By: Patterson, Ellis S.B. No. 173
A BILL TO BE ENTITLED
AN ACT
1-1 relating to a voluntary, consensual encumbrance on homestead
1-2 property for the purpose of an equity loan.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Subsection (b), Section 41.001, Property Code, is
1-5 amended to read as follows:
1-6 (b) Encumbrances may be properly fixed on homestead property
1-7 for:
1-8 (1) purchase money;
1-9 (2) taxes on the property;
1-10 (3) work and material used in constructing
1-11 improvements on the property if contracted for in writing as
1-12 provided by Sections 53.059(a), (b), and (c);
1-13 (4) an owelty of partition imposed against the
1-14 entirety of the property by a court order or by a written agreement
1-15 of the parties to the partition, including a debt of one spouse in
1-16 favor of the other spouse resulting from a division or an award of
1-17 a family homestead in a divorce proceeding; [or]
1-18 (5) the refinance of a lien against a homestead,
1-19 including a federal tax lien resulting from the tax debt of both
1-20 spouses, if the homestead is a family homestead, or from the tax
1-21 debt of the owner; or
1-22 (6) an equity loan, as defined by Article 5A.01, Title
1-23 79, Revised Statutes (Article 5069-5A.01, Vernon's Texas Civil
2-1 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. EQUITY LOANS
2-6 Art. 5A.01. DEFINITIONS. In this chapter:
2-7 (1) "Advance" means a draw or extension of credit
2-8 under an equity loan structured as a contract for an open-end
2-9 account or as a reverse mortgage.
2-10 (2) "Application" means an oral or written request for
2-11 an equity loan made according to procedures established by the
2-12 lender.
2-13 (3) "Blended equity loan" means an equity loan made
2-14 for:
2-15 (A) the payment or refinancing of all or part of
2-16 the purchase money of a homestead, taxes on homestead property, a
2-17 federal tax lien on homestead property, an owelty of partition
2-18 imposed against homestead property, or the work and material used
2-19 in constructing improvements on a homestead or for the refinance of
2-20 any other lien against the homestead; and
2-21 (B) another purpose.
2-22 (4) "Business day" means a day other than a Sunday or
2-23 a legal public holiday listed by 5 U.S.C. Section 6103(a).
2-24 (5) "Equity loan" means an extension of credit under a
2-25 written agreement, including a contract for an open-end account,
3-1 blended equity loan, or reverse mortgage, that is:
3-2 (A) secured in whole or in part by a voluntary
3-3 lien on or other consensual security interest in a homestead; and
3-4 (B) created with the consent of each owner and
3-5 the spouse of each owner in accordance with applicable statutory
3-6 requirements.
3-7 (6) "Lender" means an authorized lender under Article
3-8 5A.04 of this title.
3-9 (7) "Reverse mortgage" means a nonrecourse equity
3-10 loan:
3-11 (A) under which advances are provided to a
3-12 borrower based on the equity in a borrower's homestead property;
3-13 and
3-14 (B) that requires no payment of principal or
3-15 interest until the entire loan becomes due and payable.
3-16 Art. 5A.02. CONSTRUCTION OF CHAPTER. (a) For the purposes
3-17 of this chapter, an equity loan is considered closed on the
3-18 earliest date on which both of the following are executed:
3-19 (1) each promissory note, or contract for an open-end
3-20 account, evidencing the equity loan; and
3-21 (2) a deed of trust or other security instrument
3-22 securing the equity loan.
3-23 (b) In establishing the fair market value of homestead
3-24 property, a lender shall rely on an appraisal or evaluation,
3-25 whichever may be appropriate, prepared in accordance with a state
4-1 or federal requirement applicable to the lender. If no state or
4-2 federal appraisal or evaluation requirement applies to an equity
4-3 loan, the fair market value of the homestead property may be, at
4-4 the lender's option, the value estimate set forth in:
4-5 (1) the most recent ad valorem tax appraisal district
4-6 valuation for the homestead property;
4-7 (2) an appraisal prepared by a licensed or certified
4-8 appraiser under the Texas Appraiser Licensing and Certification Act
4-9 (Article 6573a.2, Vernon's Texas Civil Statutes); or
4-10 (3) any other appraisal or evaluation.
