1-1 By: Patterson S.J.R. No. 25
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 by the following vote: Yeas 9, Nays 3; March 27, 1995,
1-6 sent to printer.)
1-7 COMMITTEE SUBSTITUTE FOR S.J.R. No. 25 By: Wentworth
1-8 SENATE JOINT RESOLUTION
1-9 proposing a constitutional amendment authorizing a voluntary,
1-10 consensual encumbrance on homestead property for the purpose of an
1-11 equity loan.
1-12 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-13 SECTION 1. Section 50, Article XVI, Texas Constitution, is
1-14 amended to read as follows:
1-15 Sec. 50. (a) The homestead of a family, or of a single
1-16 adult person, shall be, and is hereby protected from forced sale,
1-17 for the payment of all debts except for:
1-18 (1) the purchase money thereof, or a part of such
1-19 purchase money;
1-20 (2) <,> the taxes due thereon;
1-21 (3) <, or for> work and material used in constructing
1-22 improvements thereon, if <and in this last case only when> the work
1-23 and material are contracted for in writing, with the consent of
1-24 both spouses, in the case of a family homestead, given in the same
1-25 manner as is required in making a sale and conveyance of the
1-26 homestead; or
1-27 (4) an equity loan.
1-28 (b) The <nor may the> owner or claimant of the property
1-29 claimed as homestead, if married, may not sell or abandon the
1-30 homestead without the consent of each owner and the <other> spouse
1-31 of each owner, given in such manner as may be prescribed by law.
1-32 (c) No mortgage, trust deed, or other lien on the homestead
1-33 shall ever be valid unless it secures a debt described by this
1-34 section, <except for the purchase money therefor, or improvements
1-35 made thereon, as hereinbefore provided,> whether such mortgage, or
1-36 trust deed, or other lien, shall have been created by the owner
1-37 alone, or together with his or her spouse, in case the owner is
1-38 married. All pretended sales of the homestead involving any
1-39 condition of defeasance shall be void.
1-40 (d) An equity loan may be made only by:
1-41 (1) a bank, savings and loan association, savings
1-42 bank, or credit union doing business under the laws of this state
1-43 or the United States;
1-44 (2) a person licensed to make regulated loans, as
1-45 provided by statute; or
1-46 (3) a person approved as a mortgagee by the United
1-47 States government to make federally insured loans, as determined by
1-48 statute.
1-49 (e) An equity loan may not be secured by homestead property
1-50 that is designated for agricultural use as provided by statutes
1-51 governing property tax.
1-52 (f) At any time a homestead may not be encumbered by more
1-53 than one equity loan in addition to a valid encumbrance on the
1-54 homestead property authorized by Subsection (a)(1), (a)(2), or
1-55 (a)(3) of this section.
1-56 (g) A lender may not make an equity loan other than a
1-57 reverse mortgage if a borrower under the loan is 65 years of age or
1-58 older.
1-59 (h) A lender may not require or accept real or personal
1-60 property as additional collateral on an equity loan, except for a
1-61 manufactured home, personal property affixed or to be affixed to
1-62 the homestead in a manner that would make the property a fixture,
1-63 or rents derived from the homestead property. Only the homestead
1-64 property securing an equity loan may be collateral for the equity
1-65 loan.
1-66 (i) A lender may not require or accept a borrower's
1-67 homestead property, regardless of whether the property was
1-68 previously encumbered by an existing equity loan, as collateral on
2-1 a debt not described by Subsection (a) of this section.
2-2 (j) The principal amount of an equity loan plus the
2-3 aggregate total of the outstanding balances of other indebtedness
2-4 secured by valid encumbrances of record against the homestead
2-5 property may not exceed 90 percent of the fair market value of the
2-6 homestead property on the date the equity loan is made.
2-7 (k) For the purposes of Subsection (j) of this section, the
2-8 aggregate total of the outstanding balances of indebtedness secured
2-9 by valid encumbrances of record against the homestead property does
2-10 not include any advance made by a lender to protect a lien,
2-11 security interest, or other valid encumbrance on the homestead
2-12 property securing the loan, including the payment of hazard
2-13 insurance premiums, repairs to the homestead property, or payments
2-14 on any indebtedness secured by a prior valid encumbrance on the
2-15 homestead property.
