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 * * * * *