4-11 Art. 5A.03. APPLICABILITY OF CHAPTER AND OTHER LAW. (a) A
4-12 lender making, originating, negotiating, or arranging an equity
4-13 loan, including a reverse mortgage, shall comply with:
4-14 (1) this chapter;
4-15 (2) any nonconflicting requirement of another law
4-16 relied on as authority for the rate or amount of interest provided
4-17 for in the loan; and
4-18 (3) applicable federal law.
4-19 (b) A blended equity loan is governed by this chapter.
4-20 (c) A loan made for the payment or refinancing of all or
4-21 part of a valid encumbrance on homestead property authorized by
4-22 Section 41.001(b)(1), (2), (3), (4), or (5), Property Code, is not
4-23 an equity loan but may be made subject to this chapter if the
4-24 parties agree in the loan documents that the loan is to be governed
4-25 by this chapter. The inclusion of closing costs in the loan amount
5-1 for a loan described by this subsection does not cause the loan to
5-2 be an equity loan. Closing costs include discount points,
5-3 origination fees, private mortgage insurance premiums, property or
5-4 casualty insurance premiums, title insurance premiums, lender
5-5 escrow account impound deposits, inspection fees, recording fees,
5-6 courier and express mail delivery fees, underwriting fees,
5-7 attorney's fees for preparation of loan documents or loan
5-8 disclosures, title company imposed escrow fees, survey fees, and
5-9 other settlement charges.
5-10 Art. 5A.04. AUTHORIZED LENDERS. (a) An equity loan may be
5-11 made, originated, negotiated, or arranged only by:
5-12 (1) a bank, savings and loan association, savings
5-13 bank, or credit union doing business under the laws of this state
5-14 or the United States;
5-15 (2) a person licensed under Chapter 3 of this title;
5-16 (3) a person approved as a mortgagee by the United
5-17 States Department of Housing and Urban Development to make insured
5-18 loans under the National Housing Act (12 U.S.C. Section 1701 et
5-19 seq.); or
5-20 (4) a person contracted to make, originate, or arrange
5-21 loans qualified for purchase by the Federal National Mortgage
5-22 Association or Federal Home Loan Mortgage Corporation.
5-23 (b) A lender under Subsection (a) of this article may make
5-24 an equity loan in addition to any other loan authorized for that
5-25 lender.
6-1 Art. 5A.05. ELIGIBLE PROPERTY. An equity loan may not be
6-2 secured by homestead property that is designated for agricultural
6-3 use as provided by Subchapter C, Chapter 23, Tax Code.
6-4 Art. 5A.06. ONE EQUITY LOAN AUTHORIZED; IDENTIFICATION
6-5 REQUIREMENT. (a) At any time, a homestead may not be encumbered
6-6 by more than one equity loan in addition to any valid encumbrances
6-7 on homestead property authorized by Section 41.001(b)(1), (2), (3),
6-8 (4), or (5), Property Code.
6-9 (b) A recorded lien instrument securing an equity loan,
6-10 including a deed of trust or security agreement, must contain:
6-11 (1) the following phrase or its substantial equivalent
6-12 in bold type at the bottom of the first page: "THIS INSTRUMENT
6-13 SECURES AN EQUITY LOAN."; and
6-14 (2) one or more of the following headings near the top
6-15 of the first page:
6-16 (A) Equity Loan Mortgage;
6-17 (B) Equity Loan Deed of Trust;
6-18 (C) Equity Loan Security Agreement; or
6-19 (D) Equity Loan Lien.
6-20 (c) A recorded lien instrument securing an equity loan is
6-21 not made invalid because the lender fails to comply with this
6-22 article.
6-23 Art. 5A.07. ADVANCES AND REPAYMENT DETERMINED BY AGREEMENT.
6-24 An equity loan may provide for funding to or for the benefit of the
6-25 borrower in one or more advances at a frequency and for a term to
7-1 which the parties agree. An equity loan may provide for repayment
7-2 in one or more payments on a payment schedule and in amounts to
7-3 which the parties agree.
7-4 Art. 5A.08. CREDIT CARD ACCESS PROHIBITED. An equity loan
7-5 may not be in the form of a credit card transaction, as defined by
7-6 Section 1.01(g) of this title.
