By Patterson, Marchant, Danburg, Rabuck, H.J.R. No. 31
Solomons, et al.
Substitute the following for H.J.R. No. 31:
By Marchant C.S.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
2-1 manner as is required in making a sale and conveyance of the
2-2 homestead;
2-3 (6) an extension of credit for any other purpose, if
2-4 the extension of credit meets the requirements of Subsection (d) of
2-5 this section; or
2-6 (7) an equity loan.
2-7 (b) The [nor may the] owner or claimant of the property
2-8 claimed as homestead, if married, may not sell or abandon the
2-9 homestead without the consent of the other spouse, given in such
2-10 manner as may be prescribed by law.
2-11 (c) No mortgage, trust deed, or other lien on the homestead
2-12 shall ever be valid, except for a debt described by this section,
2-13 whether such mortgage, or trust deed, or other lien, shall have
2-14 been created by the owner alone, or together with his or her
2-15 spouse, in case the owner is married. All pretended sales of the
2-16 homestead involving any condition of defeasance shall be void. A
2-17 purchaser or lender for value without actual knowledge may
2-18 conclusively rely on an affidavit that designates other property as
2-19 the homestead of the affiant and that states that the property to
2-20 be conveyed or encumbered is not the homestead of the affiant.
2-21 (d) An extension of credit under Subsection (a)(6) of this
2-22 section must be the only debt secured by the homestead. Any prior
2-23 debt secured by the homestead must be paid in full before the
2-24 extension of credit under Subsection (a)(6) of this section or
2-25 refinanced as part of the extension of credit under Subsection
2-26 (a)(6) of this section. A lender may not require as a condition on
2-27 an extension of credit under Subsection (a)(6) of this section that
3-1 the proceeds of the extension of credit be used for a particular
3-2 purpose.
3-3 (e) At the time the homestead owner first requests a lender
3-4 to make an equity loan under Subsection (a)(7) of this section, the
3-5 lender of an equity loan must provide to the owner the following
3-6 written notice in conspicuous bold capitalized type:
3-7 "YOU ARE PLEDGING YOUR HOMESTEAD AS COLLATERAL TO SECURE
3-8 PAYMENT OF A LOAN. IF YOU DO NOT REPAY THE LOAN OR IF YOU FAIL TO
3-9 MEET THE TERMS OF THE LOAN, THE LENDER MAY FORECLOSE AND SELL YOUR
3-10 HOME. THE LENDER MUST GIVE YOU A COPY OF ALL DOCUMENTS YOU SIGN.
3-11 WHEN YOU PAY THE LOAN IN FULL, THE LENDER MUST CANCEL AND RETURN
3-12 THE NOTE TO YOU OR ASSIGN IT TO THE PERSON PAYING OFF THE LOAN."
3-13 "THE LENDER MAY NOT: (1) DEMAND THAT YOU PAY OFF THE LOAN
3-14 EARLIER THAN YOU AGREED IF THE FAIR MARKET VALUE OF YOUR HOME
