By Hochberg H.B. No. 742
75R4296 BEM-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to an encumbrance on homestead property for the purpose of
1-3 a reverse mortgage; imposing an administrative penalty.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 41.001(b), Property Code, is amended to
1-6 read as follows:
1-7 (b) Encumbrances may be properly fixed on homestead property
1-8 for:
1-9 (1) purchase money;
1-10 (2) taxes on the property;
1-11 (3) work and material used in constructing
1-12 improvements on the property if contracted for in writing as
1-13 provided by Sections 53.059(a), (b), and (c);
1-14 (4) an owelty of partition imposed against the
1-15 entirety of the property by a court order or by a written agreement
1-16 of the parties to the partition, including a debt of one spouse in
1-17 favor of the other spouse resulting from a division or an award of
1-18 a family homestead in a divorce proceeding; [or]
1-19 (5) the refinance of a lien against a homestead,
1-20 including a federal tax lien resulting from the tax debt of both
1-21 spouses, if the homestead is a family homestead, or from the tax
1-22 debt of the owner; or
1-23 (6) a reverse mortgage, as defined by Article 5A.01,
1-24 Title 79, Revised Statutes (Article 5069-5A.01, Vernon's Texas
2-1 Civil Statutes).
2-2 SECTION 2. Title 79, Revised Statutes (Article 5069-1.01 et
2-3 seq., Vernon's Texas Civil Statutes), is amended by adding Chapter
2-4 5A to read as follows:
2-5 CHAPTER 5A. REVERSE MORTGAGES
2-6 Art. 5A.01. DEFINITION. In this chapter, "reverse mortgage"
2-7 means a nonrecourse loan secured by real property:
2-8 (1) under which cash advances are provided to a
2-9 borrower based on the equity in a borrower's owner-occupied
2-10 principal residence homestead property; and
2-11 (2) that requires no payment of principal or interest
2-12 until the entire loan becomes due and payable.
2-13 Art. 5A.02. AUTHORIZED LENDERS. A reverse mortgage may be
2-14 made only by a bank, savings and loan association, savings bank, or
2-15 credit union doing business under the laws of this state or of the
2-16 United States.
2-17 Art. 5A.03. PREPAYMENT. Payment in whole or in part shall
2-18 be permitted without penalty at any time during the term of a
2-19 reverse mortgage.
2-20 Art. 5A.04. INTERVENING LIENS. Advances made under a
2-21 reverse mortgage and interest on those advances have priority over
2-22 a lien filed after the date of the closing on the reverse mortgage.
2-23 Art. 5A.05. INTEREST. A reverse mortgage may provide for an
2-24 interest rate that is fixed or adjustable and may also provide for
2-25 interest that is contingent on appreciation in the value of the
2-26 property.
2-27 Art. 5A.06. PERIODIC ADVANCES. If a reverse mortgage
3-1 provides for periodic advances to a borrower, the advances may not
3-2 be reduced in amount or number because of an adjustment in the
3-3 interest rate.
3-4 Art. 5A.07. LENDER DEFAULT. A lender who fails to make loan
3-5 advances as required in the loan documents and who fails to cure
3-6 the default as required in the loan documents:
3-7 (1) forfeits any right to collect all interest; and
3-8 (2) is subject to an administrative penalty imposed by
3-9 the consumer credit commissioner.
3-10 Art. 5A.08. ADMINISTRATIVE PENALTY. (a) The administrative
3-11 penalty provided by Article 5A.07 of this chapter may be in an
3-12 amount not to exceed $500. Each day a default continues or occurs
3-13 is a separate violation for purposes of imposing a penalty.
3-14 (b) The amount of the penalty shall be based on:
3-15 (1) the seriousness of the default, including the
3-16 nature, circumstances, extent, and gravity of the default;
3-17 (2) the economic harm to the borrower;
3-18 (3) the history of previous defaults;
3-19 (4) the amount necessary to deter future defaults;
3-20 (5) efforts to correct the default; and
3-21 (6) any other matter that justice may require.
3-22 (c) Within 14 days after the date the consumer credit
3-23 commissioner determines that a default has occurred, the consumer
3-24 credit commissioner shall give written notice of the report to the
3-25 lender. The notice may be given by certified mail. The notice
3-26 must include a brief summary of the alleged default and a statement
3-27 of the amount of the recommended penalty and must inform the lender
4-1 that the lender has a right to a hearing on the occurrence of the
4-2 default, the amount of the penalty, or both the occurrence of the
4-3 default and the amount of the penalty.
4-4 (d) Within 20 days after the date the lender receives the
4-5 notice, the lender in writing may accept the determination and
4-6 recommended penalty or may make a written request for a hearing on
4-7 the occurrence of the default, the amount of the penalty, or both
4-8 the occurrence of the default and the amount of the penalty.