7-7 Art. 5A.09. PERCENT OF VALUE LIMIT. The committed principal
7-8 amount of an equity loan plus the aggregate total of the
7-9 outstanding balances of other indebtedness secured by valid
7-10 encumbrances of record against the homestead property may not
7-11 exceed 90 percent of the fair market value of the homestead
7-12 property on the date the equity loan is closed. Violation of this
7-13 article does not affect the validity of other indebtedness secured
7-14 by valid encumbrances of record against the homestead property.
7-15 Art. 5A.10. ADVANCE NOT INCLUDED AS OUTSTANDING
7-16 INDEBTEDNESS. For the purposes of Article 5A.09 of this title, the
7-17 aggregate total of the outstanding balances of indebtedness secured
7-18 by valid encumbrances of record against the homestead property does
7-19 not include any advance made by a lender to protect a lien,
7-20 security interest, or other valid encumbrance on the homestead
7-21 property securing the loan, including the payment of hazard
7-22 insurance premiums, repairs to the homestead property, or payments
7-23 on any indebtedness secured by a prior valid encumbrance on the
7-24 homestead property.
7-25 Art. 5A.11. LIMIT ON COLLATERAL AND USE OF PROCEEDS. (a) A
8-1 lender may not require or accept real or personal property as
8-2 additional collateral on an equity loan, except for a manufactured
8-3 home as defined by the Texas Manufactured Housing Standards Act
8-4 (Article 5221f, Vernon's Texas Civil Statutes), personal property
8-5 affixed or to be affixed to the homestead in a manner that would
8-6 make the property a fixture, or rents derived from homestead
8-7 property. Only the homestead property securing an equity loan may
8-8 be collateral for the equity loan.
8-9 (b) A lender may not:
8-10 (1) require or accept a borrower's homestead property,
8-11 regardless of whether the property was previously encumbered by an
8-12 existing equity loan, as collateral on a debt not described by
8-13 Section 41.001(b), Property Code; or
8-14 (2) require a borrower to apply the proceeds of an
8-15 equity loan to repay a debt owed to the lender, other than a debt
8-16 described by Section 41.001(b), Property Code.
8-17 (c) This article does not:
8-18 (1) prohibit or limit any lawful statutory lien, valid
8-19 common-law lien, or right of offset; or
8-20 (2) prevent a lender from requiring insurance
8-21 authorized by this chapter as additional security for an equity
8-22 loan.
8-23 (d) Proceeds of a sale of the homestead or its fixtures or
8-24 proceeds of insurance covering the property are not considered
8-25 additional collateral and may be included as part of the security
9-1 for the loan.
9-2 (e) A provision of a deed of trust or other security
9-3 agreement that secures a loan other than an equity loan and that
9-4 makes the deed of trust or security agreement applicable to other
9-5 indebtedness of the borrower does not apply to the collateral
9-6 securing an equity loan of the borrower. This subsection does not
9-7 affect the validity of the provision as applied to a loan other
9-8 than an equity loan.
9-9 (f) An equity loan may not contain a provision that makes
9-10 the lien on homestead property security for any other indebtedness
9-11 of the borrower.
9-12 Art. 5A.12. ACCELERATION PROHIBITED. (a) A lender may not
9-13 accelerate the remaining payments of an equity loan or demand
9-14 payment of the loan in full because of a decrease in the market
9-15 value of the homestead property securing the equity loan, unless
9-16 the decrease in the market value is caused by substantial damage or
9-17 destruction to the property, a condemnation or other taking of the
9-18 property, the discovery of an environmental hazard on the property,
9-19 or the use of the property in a manner that constitutes waste on
9-20 the property or a nuisance. This article does not prohibit a
9-21 lender, if permitted by the loan documents, from refusing to make
9-22 additional advances under an equity loan, other than a reverse
9-23 mortgage, if the market value of the homestead property decreases,
9-24 regardless of the cause of the decrease.
9-25 (b) A lender may not accelerate the remaining payments of an
10-1 equity loan or demand payment of the loan in full because of the
10-2 borrower's default under any other indebtedness not secured by a
10-3 prior valid encumbrance on the homestead property, regardless of
10-4 whether the indebtedness is owed to the lender. This article does
10-5 not prohibit a lender, if permitted by the loan documents, from
10-6 refusing to make additional advances under an equity loan, other
10-7 than a reverse mortgage, if the borrower has defaulted in the
10-8 performance or payment of another indebtedness owed to the lender
10-9 or another creditor.