3-15 DECREASES, UNLESS THE DECREASE IS CAUSED BY SUBSTANTIAL DAMAGE OR
3-16 DESTRUCTION TO THE HOMESTEAD PROPERTY, INCLUDING A CONDEMNATION OR
3-17 OTHER TAKING; OR IF YOU DO NOT PAY SOME OTHER LOAN THAT IS NOT
3-18 SECURED BY YOUR HOME; (2) SEEK RECOURSE AGAINST YOU OR TAKE ANY
3-19 ASSETS OTHER THAN YOUR HOME IF YOU DO NOT REPAY THE LOAN OR MEET
3-20 THE TERMS OF THE LOAN, UNLESS THE LENDER HAS ELECTED TO SEEK
3-21 JUDICIAL FORECLOSURE AND THE COURT HAS ISSUED AN ORDER ALLOWING USE
3-22 OF THOSE OTHER ASSETS TO SATISFY THE DEBT; (3) ESTABLISH AN
3-23 OPEN-END ACCOUNT TO ACCESS THE LOAN; (4) REQUIRE THAT YOU USE THE
3-24 LOAN TO PAY OFF ANOTHER LOAN THAT IS NOT SECURED BY YOUR HOME; (5)
3-25 CLOSE BEFORE 12 DAYS AFTER YOU APPLIED FOR THE LOAN; (6) CHARGE YOU
3-26 A PENALTY IF YOU REPAY THE LOAN IN ADVANCE; (7) REQUIRE YOU TO PAY
3-27 FEES, OTHER THAN INTEREST, THAT EXCEED, IN THE AGGREGATE, THREE
4-1 PERCENT OF THE LOAN AMOUNT; (8) ACCEPT AN ASSIGNMENT OF WAGES AS
4-2 SECURITY FOR THE LOAN; (9) ACCEPT A CONFESSION OF JUDGMENT OR POWER
4-3 OF ATTORNEY TO APPEAR FOR YOU AT A JUDICIAL PROCEEDING; OR (10)
4-4 ACCEPT AN INSTRUMENT THAT YOU HAVE SIGNED THAT HAS BLANKS LEFT TO
4-5 BE FILLED IN."
4-6 "IF YOU CHANGE YOUR MIND ABOUT THIS LOAN, YOU HAVE AT LEAST
4-7 THREE DAYS AFTER YOU SIGN THE LOAN DOCUMENTS TO NOTIFY THE LENDER
4-8 THAT YOU HAVE CHANGED YOUR MIND AND YOU WILL HAVE NO FURTHER
4-9 OBLIGATION TO THE LENDER. THIS LOAN MAY BE CLOSED ONLY AT THE
4-10 OFFICE OF THE LENDER, A TITLE COMPANY, OR AN ATTORNEY. THE LENDER
4-11 MAY FORFEIT THE RIGHT TO COLLECT THE LOAN IF THE LENDER DOES NOT
4-12 COMPLY WITH THE LAW GOVERNING EQUITY LOANS."
4-13 "THIS LOAN MAY BE MADE ONLY WITH THE VOLUNTARY CONSENT OF
4-14 EACH OWNER OF YOUR HOME AND EACH OWNER'S SPOUSE. THIS LOAN MAY
4-15 ONLY BE MADE BY A LAWFULLY AUTHORIZED LENDER. THIS LOAN MAY NOT BE
4-16 SECURED BY YOUR HOME IF: (1) YOUR HOME IS SECURITY FOR ANOTHER
4-17 EQUITY LOAN; OR (2) IF THE LOAN IS TO BE SECURED WITH PROPERTY
4-18 OTHER THAN YOUR HOME. ALL THE DEBTS AGAINST YOUR HOME, INCLUDING
4-19 THE EQUITY LOAN, MAY NOT EXCEED 75 PERCENT OF THE FAIR MARKET VALUE
4-20 OF YOUR HOME AT THE TIME YOU CLOSE THIS LOAN. THE LOAN MUST BE
4-21 SCHEDULED TO BE REPAID IN SUBSTANTIALLY EQUAL MONTHLY INSTALLMENTS
4-22 BEGINNING NO LATER THAN TWO MONTHS FROM THE DATE PRINCIPAL IS
4-23 ADVANCED, AND THE PAYMENTS MUST COVER, AT A MINIMUM, THE INTEREST
4-24 AND PRINCIPAL ACCRUED IN THE PAYMENT PERIOD."
4-25 (f) The notice must be signed by the lender and the borrower
4-26 at the closing of the equity loan and must include a statement of
4-27 the fair market value of the homestead property at the time of
5-1 closing.
