By Patterson, Marchant, Danburg, Rabuck, H.J.R. No. 31
A JOINT RESOLUTION
1-1 proposing a constitutional amendment permitting an encumbrance
1-2 against homestead property for certain extensions of equity credit.
1-3 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Section 50, Article XVI, Texas Constitution, is
1-5 amended to read as follows:
1-6 Sec. 50. (a) The homestead of a family, or of a single
1-7 adult person, shall be, and is hereby protected from forced sale,
1-8 for the payment of all debts except for:
1-9 (1) the purchase money thereof, or a part of such
1-10 purchase money;
1-11 (2) [,] the taxes due thereon;
1-12 (3) [,] an owelty of partition imposed against the
1-13 entirety of the property by a court order or by a written agreement
1-14 of the parties to the partition, including a debt of one spouse in
1-15 favor of the other spouse resulting from a division or an award of
1-16 a family homestead in a divorce proceeding;
1-17 (4) [,] the refinance of a lien against a homestead,
1-18 including a federal tax lien resulting from the tax debt of both
1-19 spouses, if the homestead is a family homestead, or from the tax
1-20 debt of the owner;
1-21 (5) [, 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
2-1 homestead; or
2-2 (6) an extension of credit that:
2-3 (A) is secured by a voluntary lien on the
2-4 homestead created under a written agreement with the consent of
2-5 each owner and each owner's spouse;
2-6 (B) is of a principal amount that when added to
2-7 the aggregate total of the outstanding principal balances of all
2-8 other indebtedness secured by valid encumbrances of record against
2-9 the homestead does not exceed 75 percent of the fair market value
2-10 of the homestead on the date the extension of credit is made;
2-11 (C) is without recourse for personal liability
2-12 against each owner and the spouse of each owner;
2-13 (D) is secured by a lien that may be foreclosed
2-14 upon only by a court order;
2-15 (E) does not require the owner or the owner's
2-16 spouse to pay, in addition to any interest, fees to any person that
2-17 are necessary to originate, evaluate, maintain, record, insure, or
2-18 service the extension of credit that exceed, in the aggregate,
2-19 three percent of the original principal amount of the extension of
2-20 credit;
2-21 (F) is not a form of open-end account that may
2-22 be debited from time to time or under which credit may be extended
2-23 from time to time, unless the extension of credit is a reverse
2-24 mortgage;
2-25 (G) is payable in advance without penalty or
2-26 other charge;
2-27 (H) is not secured by any additional real or
3-1 personal property other than the homestead;
3-2 (I) is not secured by homestead property
3-3 designated for agricultural use as provided by statutes governing
3-4 property tax;
3-5 (J) may not be accelerated because of a decrease
3-6 in the market value of the homestead or because of the owner's
3-7 default under other indebtedness not secured by a prior valid
3-8 encumbrance against the homestead;
3-9 (K) is the only debt secured by the homestead at
3-10 the time the extension of credit is made unless the other debt was
3-11 made for a purpose described by Subsections (a)(1)-(a)(5) of this
3-12 section;
3-13 (L) is, unless the extension of credit is a
3-14 reverse mortgage, scheduled to be repaid in substantially equal
3-15 successive monthly installments beginning no later than two months
3-16 from the date the extension of credit is made, each of which equals
3-17 or exceeds the amount of accrued interest as of the date of the
3-18 scheduled installment;
3-19 (M) is closed not before:
3-20 (i) the 12th day after the later of the
3-21 date that the owner of the homestead submits an application to the
3-22 lender for the extension of credit or the date that the lender
3-23 provides the owner a copy of the notice prescribed by Subsection
3-24 (g) of this section; and
3-25 (ii) the first anniversary of the closing
3-26 date of any other extension of credit described by Subsection
3-27 (a)(6) of this section secured by the same homestead property;
4-1 (N) is closed only at the office of the lender,
4-2 an attorney at law, or a title company;
4-3 (O) is made by one of the following that has not
4-4 been found by a federal regulatory agency to have engaged in the
4-5 practice of refusing to make loans because the applicants for the
4-6 loans reside or the property proposed to secure the loans is
4-7 located in a certain area:
4-8 (i) a bank, savings and loan association,
4-9 savings bank, or credit union doing business under the laws of this
4-10 state or the United States;
4-11 (ii) a federally chartered lending
4-12 instrumentality or a person approved as a mortgagee by the United
4-13 States government to make federally insured loans; or
