SRC-JFA H.J.R. 31 75(R)   BILL ANALYSIS


Senate Research Center   H.J.R. 31
By: Patterson (Patterson, Harris)
State Affairs
5-15-97
Engrossed


DIGEST 

Texas is the last remaining state to have virtually no home equity
lending.  However, the ability to tap home equity in lending would allow
Texas homeowners to access a great deal of their capital. At the same
time, there is a public demand for consumer protections in this process.
This session several bills have been offered on home equity lending.  This
bill would allow unlimited cause to access home equity lending, as well as
some consumer protections, such as written consent of the homeowner and
spouse; a 75 percent limit on fair market value of the homestead as the
loan limit; no recourse for personal liability; judicial foreclosure;
limits on extra interest, fees, and charges; a prohibition on open-ended
accounts; prepayment without penalty; no securing against other property
than the homestead; no agricultural liens; a procedure for reverse
mortgages; limits on foreclosure process; prohibition on wage assignment;
prohibition on tying the home equity loan against any other loan; release
of lien procedure; and notice requirements.    

PURPOSE

As proposed, H.J.R. 31 allows unlimited cause to access home equity
lending, as well as some consumer protections, such as written consent of
the homeowner and spouse; a 75 percent limit on fair market value of the
homestead as the loan limit; no recourse for personal liability; judicial
foreclosure; limits on extra interest, fees, and charges; a prohibition on
open-ended accounts; prepayment without penalty; no securing against other
property than the homestead; no agricultural liens; a procedure for
reverse mortgages; limits on foreclosure process; prohibition on wage
assignment; prohibition on tying the home equity loan against any other
loan; release of lien procedure; and notice requirements. 

RULEMAKING AUTHORITY

This bill does not grant any additional rulemaking authority to a state
officer, institution, or agency. 

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Section 50, Article XVI, Texas Constitution, as follows: 

Sec. 50.  (a)  Requires the homestead of a family, or of a single adult
person, to be, and is hereby protected from forced sale, for the payment
of all debts except under certain conditions, including for an encumbrance
against homestead property of a certain extension of credit.  Sets forth
the requirements of such an extension of credit.  Makes conforming
changes.   

(b)  Prohibits an owner or claimant of the property claimed as homestead
from selling or abandoning the homestead without the consent of each owner
and the spouse of each owner, given in such manner as may be prescribed by
law.  Makes conforming changes.  

(c)  Prohibits a mortgage, trust deed, other lien on the homestead from
ever being valid unless it secures a debt described by this section,
rather than except for a debt described by this section, whether such
mortgage, trust deed, or other lien, shall have been created by the owner
alone, or together with his or her spouse, in case the owner is married.
Makes conforming and nonsubstantive changes.  

 (d)  Makes a conforming change. 

(e)  Prohibits a refinance of debt secured by a homestead and described by
any subsection under Subsections (a)(1)-(a)(5) that includes the advance
of additional funds from being secured by a valid lien against the
homestead except under certain conditions.   

(f)  Prohibits a refinance of debt secured by the homestead, any portion
of which is an extension of credit described by Subsection (a)(6) of this
section, from being secured by a valid lien against the homestead unless
the refinance of the debt is an extension of credit described by
Subsection (a)(6) of this section.   

(g)  Authorizes an extension of credit described by Subsection (a)(6) of
this section to be secured by a valid lien against homestead property if
the extension of credit is not closed before the 12th day after the lender
provides the owner with a certain written notice on a separate instrument.
Sets forth the contents of the written notice.  Requires the lender before
closing, if the discussions with the borrower are conducted primarily in a
language other than English, to provide an additional copy of the notice
translated into the written language in which the discussions were
conducted.   

(h)  Provides that Subsection (a)(6) and Subsections (e)-(g) of this
section are not severable, and none of those provisions would have been
enacted without the others. Provides that if any of those provisions are
held to be preempted by the laws of the United States, all of those
provisions are invalid.  Prohibits this subsection from applying to any
lien or extension of credit made after January 1, 1998, and before the
date any provision under Subsection (a)(6) or Subsections (e)-(g) is held
to be preempted.   

(i)  Requires the advances made on a reverse mortgage loan under which
more than one advance is made to be made at regular intervals according to
a plan established by the original loan agreement.   

SECTION 2. Amends the Texas Constitution, by adding the following
temporary provision, as follows:   

TEMPORARY PROVISION.  (a)  Provides that this temporary provision applies
to the constitutional amendment proposed by the 75th Legislature, Regular
Session, 1997, authorizing a voluntary consensual encumbrance on homestead
property. 

(b)  Effective date of the constitutional amendment:  January 1, 1998. 

(c)  Provides that this temporary provision takes effect on the adoption
of the amendment by the voters and expires January 2, 1998.   

SECTION 3. Requires this proposed constitutional amendment to be submitted
to the voters at an election to be held November 4, 1997.  Sets forth the
required ballot proposition.