2-16 (l) A lender may not accelerate the remaining payments of an
2-17 equity loan or demand payment of the loan in full because of a
2-18 decrease in the market value of the homestead property securing the
2-19 equity loan, unless the decrease in the market value is caused by
2-20 substantial damage or destruction to the property, condemnation or
2-21 other taking of the property, the discovery of an environmental
2-22 hazard on the property, or the use of the property in a manner that
2-23 constitutes waste on the property or a nuisance. This section does
2-24 not prohibit a lender, if permitted by the loan documents, from
2-25 refusing to make additional advances under an equity loan other
2-26 than a reverse mortgage, if the value of the homestead property
2-27 decreases, regardless of the cause of the decrease.
2-28 (m) A lender may not accelerate the remaining payments of an
2-29 equity loan or demand payment of the loan in full because of the
2-30 borrower's default under any other indebtedness not secured by a
2-31 prior valid encumbrance on the homestead property, regardless of
2-32 whether the indebtedness is owed to the lender. This section does
2-33 not prohibit a lender, if permitted by the loan documents, from
2-34 refusing to make additional advances under an equity loan, other
2-35 than a reverse mortgage, if the borrower has defaulted in the
2-36 performance or payment of another indebtedness owed to the lender
2-37 or another creditor.
2-38 (n) A lender may not seek recourse against or expose assets
2-39 of a borrower other than the property securing the equity loan for
2-40 payment or performance of an obligation of an equity loan.
2-41 (o) A lienholder or assignee for value may conclusively rely
2-42 on an acknowledgment by the owner of homestead property and the
2-43 owner's spouse, if the owner is married, of compliance with
2-44 applicable requirements for an equity loan secured by a mortgage,
2-45 trust deed, or other lien on a homestead.
2-46 (p) In this section:
2-47 (1) "Blended equity loan" means an equity loan made
2-48 for:
2-49 (A) the payment or refinancing of all or part of
2-50 the purchase money of a homestead, taxes on homestead property, or
2-51 the work and material used in constructing improvements on a
2-52 homestead or for the refinancing of a valid lien given in renewal
2-53 and extension of a lien made for such a purpose; and
2-54 (B) another purpose.
2-55 (2) "Equity loan" means an extension of credit under a
2-56 written agreement, including a contract for an open-end account,
2-57 blended equity loan, or reverse mortgage, that is:
2-58 (A) secured in whole or in part by a voluntary
2-59 lien on or other consensual security interest in a homestead;
2-60 (B) created with the consent of each owner and
2-61 the spouse of each owner, in accordance with applicable statutory
2-62 requirements; and
2-63 (C) without recourse for personal liability
2-64 against each owner and the spouse of each owner.
2-65 (3) "Net equity" means the fair market value of the
2-66 homestead property less the aggregate total of the outstanding
2-67 balances of all indebtedness secured by valid encumbrances of
2-68 record against the homestead property.
2-69 (4) "Reverse mortgage" means a nonrecourse equity
2-70 loan:
3-1 (A) under which advances are provided to a
3-2 borrower based on the equity in a borrower's residence homestead
3-3 property; and
3-4 (B) which requires no payment of principal or
3-5 interest until the entire loan becomes due and payable. <This
3-6 amendment shall become effective upon its adoption.>
3-7 SECTION 2. The following temporary provision is added to the
3-8 Texas Constitution:
3-9 TEMPORARY PROVISION. (a) This temporary provision applies
3-10 to the constitutional amendment proposed by the 74th Legislature,
3-11 Regular Session, 1995, authorizing a voluntary, consensual
3-12 encumbrance on homestead property.
3-13 (b) The constitutional amendment takes effect May 1, 1996.
3-14 (c) This temporary provision takes effect on the adoption of
3-15 the amendment by the voters and expires May 2, 1996.
3-16 SECTION 3. This proposed constitutional amendment shall be
3-17 submitted to the voters at an election to be held November 7, 1995.
3-18 The ballot shall be printed to permit voting for or against the
3-19 proposition: "The constitutional amendment extending homeowners'
3-20 rights to borrow voluntarily against the equity in and establish a
3-21 valid lien on their homesteads under certain limited circumstances
3-22 for purposes in addition to purchase money, improvements, and
3-23 taxes."
3-24 * * * * *