10-10 Art. 5A.13. NOTICE. (a) The lender in an equity loan shall
10-11 provide to a borrower the following notice in type that is
10-12 boldfaced, capitalized, or underlined or otherwise set out from
10-13 surrounding written material so as to be conspicuous:
10-14 "YOU ARE PLEDGING YOUR HOMESTEAD AS COLLATERAL TO
10-15 SECURE THE PAYMENT OF A LOAN. IF YOU DO NOT PAY, OR IF
10-16 YOU FAIL TO PERFORM THE TERMS OF THE LOAN CONTRACT, THE
10-17 LENDER HAS THE RIGHT TO FORECLOSE ON YOUR HOMESTEAD AND
10-18 SELL IT TO REPAY THE LOAN.
10-19 "YOUR HOMESTEAD MAY NOT BE PLEDGED TO SECURE THE
10-20 PAYMENT OF MORE THAN ONE EQUITY LOAN AT A TIME.
10-21 "ALL THE DEBTS AGAINST YOUR HOMESTEAD, INCLUDING
10-22 THE EQUITY LOAN, MAY NOT EXCEED 90 PERCENT OF THE VALUE
10-23 OF YOUR HOMESTEAD.
10-24 "YOUR LENDER MAY NOT REQUIRE ANY OTHER PROPERTY
10-25 YOU OWN, OTHER THAN A MANUFACTURED HOME, AS ADDITIONAL
11-1 COLLATERAL FOR YOUR LOAN.
11-2 "YOU HAVE AT LEAST 12 DAYS FROM THE DATE YOU
11-3 REQUESTED THE LOAN TO CHANGE YOUR MIND ABOUT THE LOAN
11-4 BEFORE YOU CAN SIGN THE LOAN DOCUMENTS. IN ADDITION,
11-5 YOU HAVE THREE BUSINESS DAYS AFTER YOU SIGN THE LOAN
11-6 DOCUMENTS TO CHANGE YOUR MIND ABOUT THE LOAN. IF YOU
11-7 DECIDE NOT TO TAKE THE LOAN DURING ONE OF THESE
11-8 PERIODS, YOU WILL HAVE NO FURTHER OBLIGATION TO THE
11-9 LENDER.
11-10 "THE LOAN DOCUMENTS MAY NOT BE SIGNED AT YOUR
11-11 HOME. THE LOAN DOCUMENTS MAY BE SIGNED ONLY AT:
11-12 (1) THE LENDER'S OFFICE;
11-13 (2) A TITLE COMPANY; OR
11-14 (3) A TEXAS ATTORNEY'S OFFICE.
11-15 "UNLESS THE INFORMATION IS CONTAINED IN YOUR NOTE
11-16 OR ANOTHER LOAN DOCUMENT, YOUR LENDER IS REQUIRED TO
11-17 GIVE YOU A WRITTEN STATEMENT WITH ITS NAME AND ADDRESS
11-18 AND YOUR NAME AND ADDRESS EITHER BEFORE OR WHEN YOU
11-19 SIGN THE LOAN DOCUMENTS. THE STATEMENT MUST ALSO
11-20 INCLUDE A DESCRIPTION OF ANY INSURANCE YOU PURCHASED
11-21 AND HOW MUCH YOU PAID IN CONNECTION WITH THE LOAN.
11-22 "ON YOUR REQUEST, YOUR LENDER IS REQUIRED TO GIVE
11-23 YOU A RECEIPT IF YOU MAKE A PAYMENT ON THE LOAN IN
11-24 CASH."
11-25 (b) The lender shall provide the notice when the lender
12-1 receives an application for the loan.
12-2 Art. 5A.14. WAITING PERIOD; RESCISSION. (a) An equity loan
12-3 may not be closed before the 12th day after the date the lender
12-4 receives an application for the loan.
12-5 (b) Each owner of homestead property securing an equity loan
12-6 may rescind the loan. Compliance with all applicable state and
12-7 federal law regarding the right to rescind, including 12 C.F.R.
12-8 Sections 226.15 and 226.23, is considered compliance with this
12-9 chapter regarding rescission.
12-10 (c) The right of rescission provided by this article applies
12-11 to each equity loan made under this chapter, regardless of the
12-12 purpose of the loan. An owner of the homestead property securing
12-13 an equity loan may not waive the right of rescission required by
12-14 this article, regardless of whether applicable state or federal law
12-15 provides for a waiver.