4-14 (iii) a person licensed to make regulated
4-15 loans, as provided by statute of this state; and
4-16 (P) is made on the condition that:
4-17 (i) the owner of the homestead is not
4-18 required to apply the proceeds of the extension of credit to repay
4-19 another debt except debt secured by the homestead or debt to
4-20 another lender;
4-21 (ii) the owner of the homestead not assign
4-22 wages as security for the extension of credit;
4-23 (iii) the owner of the homestead not sign
4-24 any instrument in which blanks are left to be filled in;
4-25 (iv) the owner of the homestead not sign a
4-26 confession or judgment or power of attorney to the lender or to a
4-27 third person to confess judgment or to appear for the owner in a
5-1 judicial proceeding;
5-2 (v) the lender, at the time the extension
5-3 of credit is made, provide the owner of the homestead a copy of all
5-4 documents signed by the owner related to the extension of credit;
5-5 (vi) the security instruments securing the
5-6 extension of credit contain a disclosure that the extension of
5-7 credit is the type of credit defined by Section 50(a)(6), Article
5-8 XVI, Texas Constitution;
5-9 (vii) within a reasonable time after
5-10 termination and full payment of the extension of credit, the lender
5-11 cancel and return the promissory note to the owner of the homestead
5-12 and give the owner, in recordable form, a release of the lien
5-13 securing the extension of credit or a copy of an endorsement and
5-14 assignment of the lien to a lender that is refinancing the
5-15 extension of credit;
5-16 (viii) the owner of the homestead and any
5-17 spouse of the owner may, within three days after the extension of
5-18 credit is made, rescind the extension of credit without penalty or
5-19 charge;
5-20 (ix) the owner of the homestead and the
5-21 lender sign a written acknowledgment as to the fair market value of
5-22 the homestead property on the date the extension of credit is made;
5-23 and
5-24 (x) the lender or any holder of the note
5-25 for the extension of credit shall forfeit all principal and
5-26 interest of the extension of credit if the lender fails to comply
5-27 with the lender's obligations under the extension of credit within
6-1 a reasonable time after the lender is notified of its failure to
6-2 comply.
6-3 (b) An [nor may the] owner or claimant of the property
6-4 claimed as homestead may not [, if married,] sell or abandon the
6-5 homestead without the consent of each owner and the [other] spouse
6-6 of each owner, given in such manner as may be prescribed by law.
6-7 (c) No mortgage, trust deed, or other lien on the homestead
6-8 shall ever be valid unless it secures a debt described by this
6-9 section, [except for a debt described by this section,] whether
6-10 such mortgage, [or] trust deed, or other lien, shall have been
6-11 created by the owner alone, or together with his or her spouse, in
6-12 case the owner is married. All pretended sales of the homestead
6-13 involving any condition of defeasance shall be void.
6-14 (d) A purchaser or lender for value without actual knowledge
6-15 may conclusively rely on an affidavit that designates other
6-16 property as the homestead of the affiant and that states that the
6-17 property to be conveyed or encumbered is not the homestead of the
6-18 affiant.
6-19 (e) A refinance of debt secured by a homestead and described
6-20 by any subsection under Subsections (a)(1)-(a)(5) that includes the
6-21 advance of additional funds may not be secured by a valid lien
6-22 against the homestead unless:
6-23 (1) the refinance of the debt is an extension of
6-24 credit described by Subsection (a)(6) of this section; or
6-25 (2) the advance of all the additional funds is for
6-26 reasonable costs necessary to refinance such debt or for a purpose
6-27 described by Subsection (a)(2), (a)(3), or (a)(5) of this section.
7-1 (f) A refinance of debt secured by the homestead, any
7-2 portion of which is an extension of credit described by Subsection
7-3 (a)(6) of this section, may not be secured by a valid lien against
7-4 the homestead unless the refinance of the debt is an extension of
7-5 credit described by Subsection (a)(6) of this section.
7-6 (g) An extension of credit described by Subsection (a)(6)
7-7 of this section may be secured by a valid lien against homestead
7-8 property if the extension of credit is not closed before the 12th
7-9 day after the lender provides the owner with the following written
7-10 notice on a separate instrument:
7-11 "NOTICE CONCERNING EXTENSIONS OF CREDIT
7-12 DEFINED BY SECTION 50(a)(6), ARTICLE XVI, TEXAS CONSTITUTION:
7-13 "SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS CONSTITUTION
7-14 ALLOWS CERTAIN LOANS TO BE SECURED AGAINST THE EQUITY IN YOUR HOME.
