1-1     By:  Patterson, et al. (Senate Sponsor - Harris)      H.J.R. No. 31

 1-2           (In the Senate - Received from the House May 10, 1997;

 1-3     May 13, 1997, read first time and referred to Committee on State

 1-4     Affairs; May 18, 1997, reported favorably by the following vote:

 1-5     Yeas 7, Nays 1; May 18, 1997, sent to printer.)

 1-6                           HOUSE JOINT RESOLUTION

 1-7     proposing a constitutional amendment permitting an encumbrance

 1-8     against homestead property for certain extensions of equity credit.

 1-9           BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF TEXAS:

1-10           SECTION 1.  Section 50, Article XVI, Texas Constitution, is

1-11     amended to read as follows:

1-12           Sec. 50.  (a)  The homestead of a family, or of a single

1-13     adult person, shall be, and is hereby protected from forced sale,

1-14     for the payment of all debts except for:

1-15                 (1)  the purchase money thereof, or a part of such

1-16     purchase money;

1-17                 (2)  [,] the taxes due thereon;

1-18                 (3)  [,] an owelty of partition imposed against the

1-19     entirety of the property by a court order or by a written agreement

1-20     of the parties to the partition, including a debt of one spouse in

1-21     favor of the other spouse resulting from a division or an award of

1-22     a family homestead in a divorce proceeding;

1-23                 (4)  [,] the refinance of a lien against a homestead,

1-24     including a federal tax lien resulting from the tax debt of both

1-25     spouses, if the homestead is a family homestead, or from the tax

1-26     debt of the owner;

1-27                 (5)  [, or for] work and material used in constructing

1-28     improvements thereon, if [and in this last case only when] the work

1-29     and material are contracted for in writing, with the consent of

1-30     both spouses, in the case of a family homestead, given in the same

1-31     manner as is required in making a sale and conveyance of the

1-32     homestead; or

1-33                 (6)  an extension of credit that:

1-34                       (A)  is secured by a voluntary lien on the

1-35     homestead created under a written agreement with the consent of

1-36     each owner and each owner's spouse;

1-37                       (B)  is of a principal amount that when added to

1-38     the aggregate total of the outstanding principal balances of all

1-39     other indebtedness secured by valid encumbrances of record against

1-40     the homestead does not exceed 75 percent of the fair market value

1-41     of the homestead on the date the extension of credit is made;

1-42                       (C)  is without recourse for personal liability

1-43     against each owner and the spouse of each owner;

1-44                       (D)  is secured by a lien that may be foreclosed

1-45     upon only by a court order;

1-46                       (E)  does not require the owner or the owner's

1-47     spouse to pay, in addition to any interest, fees to any person that

1-48     are necessary to originate, evaluate, maintain, record, insure, or

1-49     service the extension of credit that exceed, in the aggregate,

1-50     three percent of the original principal amount of the extension of

1-51     credit;

1-52                       (F)  is not a form of open-end account that may

1-53     be debited from time to time or under which credit may be extended

1-54     from time to time, unless the extension of credit is a reverse

1-55     mortgage;

1-56                       (G)  is payable in advance without penalty or

1-57     other charge;

1-58                       (H)  is not secured by any additional real or

1-59     personal property other than the homestead;

1-60                       (I)  is not secured by homestead property

1-61     designated for agricultural use as provided by statutes governing

1-62     property tax;

1-63                       (J)  may not be accelerated because of a decrease

1-64     in the market value of the homestead or because of the owner's

 2-1     default under other indebtedness not secured by a prior valid

 2-2     encumbrance against the homestead;

 2-3                       (K)  is the only debt secured by the homestead at

 2-4     the time the extension of credit is made unless the other debt was

 2-5     made for a purpose described by Subsections (a)(1)-(a)(5) of this

 2-6     section;

 2-7                       (L)  is, unless the extension of credit is a

 2-8     reverse mortgage, scheduled to be repaid in substantially equal

 2-9     successive monthly installments beginning no later than two months

2-10     from the date the extension of credit is made, each of which equals

2-11     or exceeds the amount of accrued interest as of the date of the

2-12     scheduled installment;

2-13                       (M)  is closed not before:

2-14                             (i)  the 12th day after the later of the

2-15     date that the owner of the homestead submits an application to the

2-16     lender for the extension of credit or the date that the lender

2-17     provides the owner a copy of the notice prescribed by Subsection

2-18     (g) of this section; and

2-19                             (ii)  the first anniversary of the closing

2-20     date of any other extension of credit described by Subsection

2-21     (a)(6) of this section secured by the same homestead property;

2-22                       (N)  is closed only at the office of the lender,

2-23     an attorney at law, or a title company;