12-16 Art. 5A.15. LOCATION OF CLOSING. (a) An equity loan may
12-17 not be closed at the residence of the borrower. An equity loan
12-18 shall be closed only at an office of:
12-19 (1) the lender;
12-20 (2) a title company; or
12-21 (3) an attorney licensed to practice law in this
12-22 state.
12-23 (b) A recital in the deed of trust or other security
12-24 agreement securing an equity loan stating the location of closing
12-25 is conclusive evidence that the equity loan was closed at that
13-1 location.
13-2 Art. 5A.16. GENERAL PROVISIONS RELATING TO REVERSE
13-3 MORTGAGES. (a) Notwithstanding any other provision of this
13-4 chapter, payment in whole or in part shall be permitted without
13-5 penalty at any time during the term of a reverse mortgage.
13-6 (b) Advances made under a reverse mortgage and interest on
13-7 those advances have priority over a lien filed for record in the
13-8 real property records in the county where the homestead property is
13-9 located after the reverse mortgage is filed for record in the real
13-10 property records of that county.
13-11 (c) A reverse mortgage may provide for an interest rate that
13-12 is fixed or adjustable and may also provide for interest that is
13-13 contingent on appreciation in the fair market value of the
13-14 homestead property.
13-15 (d) If a reverse mortgage provides for periodic advances to
13-16 a borrower, the advances may not be reduced in amount or number
13-17 because of an adjustment in the interest rate.
13-18 (e) A lender who fails to make loan advances as required in
13-19 the loan documents and who fails to cure the default as required in
13-20 the loan documents forfeits any right to collect all interest.
13-21 Art. 5A.17. REPAYMENT OF REVERSE MORTGAGE. (a) A reverse
13-22 mortgage becomes due and payable if:
13-23 (1) the homestead property securing the loan is sold;
13-24 (2) all borrowers cease occupying the homestead
13-25 property as a principal residence; or
14-1 (3) an event that is specified in the loan documents,
14-2 including the death of all borrowers, occurs and jeopardizes the
14-3 lender's security.
14-4 (b) Temporary absences from the homestead property by all
14-5 borrowers for a period not exceeding 60 consecutive calendar days
14-6 may not cause the reverse mortgage to become due and payable.
14-7 Temporary absences from the homestead property by all borrowers for
14-8 a period exceeding 60 consecutive calendar days but not exceeding
14-9 one year may not cause the reverse mortgage to become due and
14-10 payable if the borrower has taken prior action to secure the home
14-11 in a manner satisfactory to the lender.
14-12 (c) The lender's right to collect reverse mortgage payments
14-13 is subject to the applicable statute of limitations for a debt as
14-14 provided by Sections 16.004(a), 16.035, and 16.036, Civil Practice
14-15 and Remedies Code, and Section 3.118, Business & Commerce Code.
14-16 The limitations period for the lien securing an equity loan is
14-17 governed by Sections 16.035 and 16.036, Civil Practice and Remedies
14-18 Code.
14-19 (d) In the loan documents, the lender must prominently
14-20 disclose any interest or fee to be charged during the period that
14-21 begins on the date the reverse mortgage becomes due and payable and
14-22 ends when repayment is made in full.
14-23 Art. 5A.18. INAPPLICABILITY OF OTHER STATUTES TO REVERSE
14-24 MORTGAGE. A reverse mortgage loan may be made or acquired without
14-25 regard to the following provisions of any applicable state or
15-1 federal statute:
15-2 (1) a limitation on the purpose and use of future
15-3 advances or other mortgage proceeds;
15-4 (2) a limitation on future advances to a term of years
15-5 or a limitation on the term of open-end account advances;
15-6 (3) a limitation on the term during which future
15-7 advances take priority over intervening advances;
15-8 (4) a requirement that a maximum loan amount be stated
15-9 in the reverse mortgage loan documents;
15-10 (5) a limitation on loan-to-value ratios, other than a
15-11 limitation provided by this chapter;
15-12 (6) a prohibition on balloon payments;
15-13 (7) a prohibition on compound interest and interest on
15-14 interest;
15-15 (8) a prohibition on contracting for, charging, or
15-16 receiving any rate of interest authorized under Article 1.04 of
15-17 this title or under any other statute authorizing a lender to
15-18 contract for a rate of interest; and
15-19 (9) a requirement that a percentage of the reverse
15-20 mortgage proceeds be advanced before the assignment of the reverse
15-21 mortgage.