7-15 SUCH LOANS ARE COMMONLY KNOWN AS EQUITY LOANS. IF YOU DO NOT REPAY
7-16 THE LOAN OR IF YOU FAIL TO MEET THE TERMS OF THE LOAN, THE LENDER
7-17 MAY FORECLOSE AND SELL YOUR HOME. THE CONSTITUTION PROVIDES THAT:
7-18 "(A) THE LOAN MUST BE VOLUNTARILY CREATED WITH THE CONSENT
7-19 OF EACH OWNER OF YOUR HOME AND EACH OWNER'S SPOUSE;
7-20 "(B) THE PRINCIPAL LOAN AMOUNT AT THE TIME THE LOAN IS MADE
7-21 MUST NOT EXCEED AN AMOUNT THAT, WHEN ADDED TO THE PRINCIPAL
7-22 BALANCES OF ALL OTHER LIENS AGAINST YOUR HOME, IS MORE THAN 75% OF
7-23 THE FAIR MARKET VALUE OF YOUR HOME;
7-24 "(C) THE LOAN MUST BE WITHOUT RECOURSE FOR PERSONAL
7-25 LIABILITY AGAINST YOU AND YOUR SPOUSE;
7-26 "(D) THE LIEN SECURING THE LOAN MAY BE FORECLOSED UPON ONLY
7-27 WITH A COURT ORDER;
8-1 "(E) FEES AND CHARGES TO MAKE THE LOAN MAY NOT EXCEED 3% OF
8-2 THE LOAN AMOUNT;
8-3 "(F) THE LOAN MAY NOT BE AN OPEN-END ACCOUNT THAT MAY BE
8-4 DEBITED FROM TIME TO TIME OR UNDER WHICH CREDIT MAY BE EXTENDED
8-5 FROM TIME TO TIME, UNLESS THE LOAN IS A REVERSE MORTGAGE;
8-6 "(G) YOU MAY PREPAY THE LOAN WITHOUT PENALTY OR CHARGE;
8-7 "(H) NO ADDITIONAL COLLATERAL MAY BE SECURITY FOR THE LOAN;
8-8 "(I) THE LOAN MAY NOT BE SECURED BY AGRICULTURAL HOMESTEAD
8-9 PROPERTY;
8-10 "(J) YOU ARE NOT REQUIRED TO REPAY THE LOAN EARLIER THAN
8-11 AGREED SOLELY BECAUSE THE FAIR MARKET VALUE OF YOUR HOME DECREASES
8-12 OR BECAUSE YOU DEFAULT ON ANOTHER LOAN THAT IS NOT SECURED BY YOUR
8-13 HOME;
8-14 "(K) ONLY ONE LOAN DESCRIBED BY SECTION 50(a)(6), ARTICLE
8-15 XVI, OF THE TEXAS CONSTITUTION MAY BE SECURED WITH YOUR HOME AT ANY
8-16 GIVEN TIME;
8-17 "(L) THE LOAN MUST BE SCHEDULED TO BE REPAID IN PAYMENTS
8-18 THAT EQUAL OR EXCEED THE AMOUNT OF ACCRUED INTEREST FOR EACH
8-19 PAYMENT PERIOD, UNLESS THE LOAN IS A REVERSE MORTGAGE;
8-20 "(M) THE LOAN MAY NOT CLOSE BEFORE 12 DAYS AFTER YOU SUBMIT
8-21 A WRITTEN APPLICATION TO THE LENDER OR BEFORE 12 DAYS AFTER YOU
8-22 RECEIVE THIS NOTICE, WHICHEVER DATE IS LATER; AND IF YOUR HOME WAS
8-23 SECURITY FOR THE SAME TYPE OF LOAN WITHIN THE PAST YEAR, A NEW LOAN
8-24 SECURED BY THE SAME PROPERTY MAY NOT CLOSE BEFORE ONE YEAR HAS
8-25 PASSED FROM THE CLOSING DATE OF THE OTHER LOAN;
8-26 "(N) THE LOAN MAY CLOSE ONLY AT THE OFFICE OF THE LENDER,
8-27 TITLE COMPANY, OR AN ATTORNEY AT LAW;
9-1 "(O) ONLY A LAWFULLY AUTHORIZED LENDER MAY MAKE LOANS
9-2 DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS
9-3 CONSTITUTION; AND
9-4 "(P) LOANS DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF
9-5 THE TEXAS CONSTITUTION MUST:
9-6 "(1) NOT REQUIRE YOU TO APPLY THE PROCEEDS TO ANOTHER
9-7 DEBT THAT IS NOT SECURED BY YOUR HOME OR TO ANOTHER DEBT TO THE
9-8 SAME LENDER;
9-9 "(2) NOT REQUIRE THAT YOU ASSIGN WAGES AS SECURITY;
9-10 "(3) NOT REQUIRE THAT YOU EXECUTE INSTRUMENTS WHICH
9-11 HAVE BLANKS LEFT TO BE FILLED IN;
9-12 "(4) NOT REQUIRE THAT YOU SIGN A CONFESSION OF