2-24                       (O)  is made by one of the following that has not

2-25     been found by a federal regulatory agency to have engaged in the

2-26     practice of refusing to make loans because the applicants for the

2-27     loans reside or the property proposed to secure the loans is

2-28     located in a certain area:

2-29                             (i)  a bank, savings and loan association,

2-30     savings bank, or credit union doing business under the laws of this

2-31     state or the United States;

2-32                             (ii)  a federally chartered lending

2-33     instrumentality or a person approved as a mortgagee by the United

2-34     States government to make federally insured loans; or

2-35                             (iii)  a person licensed to make regulated

2-36     loans, as provided by statute of this state; and

2-37                       (P)  is made on the condition that:

2-38                             (i)  the owner of the homestead is not

2-39     required to apply the proceeds of the extension of credit to repay

2-40     another debt except debt secured by the homestead or debt to

2-41     another lender;

2-42                             (ii)  the owner of the homestead not assign

2-43     wages as security for the extension of credit;

2-44                             (iii)  the owner of the homestead not sign

2-45     any instrument in which blanks are left to be filled in;

2-46                             (iv)  the owner of the homestead not sign a

2-47     confession or judgment or power of attorney to the lender or to a

2-48     third person to confess judgment or to appear for the owner in a

2-49     judicial proceeding;

2-50                             (v)  the lender, at the time the extension

2-51     of credit is made, provide the owner of the homestead a copy of all

2-52     documents signed by the owner related to the extension of credit;

2-53                             (vi)  the security instruments securing the

2-54     extension of credit contain a disclosure that the extension of

2-55     credit is the type of credit defined by Section 50(a)(6), Article

2-56     XVI, Texas Constitution;

2-57                             (vii)  within a reasonable time after

2-58     termination and full payment of the extension of credit, the lender

2-59     cancel and return the promissory note to the owner of the homestead

2-60     and give the owner, in recordable form, a release of the lien

2-61     securing the extension of credit or a copy of an endorsement and

2-62     assignment of the lien to a lender that is refinancing the

2-63     extension of credit;

2-64                             (viii)  the owner of the homestead and any

2-65     spouse of the owner may, within three days after the extension of

2-66     credit is made, rescind the extension of credit without penalty or

2-67     charge;

2-68                             (ix)  the owner of the homestead and the

2-69     lender sign a written acknowledgment as to the fair market value of

 3-1     the homestead property on the date the extension of credit is made;

 3-2     and

 3-3                             (x)  the lender or any holder of the note

 3-4     for the extension of credit shall forfeit all principal and

 3-5     interest of the extension of credit if the lender fails to comply

 3-6     with the lender's obligations under the extension of credit within

 3-7     a reasonable time after the lender is notified of its failure to

 3-8     comply.

 3-9           (b)  An [nor may the] owner or claimant of the property

3-10     claimed as homestead may not [, if married,] sell or abandon the

3-11     homestead without the consent of each owner and the [other] spouse

3-12     of each owner, given in such manner as may be prescribed by law.

3-13           (c)  No mortgage, trust deed, or other lien on the homestead

3-14     shall ever be valid unless it secures a debt described by this

3-15     section, [except for a debt described by this section,] whether

3-16     such mortgage, [or] trust deed, or other lien, shall have been

3-17     created by the owner alone, or together with his or her spouse, in

3-18     case the owner is married. All pretended sales of the homestead

3-19     involving any condition of defeasance shall be void.

3-20           (d)  A purchaser or lender for value without actual knowledge

3-21     may conclusively rely on an affidavit that designates other

3-22     property as the homestead of the affiant and that states that the

3-23     property to be conveyed or encumbered is not the homestead of the

3-24     affiant.

3-25           (e)  A refinance of debt secured by a homestead and described

3-26     by any subsection under Subsections (a)(1)-(a)(5) that includes the

3-27     advance of additional funds may not be secured by a valid lien

3-28     against the homestead unless:

3-29                 (1)  the refinance of the debt is an extension of

3-30     credit described by Subsection (a)(6) of this section; or

3-31                 (2)  the advance of all the additional funds is for

3-32     reasonable costs necessary to refinance such debt or for a purpose

3-33     described by Subsection (a)(2), (a)(3), or (a)(5) of this section.

3-34           (f)  A refinance of debt secured by the homestead, any

3-35     portion of which is an extension of credit described by Subsection

3-36     (a)(6) of this section, may not be secured by a valid lien against

3-37     the homestead unless the refinance of the debt is an extension of

3-38     credit described by Subsection (a)(6) of this section.