15-22 Art. 5A.19. STATUS OF REVERSE MORTGAGE LOAN UNDER PUBLIC
15-23 ASSISTANCE PROGRAM. For the purposes of determining eligibility
15-24 under any statute relating to payments, allowance, benefits, or
15-25 services provided on a means-tested basis by this state, including
16-1 supplemental security income, low-income energy assistance,
16-2 property tax relief, medical assistance, and general assistance:
16-3 (1) reverse mortgage loan advances made to a borrower
16-4 are considered proceeds from a loan and not income; and
16-5 (2) undisbursed funds under a reverse mortgage loan
16-6 are considered equity in a borrower's home and not proceeds from a
16-7 loan.
16-8 Art. 5A.20. REVERSE MORTGAGE LOAN INFORMATION AND
16-9 COUNSELING. A lender may not make a reverse mortgage commitment
16-10 unless the loan applicant attests in writing that the applicant
16-11 received from the lender, at the time the notice is required by
16-12 Article 5A.13 of this title, a statement prepared by the Consumer
16-13 Credit Commissioner regarding the advisability and availability of
16-14 independent information and counseling services on reverse
16-15 mortgages. The Consumer Credit Commissioner shall:
16-16 (1) develop the content and format of the statement;
16-17 (2) provide independent consumer information on
16-18 reverse mortgages and their alternatives; and
16-19 (3) refer consumers to independent counseling services
16-20 with expertise in reverse mortgages.
16-21 Art. 5A.21. INTEREST. A lender may contract for and receive
16-22 on an equity loan any fixed or variable rate of interest that does
16-23 not exceed the maximum rate of interest authorized under Article
16-24 1.04 of this title or under any other state or federal statute
16-25 authorizing the lender to contract for a rate of interest.
17-1 Interest shall be accrued and earned by applying the simple annual
17-2 interest rate or rates under the loan contract to the principal
17-3 balance, which may include unpaid interest and additions to
17-4 principal authorized by the loan contract. In determining the
17-5 amount of interest accrued, the lender may assume that the payments
17-6 have been made as originally scheduled and ignore any difference
17-7 created by late or early payments. Although payment of principal
17-8 or interest shall not be required under a reverse mortgage until
17-9 the entire loan becomes due and payable, interest may accrue and be
17-10 compounded during the term of the loan as provided by the reverse
17-11 mortgage loan agreement.
17-12 Art. 5A.22. CLOSED-END EQUITY LOANS. (a) Each closed-end
17-13 equity loan shall be scheduled to be repaid in substantially equal
17-14 successive monthly installments, except that the first installment
17-15 may be scheduled beyond one month from the date of the loan but not
17-16 beyond two months from the date of the loan.
17-17 (b) The amount of each installment under the schedule of
17-18 payments for a closed-end equity loan shall equal or exceed the
17-19 amount of interest scheduled to accrue as of the date of the
17-20 installment or that would accrue as of the installment date through
17-21 amortization of the loan on the date of the loan.