5-2 (g) A lender or any holder of an equity loan must:
5-3 (1) deliver to the borrower a copy of the promissory
5-4 note and all other documents signed by the borrower related to the
5-5 equity loan;
5-6 (2) disclose in any mortgage, deed of trust, security
5-7 instrument, or other instrument securing the loan that the loan is
5-8 an equity loan made under the authority of this section; and
5-9 (3) within a reasonable time after termination and
5-10 full payment of the equity loan:
5-11 (A) cancel and return the note to the borrower
5-12 and give the borrower a release in recordable form of any mortgage,
5-13 deed of trust, security instrument, or other instrument securing
5-14 the loan; or
5-15 (B) endorse the note and assign any mortgage,
5-16 deed of trust, or other security instrument to a lender that is
5-17 refinancing the loan and advancing funds to discharge the equity
5-18 loan indebtedness at the request of the borrower and in renewal and
5-19 extension of the security instrument.
5-20 (h) A lender or any holder of an equity loan may not:
5-21 (1) demand payment, accelerate the remaining payments,
5-22 or foreclose any lien securing payment of an equity loan because of
5-23 a decrease in the fair market value of the homestead, unless the
5-24 decrease is caused by substantial damage or destruction to the
5-25 homestead property, including a condemnation or other taking;
5-26 (2) demand payment, accelerate the remaining payments,
5-27 or foreclose any lien securing payment of an equity loan because of
6-1 the borrower's default under any other indebtedness not secured by
6-2 a prior valid encumbrance on the homestead;
6-3 (3) require or compel the borrower to apply the
6-4 proceeds of the equity loan to repay another debt that is not
6-5 secured by the homestead;
6-6 (4) require, compel, or accept a borrower's homestead
6-7 as collateral on a debt not described by Subsection (a) of this
6-8 section;
6-9 (5) establish a form of open-end account or other
6-10 nondeterminate principal amount or indefinite term of loan that may
6-11 be debited or under which credit may be extended from time to time;
6-12 (6) close the equity loan before the 12th day after
6-13 the date the lender receives a completed application for the equity
6-14 loan;
6-15 (7) impose a prepayment penalty or other charge for
6-16 advance payments made by the borrower;
6-17 (8) require the borrower to pay, in addition to any
6-18 interest, fees to the lender or any other person that are necessary
6-19 to originate, evaluate, maintain, record, insure, or service the
6-20 loan that exceed, in the aggregate, three percent of the original
6-21 principal amount of the equity loan;
6-22 (9) accept an assignment of wages as security for the
6-23 loan;
6-24 (10) accept a confession of judgment or power of
6-25 attorney running to the lender or to a third person to confess
6-26 judgment or to appear for a borrower in a judicial proceeding; or
6-27 (11) accept an instrument in which blanks are left to
7-1 be filled in by the borrower.
7-2 (i) An equity loan must be a debt secured only by the
7-3 homestead property. Unsecured credit or credit secured by property
7-4 other than the homestead property, regardless of when the extension
7-5 of credit is made, may not be conditioned on or otherwise related
7-6 to an equity loan.
7-7 (j) Any owner and any spouse of any owner of the homestead
7-8 property securing an equity loan may, within three days after the
7-9 equity loan is closed, rescind the equity loan without penalty or
7-10 charge.
7-11 (k) An equity loan may close only at an office of the
7-12 lender, a title company, or an attorney licensed to practice law in
7-13 this state.
7-14 (l) A lender or holder of an equity loan shall forfeit all
7-15 principal and interest of the equity loan, and shall pay reasonable
7-16 attorney's fees and other costs incurred by the borrower, if the
7-17 lender fails to comply with this section within a reasonable time
7-18 after receiving notice of its failure to comply.
7-19 (m) The principal amount of an equity loan plus the
7-20 aggregate total of the outstanding balances of other indebtedness
7-21 secured by valid encumbrances of record against the homestead
7-22 property may not exceed 75 percent of the fair market value of the
7-23 homestead property on the date the equity loan is closed. The lien
7-24 securing the equity loan is valid only if the principal amount of
7-25 the equity loan plus the aggregate total of the outstanding
7-26 balances of other indebtedness secured by valid encumbrances of
7-27 record against the homestead property does not exceed 75 percent of
8-1 the fair market value of the homestead property on the date the
8-2 equity loan is closed. Violation of this subsection does not
8-3 affect the validity of other indebtedness secured by valid
8-4 encumbrances of record against the homestead property.