4-9 (e) If the lender accepts the determination and recommended
4-10 penalty of the consumer credit commissioner, the consumer credit
4-11 commissioner by order shall impose the recommended penalty.
4-12 (f) If the lender requests a hearing or fails to respond
4-13 timely to the notice, the consumer credit commissioner shall set a
4-14 hearing and give notice of the hearing to the lender. The hearing
4-15 shall be held by an administrative law judge of the State Office of
4-16 Administrative Hearings. The administrative law judge shall make
4-17 findings of fact and conclusions of law and promptly issue to the
4-18 consumer credit commissioner a proposal for a decision about the
4-19 occurrence of the default and the amount of a proposed penalty.
4-20 Based on the findings of fact, conclusions of law, and proposal for
4-21 a decision, the consumer credit commissioner by order may find that
4-22 a default has occurred and impose a penalty or may find that no
4-23 default occurred.
4-24 (g) The notice of the consumer credit commissioner's order
4-25 given to the lender under Chapter 2001, Government Code, must
4-26 include a statement of the right of the lender to judicial review
4-27 of the order.
5-1 (h) Within 30 days after the date the consumer credit
5-2 commissioner's order becomes final as provided by Section 2001.144,
5-3 Government Code, the lender shall:
5-4 (1) pay the amount of the penalty;
5-5 (2) pay the amount of the penalty and file a petition
5-6 for judicial review contesting the occurrence of the default, the
5-7 amount of the penalty, or both the occurrence of the default and
5-8 the amount of the penalty; or
5-9 (3) without paying the amount of the penalty, file a
5-10 petition for judicial review contesting the occurrence of the
5-11 default, the amount of the penalty, or both the occurrence of the
5-12 default and the amount of the penalty.
5-13 (i) Within the 30-day period, a lender who acts under
5-14 Subsection (h)(3) of this section may:
5-15 (1) stay enforcement of the penalty by:
5-16 (A) paying the amount of the penalty to the
5-17 court for placement in an escrow account; or
5-18 (B) giving to the court a supersedeas bond that
5-19 is approved by the court for the amount of the penalty and that is
5-20 effective until all judicial review of the consumer credit
5-21 commissioner's order is final; or
5-22 (2) request the court to stay enforcement of the
5-23 penalty by:
5-24 (A) filing with the court a sworn affidavit of
5-25 the lender stating that the lender is financially unable to pay the
5-26 amount of the penalty and is financially unable to give the
5-27 supersedeas bond; and
6-1 (B) giving a copy of the affidavit to the
6-2 consumer credit commissioner by certified mail.
6-3 (j) If the consumer credit commissioner receives a copy of
6-4 an affidavit under Subsection (i)(2) of this section, the consumer
6-5 credit commissioner may file with the court, within five days after
6-6 the date the copy is received, a contest to the affidavit. The
6-7 court shall hold a hearing on the facts alleged in the affidavit as
6-8 soon as practicable and shall stay the enforcement of the penalty
6-9 on finding that the alleged facts are true. The lender has the
6-10 burden of proving that the lender is financially unable to pay the
6-11 amount of the penalty and to give a supersedeas bond.
6-12 (k) If the lender does not pay the amount of the penalty and
6-13 the enforcement of the penalty is not stayed, the consumer credit
6-14 commissioner may refer the matter to the attorney general for
6-15 collection of the amount of the penalty.
6-16 (l) Judicial review of the order of the consumer credit
6-17 commissioner:
6-18 (1) is instituted by filing a petition as provided by
6-19 Subchapter G, Chapter 2001, Government Code; and
6-20 (2) is under the substantial evidence rule.
6-21 (m) If the court sustains the occurrence of the default, the
6-22 court may uphold or reduce the amount of the penalty and order the
6-23 lender to pay the full or reduced amount of the penalty. If the
6-24 court does not sustain the occurrence of the default, the court
6-25 shall order that no penalty is owed.
6-26 (n) When the judgment of the court becomes final, the court
6-27 shall proceed under this subsection. If the lender paid the amount
7-1 of the penalty and if that amount is reduced or is not upheld by
7-2 the court, the court shall order that the appropriate amount plus
7-3 accrued interest be remitted to the lender. The rate of the
7-4 interest is the rate charged on loans to depository institutions by
7-5 the New York Federal Reserve Bank, and the interest shall be paid
7-6 for the period beginning on the date the penalty was paid and
7-7 ending on the date the penalty is remitted. If the lender gave a
7-8 supersedeas bond and if the amount of the penalty is not upheld by
7-9 the court, the court shall order the release of the bond. If the
7-10 lender gave a supersedeas bond and if the amount of the penalty is
7-11 reduced, the court shall order the release of the bond after the
7-12 lender pays the amount.