17-22 Art. 5A.23. CHARGES AND FEES. A contract for an equity loan
17-23 may permit a lender to collect the following fees and charges in
17-24 connection with the loan:
17-25 (1) a reasonable expense or cost paid, or that will be
18-1 paid, to a third party that is not an employee or affiliate of the
18-2 lender if the expense or cost:
18-3 (A) is for an abstract, a title report,
18-4 attorney's fees for a legal opinion or document preparation, a
18-5 courier fee or express mail service fee actually incurred, a tax
18-6 certificate charged actually incurred, a title insurance premium,
18-7 an escrow fee that does not violate Section 8, Real Estate
18-8 Settlement Procedures Act (12 U.S.C. Section 2607), and is imposed
18-9 by a title insurance company, title insurance agent, or direct
18-10 operation, an escrow for future payments of taxes and insurance, an
18-11 annuity, an appraisal or evaluation, a survey, or a credit report;
18-12 or
18-13 (B) is actually incurred in the making or
18-14 servicing of an equity loan and necessary or proper for the
18-15 protection of the lender;
18-16 (2) a fee prescribed by law paid, or that will be
18-17 paid, to a public official for determining the existence of or for
18-18 recording any documents in connection with the closing of an equity
18-19 loan;
18-20 (3) a bona fide commitment fee for the separate
18-21 consideration of committing to make an equity loan in the future;
18-22 (4) any other fee required by federal statute;
18-23 (5) a reasonable fee or charge paid to the trustee in
18-24 connection with a deed of trust or similar instrument executed in
18-25 connection with the equity loan, including a fee for enforcing the
19-1 lien or for posting for sale, selling, or releasing the property
19-2 secured by the deed of trust;
19-3 (6) a reasonable fee paid to an attorney who is not an
19-4 employee of the lender in the collection of a delinquent equity
19-5 loan and any court cost or fee incurred in the collection or
19-6 foreclosure of a lien created by the loan;
19-7 (7) a fee not to exceed the amount permitted by law
19-8 for the return by a depository institution of a dishonored check,
19-9 negotiable order of withdrawal, share draft, or deposit draft
19-10 offered in full or partial payment of an equity loan;
19-11 (8) a late charge or penalty, if all or part of a
19-12 scheduled payment continues unpaid for 15 or more days after the
19-13 date the payment was due, except that:
19-14 (A) only one late charge or penalty authorized
19-15 by this article may be charged for each scheduled payment that is
19-16 past due; and
19-17 (B) the late charge or penalty may not exceed
19-18 five percent of the unpaid amount of the scheduled payment that is
19-19 past due; and
19-20 (9) the premiums received in connection with the sale
19-21 of insurance as provided by Article 5A.24 of this title.
19-22 Art. 5A.24. INSURANCE. (a) Under an equity loan, a lender
19-23 may request or require a borrower to provide insurance:
19-24 (1) in the amounts and under the conditions that apply
19-25 to secondary mortgage loans as provided by Articles 5.02 and 5.03
20-1 of this title;
20-2 (2) in the amounts and under the terms and conditions
20-3 of:
20-4 (A) the home equity conversion mortgage
20-5 insurance program under the Housing and Community Development Act
20-6 of 1987 (Pub. L. No. 100-242);
20-7 (B) Section 255, National Housing Act (12 U.S.C.
20-8 Section 1715z-20); and
20-9 (C) 24 C.F.R. Part 206; and
20-10 (3) in the amounts and under the terms and conditions
20-11 provided for by any state or federal statute authorizing or
20-12 requiring any type of insurance relating to a loan or other
20-13 extension of credit, including insurance authorized under Chapters
20-14 3, 4, 5, and 15 of this title.
20-15 (b) Premiums for insurance under this article may be added
20-16 to the loan contract.
20-17 Art. 5A.25. LENDER'S DUTY TO BORROWER. (a) The lender
20-18 under an equity loan shall deliver to the borrower, or to one of
20-19 the borrowers if there are more than one, a copy of the note or the
20-20 contract for an open-end account, a copy of all other documents
20-21 signed by the borrower or borrowers, and a written statement of:
20-22 (1) the name and address of each borrower and of the
20-23 lender; and
20-24 (2) each type of insurance, if any, for which a charge
20-25 to a borrower is included in the loan agreement and the amount of
21-1 the charge for the insurance.
21-2 (b) If the note or another loan document contains the
21-3 information required by Subsection (a) of this article, a copy of
21-4 the note or document may be delivered to the borrower rather than
21-5 the separate written statement.
21-6 (c) If requested by the borrower, the lender shall give a
21-7 receipt to a person making a cash payment on an equity loan.
21-8 (d) Except as prohibited by Articles 1.07 and 5A.16 of this
21-9 title or by applicable federal law, a prepayment fee, charge, or
21-10 penalty may be collected on an equity loan.
21-11 (e) On termination and full payment of an equity loan, the
21-12 holder shall within a reasonable time:
21-13 (1) cancel and return any note to the borrower and
21-14 give the borrower a release of any mortgage, deed of trust,
21-15 security instrument, or other instrument securing the loan; or
21-16 (2) endorse the note and assign any mortgage, deed of
21-17 trust, or other security instrument to a refinancing lender who
21-18 advances funds to discharge the equity loan indebtedness at the
21-19 request of the borrower and in renewal and extension of the
21-20 security instrument.
21-21 Art. 5A.26. PROHIBITED PRACTICES. (a) A lender may not
21-22 accept an assignment of wages as security for a loan made under
21-23 this chapter.