3-39           (g)  An  extension of credit described by Subsection (a)(6)

3-40     of this section may be secured by a valid lien against homestead

3-41     property if the extension of credit is not closed before the 12th

3-42     day after the lender provides the owner with the following written

3-43     notice on a separate instrument:

3-44                   "NOTICE CONCERNING EXTENSIONS OF CREDIT

3-45        DEFINED BY SECTION 50(a)(6), ARTICLE XVI, TEXAS CONSTITUTION:

3-46           "SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS CONSTITUTION

3-47     ALLOWS CERTAIN LOANS TO BE SECURED AGAINST THE EQUITY IN YOUR HOME.

3-48     SUCH LOANS ARE COMMONLY KNOWN AS EQUITY LOANS.  IF YOU DO NOT REPAY

3-49     THE LOAN OR IF YOU FAIL TO MEET THE TERMS OF THE LOAN, THE LENDER

3-50     MAY FORECLOSE AND SELL YOUR HOME.  THE CONSTITUTION PROVIDES THAT:

3-51           "(A)  THE LOAN MUST BE VOLUNTARILY CREATED WITH THE CONSENT

3-52     OF EACH OWNER OF YOUR HOME AND EACH OWNER'S SPOUSE;

3-53           "(B)  THE PRINCIPAL LOAN AMOUNT AT THE TIME THE LOAN IS MADE

3-54     MUST NOT EXCEED AN AMOUNT THAT, WHEN ADDED TO THE PRINCIPAL

3-55     BALANCES OF ALL OTHER LIENS AGAINST YOUR HOME, IS MORE THAN 75% OF

3-56     THE FAIR MARKET VALUE OF YOUR HOME;

3-57           "(C)  THE LOAN MUST BE WITHOUT RECOURSE FOR PERSONAL

3-58     LIABILITY AGAINST YOU AND YOUR SPOUSE;

3-59           "(D)  THE LIEN SECURING THE LOAN MAY BE FORECLOSED UPON ONLY

3-60     WITH A COURT ORDER;

3-61           "(E)  FEES AND CHARGES TO MAKE THE LOAN MAY NOT EXCEED 3% OF

3-62     THE LOAN AMOUNT;

3-63           "(F)  THE LOAN MAY NOT BE AN OPEN-END ACCOUNT THAT MAY BE

3-64     DEBITED FROM TIME TO TIME OR UNDER WHICH CREDIT MAY BE EXTENDED

3-65     FROM TIME TO TIME, UNLESS THE LOAN IS A REVERSE MORTGAGE;

3-66           "(G)  YOU MAY PREPAY THE LOAN WITHOUT PENALTY OR CHARGE;

3-67           "(H)  NO ADDITIONAL COLLATERAL MAY BE SECURITY FOR THE LOAN;

3-68           "(I)  THE LOAN MAY NOT BE SECURED BY AGRICULTURAL HOMESTEAD

3-69     PROPERTY;

 4-1           "(J)  YOU ARE NOT REQUIRED TO REPAY THE LOAN EARLIER THAN

 4-2     AGREED SOLELY BECAUSE THE FAIR MARKET VALUE OF YOUR HOME DECREASES

 4-3     OR BECAUSE YOU DEFAULT ON ANOTHER LOAN THAT IS NOT SECURED BY YOUR

 4-4     HOME;

 4-5           "(K)  ONLY ONE LOAN DESCRIBED BY SECTION 50(a)(6), ARTICLE

 4-6     XVI, OF THE TEXAS CONSTITUTION MAY BE SECURED WITH YOUR HOME AT ANY

 4-7     GIVEN TIME;

 4-8           "(L)  THE LOAN MUST BE SCHEDULED TO BE REPAID IN PAYMENTS

 4-9     THAT EQUAL OR EXCEED THE AMOUNT OF ACCRUED INTEREST FOR EACH

4-10     PAYMENT PERIOD, UNLESS THE LOAN IS A REVERSE MORTGAGE;

4-11           "(M)  THE LOAN MAY NOT CLOSE BEFORE 12 DAYS AFTER YOU SUBMIT

4-12     A WRITTEN APPLICATION TO THE LENDER OR BEFORE 12 DAYS AFTER YOU

4-13     RECEIVE THIS NOTICE, WHICHEVER DATE IS LATER; AND IF YOUR HOME WAS

4-14     SECURITY FOR THE SAME TYPE OF LOAN WITHIN THE PAST YEAR, A NEW LOAN

4-15     SECURED BY THE SAME PROPERTY MAY NOT CLOSE BEFORE ONE YEAR HAS

4-16     PASSED FROM THE CLOSING DATE OF THE OTHER LOAN;