7-13 (o) A penalty collected under this section shall be remitted
7-14 to the comptroller for deposit in the general revenue fund.
7-15 (p) All proceedings under this section are subject to
7-16 Chapter 2001, Government Code.
7-17 Art. 5A.09. FILING FEE. The fee for recording a reverse
7-18 mortgage document in a public record must be the same as the fee
7-19 for recording a purchase money mortgage on homestead property.
7-20 Art. 5A.10. REPAYMENT. (a) A reverse mortgage becomes due
7-21 and payable on the earlier of:
7-22 (1) the date the homestead property securing the loan
7-23 is sold;
7-24 (2) the first date all borrowers cease occupying the
7-25 homestead property as a principal residence subject to Subsection
7-26 (b);
7-27 (3) the maturity date agreed to by the lender and the
8-1 borrower; or
8-2 (4) the date of an event specified in the loan
8-3 documents, including the death of all borrowers, that jeopardizes
8-4 the lender's security.
8-5 (b) Temporary absences from the homestead property by all
8-6 borrowers for a period not exceeding 60 consecutive days may not
8-7 cause the reverse mortgage to become due and payable. Temporary
8-8 absences from the homestead property by all borrowers for a period
8-9 exceeding 60 consecutive days but not exceeding one year may not
8-10 cause the reverse mortgage to become due and payable if the
8-11 borrower has taken prior action to secure the home in a manner
8-12 satisfactory to the lender.
8-13 (c) The lender's right to collect reverse mortgage payments
8-14 is subject to the applicable statute of limitations for a debt
8-15 provided by Section 3.118, Business & Commerce Code, except that
8-16 the period of limitations begins on the date the reverse mortgage
8-17 becomes due and payable.
8-18 (d) In the loan documents, the lender must prominently
8-19 disclose any interest or fee to be charged during the period that
8-20 begins on the date the reverse mortgage becomes due and payable and
8-21 ends when repayment is made in full.
8-22 Art. 5A.11. INAPPLICABILITY OF OTHER STATUTES TO REVERSE
8-23 MORTGAGE. A reverse mortgage loan may be made or acquired without
8-24 regard to the following provisions of any applicable statute:
8-25 (1) a limitation on the purpose and use of future
8-26 advances or other mortgage proceeds;
8-27 (2) a limitation on future advances to a term of years
9-1 or a limitation on the term of open account advances;
9-2 (3) a limitation on the term during which future
9-3 advances take priority over intervening advances;
9-4 (4) a requirement that a maximum loan amount be stated
9-5 in the reverse mortgage loan documents;
9-6 (5) a limitation on loan-to-value ratios;
9-7 (6) a prohibition on balloon payments;
9-8 (7) a prohibition on compound interest and interest on
9-9 interest;
9-10 (8) any interest rate limitation receiving any rate of
9-11 interest; and
9-12 (9) a requirement that a percentage of the reverse
9-13 mortgage proceeds be advanced before the assignment of the reverse
9-14 mortgage.
9-15 Art. 5A.12. STATUS OF REVERSE MORTGAGE LOAN UNDER PUBLIC
9-16 ASSISTANCE PROGRAM. For the purposes of determining eligibility
9-17 under any statute relating to payments, allowance, benefits, or
9-18 services provided on a means-tested basis by this state,
9-19 undisbursed funds under a reverse mortgage loan are considered
9-20 equity in a borrower's home and not proceeds from a loan.
9-21 Art. 5A.13. REVERSE MORTGAGE LOAN INFORMATION AND
9-22 COUNSELING. A lender may not make a reverse mortgage commitment
9-23 unless the loan applicant attests in writing that the applicant
9-24 received from the lender, at the time the lender received the
9-25 application for the loan, a statement prepared by the consumer
9-26 credit commissioner regarding the advisability and availability of
9-27 independent information and counseling services on reverse
10-1 mortgages. The consumer credit commissioner shall:
10-2 (1) develop the content and format of the statement;
10-3 and
10-4 (2) provide information and counseling concerning
10-5 reverse mortgages in the manner provided for other consumer lending
10-6 and additional information and counseling as the consumer credit
10-7 commissioner considers appropriate.
10-8 SECTION 3. This Act takes effect on January 1, 1998, but
10-9 only if the constitutional amendment proposed by the 75th
10-10 Legislature, Regular Session, 1997, allowing encumbrances on
10-11 homestead property for the purpose of a reverse mortgage loan, is
10-12 approved by the voters. If that amendment is not approved by the
10-13 voters, this Act has no effect.
10-14 SECTION 4. The importance of this legislation and the
10-15 crowded condition of the calendars in both houses create an
10-16 emergency and an imperative public necessity that the
10-17 constitutional rule requiring bills to be read on three several
10-18 days in each house be suspended, and this rule is hereby suspended.