrance on the homestead property, regardless of
4-14 whether the indebtedness is owed to the lender. This section does
4-15 not prohibit a lender, if permitted by the loan documents, from
4-16 refusing to make additional advances under an equity loan, other
4-17 than a reverse mortgage, if the borrower has defaulted in the
4-18 performance or payment of another indebtedness owed to the lender
4-19 or another creditor.
4-20 (m) In this section:
4-21 (1) "Blended equity loan" means an equity loan made
4-22 for:
4-23 (A) the payment or refinancing of all or part of
4-24 the purchase money of a homestead, taxes on homestead property, or
4-25 the work and material used in constructing improvements on a
4-26 homestead or for the refinancing of a valid lien given in renewal
4-27 and extension of a lien made for such a purpose; and
5-1 (B) another purpose.
5-2 (2) "Equity loan" means an extension of credit under a
5-3 written agreement, including a contract for an open-end account,
5-4 blended equity loan, or reverse mortgage, that is secured in whole
5-5 or in part by a voluntary lien on or other consensual security
5-6 interest in a homestead created with the consent of each owner and
5-7 the spouse of each owner, in accordance with applicable statutory
5-8 requirements.
5-9 (3) "Net equity" means the fair market value of the
5-10 homestead property less the aggregate total of the outstanding
5-11 balances of all indebtedness secured by valid encumbrances of
5-12 record against the homestead property.
5-13 (4) "Reverse mortgage" means a nonrecourse equity
5-14 loan:
5-15 (A) under which advances are provided to a
5-16 borrower based on the equity in a borrower's residence homestead
5-17 property; and
5-18 (B) that requires no payment of principal or
5-19 interest until the entire loan becomes due and payable. <This
5-20 amendment shall become effective upon its adoption.>
5-21 SECTION 2. The following temporary provision is added to the
5-22 Texas Constitution:
5-23 TEMPORARY PROVISION. (a) This temporary provision applies
5-24 to the constitutional amendment proposed by the 74th Legislature,
5-25 Regular Session, 1995, authorizing a voluntary, consensual
5-26 encumbrance on homestead property.
5-27 (b) The constitutional amendment takes effect May 1, 1996.
6-1 (c) This temporary provision takes effect on the adoption of
6-2 the amendment by the voters and expires May 2, 1996.
6-3 SECTION 3. This proposed constitutional amendment shall be
6-4 submitted to the voters at an election to be held November 7, 1995.
6-5 The ballot shall be printed to permit voting for or against the
6-6 proposition: "The constitutional amendment extending homeowners'
6-7 rights to voluntarily borrow against the equity in and establish a
6-8 valid lien on their homesteads under certain limited circumstances
6-9 for purposes in addition to purchase money, improvements, and
6-10 taxes."