8-5 (n) On default by the borrower on an equity loan, the holder
8-6 of the loan may not seek recourse against the assets of the
8-7 borrower, other than the homestead property securing the loan,
8-8 unless the holder has obtained a judicial foreclosure of the lien
8-9 securing the loan in a district court of the county in which the
8-10 homestead property is located. If the holder elects to sell the
8-11 homestead property under a power of sale conferred by a deed of
8-12 trust or other contract lien rather than obtain a judicial
8-13 foreclosure of the lien, the holder shall send the borrower written
8-14 notice of the default by certified mail. The holder may not give
8-15 notice of the sale required by statute until the borrower is given
8-16 at least 30 days after receiving the notice to cure the default,
8-17 including the day on which the notice is given and the day notice
8-18 of the sale is given as required by statute.
8-19 (o) In this section:
8-20 (1) "Equity loan" means an extension of credit under a
8-21 written agreement other than an extension of credit under
8-22 Subsections (a)(1)-(6) of this section that:
8-23 (A) is secured by a voluntary lien on a
8-24 homestead or other consensual security interest in a homestead
8-25 securing payment of a debt in an amount that is not greater than 75
8-26 percent of the fair market value of the homestead property at the
8-27 time the equity loan is closed;
9-1 (B) is created with the consent of each owner
9-2 and the spouse of each owner;
9-3 (C) is made by:
9-4 (i) a bank, savings and loan association,
9-5 savings bank, or credit union doing business under the laws of this
9-6 state or the United States;
9-7 (ii) a federally chartered lending
9-8 instrumentality or a person approved as a mortgagee by the United
9-9 States government to make federally insured loans; or
9-10 (iii) a person licensed to make regulated
9-11 loans, as provided by statute of this state;
9-12 (D) is not secured with homestead property
9-13 encumbered by a prior duly recorded lien securing an equity loan;
9-14 (E) is not secured by any additional real or
9-15 personal property, other than the homestead, except for a
9-16 manufactured home or rents to be derived from the homestead;
9-17 (F) is scheduled to be repaid in substantially
9-18 equal successive monthly installments beginning no later than two
9-19 months after the date the equity loan is closed; and
9-20 (G) requires each installment under the schedule
9-21 of payments by the borrower to equal the amount of interest and
9-22 principal scheduled to accrue as of the date of the installment or
9-23 that would accrue as of the installment date through amortization
9-24 of the equity loan.
9-25 (2) "Close or closing" means, for the purposes of an
9-26 equity loan, the execution by the borrower of the promissory notes
9-27 and the security instruments securing the loan.
10-1 SECTION 2. The following temporary provision is added to the
10-2 Texas Constitution:
10-3 TEMPORARY PROVISION. (a) This temporary provision applies
10-4 to the constitutional amendment proposed by the 75th Legislature,
10-5 Regular Session, 1997, authorizing a voluntary, consensual
10-6 encumbrance on homestead property.
10-7 (b) The constitutional amendment takes effect January 1,
10-8 1998.
10-9 (c) This temporary provision takes effect on the adoption of
10-10 the amendment by the voters and expires January 2, 1998.
10-11 SECTION 3. This proposed constitutional amendment shall be
10-12 submitted to the voters at an election to be held November 4, 1997.
10-13 The ballot shall be printed to permit voting for or against the
10-14 proposition: "The constitutional amendment extending homeowners'
10-15 rights to borrow voluntarily against the equity in, and establish a
10-16 valid lien on, their homesteads according to specific guidelines
10-17 for purposes in addition to those presently provided for under
10-18 state law, without affecting homestead tax exemptions or
10-19 eliminating existing homestead protections against involuntary
10-20 liens and judgment creditors."