4-17           "(N)  THE LOAN MAY CLOSE ONLY AT THE OFFICE OF THE LENDER,

4-18     TITLE COMPANY, OR AN ATTORNEY AT LAW;

4-19           "(O)  ONLY A LAWFULLY AUTHORIZED LENDER MAY MAKE LOANS

4-20     DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS

4-21     CONSTITUTION; AND

4-22           "(P)  LOANS DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF

4-23     THE TEXAS CONSTITUTION MUST:

4-24                 "(1)  NOT REQUIRE YOU TO APPLY THE PROCEEDS TO ANOTHER

4-25     DEBT THAT IS NOT SECURED BY YOUR HOME OR TO ANOTHER DEBT TO THE

4-26     SAME LENDER;

4-27                 "(2)  NOT REQUIRE THAT YOU ASSIGN WAGES AS SECURITY;

4-28                 "(3)  NOT REQUIRE THAT YOU EXECUTE INSTRUMENTS WHICH

4-29     HAVE BLANKS LEFT TO BE FILLED IN;

4-30                 "(4)  NOT REQUIRE THAT YOU SIGN A CONFESSION OF

4-31     JUDGMENT OR POWER OF ATTORNEY TO ANOTHER PERSON TO CONFESS JUDGMENT

4-32     OR APPEAR IN A LEGAL PROCEEDING ON YOUR BEHALF;

4-33                 "(5)  PROVIDE THAT YOU RECEIVE A COPY OF ALL DOCUMENTS

4-34     YOU SIGN AT CLOSING;

4-35                 "(6)  PROVIDE THAT THE SECURITY INSTRUMENTS CONTAIN A

4-36     DISCLOSURE THAT THIS LOAN IS A LOAN DEFINED BY SECTION 50(a)(6),

4-37     ARTICLE XVI, OF THE TEXAS CONSTITUTION;

4-38                 "(7)  PROVIDE THAT WHEN THE LOAN IS PAID IN FULL, THE

4-39     LENDER WILL SIGN AND GIVE YOU A RELEASE OF LIEN OR AN ASSIGNMENT OF

4-40     THE LIEN, WHICHEVER IS APPROPRIATE;

4-41                 "(8)  PROVIDE THAT YOU MAY, WITHIN 3 DAYS AFTER

4-42     CLOSING, RESCIND THE LOAN WITHOUT PENALTY OR CHARGE;

4-43                 "(9)  PROVIDE THAT YOU AND THE LENDER ACKNOWLEDGE THE

4-44     FAIR MARKET VALUE OF YOUR HOME ON THE DATE THE LOAN CLOSES; AND

4-45                 "(10)  PROVIDE THAT THE LENDER WILL FORFEIT ALL

4-46     PRINCIPAL AND INTEREST IF THE LENDER FAILS TO COMPLY WITH THE

4-47     LENDER'S OBLIGATIONS."  If the discussions with the borrower are

4-48     conducted primarily in a language other than English, the lender

4-49     shall, before closing, provide an additional copy of the notice

4-50     translated into the written language in which the discussions were

4-51     conducted.

4-52           (h)  Subsection (a)(6) and Subsections (e)-(g) of this

4-53     section are not severable, and none of those provisions would have

4-54     been enacted without the others.  If any of those provisions are

4-55     held to be preempted by the laws of the United States, all of those

4-56     provisions are invalid.  This subsection shall not apply to any

4-57     lien or extension of credit made after January 1, 1998, and before

4-58     the date any provision under Subsection (a)(6) or Subsections

4-59     (e)-(g) is held to be preempted.

4-60           (i)  The advances made on a reverse mortgage loan under which

4-61     more than one advance is made must be made at regular intervals

4-62     according to a plan established by the original loan agreement.

4-63           SECTION 2.  The following temporary provision is added to the

4-64     Texas Constitution:

4-65           TEMPORARY PROVISION.  (a)  This temporary provision applies

4-66     to the constitutional amendment proposed by the 75th Legislature,

4-67     Regular Session, 1997, authorizing a voluntary consensual

4-68     encumbrance on homestead property.

4-69           (b)  The constitutional amendment takes effect January 1,

 5-1     1998.

 5-2           (c)  This temporary provision takes effect on the adoption of

 5-3     the amendment by the voters and expires January 2, 1998.

 5-4           SECTION 3.  This proposed constitutional amendment shall be

 5-5     submitted to the voters at an election to be held November 4, 1997.

 5-6     The ballot shall be printed to permit voting for or against the

 5-7     proposition:  "The amendment to the Texas Constitution expanding

 5-8     the types of liens for home equity loans that a lender, with the

 5-9     homeowner's consent, may place against a homestead."

5-10                                  * * * * *