9-13 JUDGMENT OR POWER OF ATTORNEY TO ANOTHER PERSON TO CONFESS JUDGMENT
9-14 OR APPEAR IN A LEGAL PROCEEDING ON YOUR BEHALF;
9-15 "(5) PROVIDE THAT YOU RECEIVE A COPY OF ALL DOCUMENTS
9-16 YOU SIGN AT CLOSING;
9-17 "(6) PROVIDE THAT THE SECURITY INSTRUMENTS CONTAIN A
9-18 DISCLOSURE THAT THIS LOAN IS A LOAN DEFINED BY SECTION 50(a)(6),
9-19 ARTICLE XVI, OF THE TEXAS CONSTITUTION;
9-20 "(7) PROVIDE THAT WHEN THE LOAN IS PAID IN FULL, THE
9-21 LENDER WILL SIGN AND GIVE YOU A RELEASE OF LIEN OR AN ASSIGNMENT OF
9-22 THE LIEN, WHICHEVER IS APPROPRIATE;
9-23 "(8) PROVIDE THAT YOU MAY, WITHIN 3 DAYS AFTER
9-24 CLOSING, RESCIND THE LOAN WITHOUT PENALTY OR CHARGE;
9-25 "(9) PROVIDE THAT YOU AND THE LENDER ACKNOWLEDGE THE
9-26 FAIR MARKET VALUE OF YOUR HOME ON THE DATE THE LOAN CLOSES; AND
9-27 "(10) PROVIDE THAT THE LENDER WILL FORFEIT ALL
10-1 PRINCIPAL AND INTEREST IF THE LENDER FAILS TO COMPLY WITH THE
10-2 LENDER'S OBLIGATIONS." If the discussions with the borrower are
10-3 conducted primarily in a language other than English, the lender
10-4 shall, before closing, provide an additional copy of the notice
10-5 translated into the written language in which the discussions were
10-6 conducted.
10-7 (h) Subsection (a)(6) and Subsections (e)-(g) of this
10-8 section are not severable, and none of those provisions would have
10-9 been enacted without the others. If any of those provisions are
10-10 held to be preempted by the laws of the United States, all of those
10-11 provisions are invalid. This subsection shall not apply to any
10-12 lien or extension of credit made after January 1, 1998, and before
10-13 the date any provision under Subsection (a)(6) or Subsections
10-14 (e)-(g) is held to be preempted.
10-15 (i) The advances made on a reverse mortgage loan under which
10-16 more than one advance is made must be made at regular intervals
10-17 according to a plan established by the original loan agreement.
10-18 SECTION 2. The following temporary provision is added to the
10-19 Texas Constitution:
10-20 TEMPORARY PROVISION. (a) This temporary provision applies
10-21 to the constitutional amendment proposed by the 75th Legislature,
10-22 Regular Session, 1997, authorizing a voluntary consensual
10-23 encumbrance on homestead property.
10-24 (b) The constitutional amendment takes effect January 1,
10-25 1998.
10-26 (c) This temporary provision takes effect on the adoption of
10-27 the amendment by the voters and expires January 2, 1998.
11-1 SECTION 3. This proposed constitutional amendment shall be
11-2 submitted to the voters at an election to be held November 4, 1997.
11-3 The ballot shall be printed to permit voting for or against the
11-4 proposition: "The amendment to the Texas Constitution expanding
11-5 the types of liens for home equity loans that a lender, with the
11-6 homeowner's consent, may place against a homestead."