21-24 (b) In connection with an equity loan, a lender may not
21-25 accept a confession of judgment or power of attorney running to the
22-1 lender or to a third person to confess judgment or to appear for a
22-2 borrower in a judicial proceeding.
22-3 (c) A lender may not accept an instrument in which blanks
22-4 are left to be filled in after an equity loan is executed.
22-5 Art. 5A.27. OWNER ACKNOWLEDGMENT. A lienholder or assignee
22-6 for value may conclusively rely on an acknowledgment by the owner
22-7 of homestead property and the owner's spouse, if the owner is
22-8 married, of compliance with applicable requirements for an equity
22-9 loan secured by a mortgage, trust deed, or other lien on a
22-10 homestead.
22-11 Art. 5A.28. REPORT BY LENDERS. (a) Before March 1 of each
22-12 year, a lender that makes an equity loan shall submit to the
22-13 director of the division of access to financial services a report
22-14 of the lender's home equity loan activity during the calendar year
22-15 preceding the year the report is submitted. For each home equity
22-16 loan for which the lender received an application, the report must
22-17 state the primary purpose of the loan, whether the loan was
22-18 granted, and the applicant's income and census tract. The director
22-19 of the division of access to financial services may set and collect
22-20 from the lender a reasonable filing fee in connection with the
22-21 submission of the report in an amount necessary and reasonable to
22-22 enable the director of the division of access to financial services
22-23 to carry out this article.
22-24 (b) The director of the division of access to financial
22-25 services may accept a copy of a report submitted by the lender to a
23-1 federal agency instead of the report required under Subsection (a)
23-2 of this article if the report submitted to the federal agency
23-3 contains the information required for a report under Subsection (a)
23-4 of this article.
23-5 (c) A lender that does not make a home equity loan during
23-6 the period covered by a report is not required to submit the
23-7 report.
23-8 Art. 5A.29. EQUITY LOAN RECOVERY FUND. (a) The Consumer
23-9 Credit Commissioner shall establish and maintain an equity loan
23-10 recovery fund. Money in the fund shall be used for reimbursing
23-11 aggrieved persons who suffer actual damages that:
23-12 (1) result from misrepresentation, dishonesty, or
23-13 fraud committed by an authorized lender in the course of making an
23-14 equity loan; and
23-15 (2) are ordered by a court against a lender that the
23-16 court determines is unable to make the payment.
23-17 (b) An action for a judgment that subsequently results in an
23-18 order for collection from the equity loan recovery fund may not be
23-19 started later than two years after the date of accrual of the cause
23-20 of action.
23-21 (c) Money received by the Consumer Credit Commissioner for
23-22 deposit in the equity loan recovery fund shall be held by the
23-23 Consumer Credit Commissioner in trust for carrying out the purposes
23-24 of the fund.
23-25 (d) The finance commission shall establish and collect
24-1 reasonable and necessary fees from each authorized lender for each
24-2 home equity loan originated by the lender to accomplish the
24-3 purposes of this article. Fees collected shall be deposited into
24-4 the fund.
24-5 (e) The finance commission shall adopt rules necessary to
24-6 implement this article.
24-7 SECTION 3. Chapter 2, Title 79, Revised Statutes (Article
24-8 5069-2.01 et seq., Vernon's Texas Civil Statutes), is amended by
24-9 adding Articles 2.02E and 2.02F to read as follows:
24-10 Art. 2.02E. DIVISION OF ACCESS TO FINANCIAL SERVICES.
24-11 (a) The division of access to financial services is created in the
24-12 Office of Consumer Credit Commissioner to inform, monitor, and
24-13 report on the availability and quality of home equity loans,
24-14 including equity loans offered by lenders in the state to
24-15 agricultural businesses, small businesses, and individual consumers
24-16 in the state.
24-17 (b) The division shall be administered by a director
24-18 appointed by the Consumer Credit Commissioner.
24-19 (c) The director shall adequately staff the division to
24-20 carry out the division's functions under this article.
24-21 (d) The division shall:
24-22 (1) conduct research on the effect of equity lending
24-23 on the availability, quality, and cost of equity loans for
24-24 agricultural businesses, small businesses, and individual consumers
24-25 in various regions of the state;
25-1 (2) conduct research on the effect of the practices of
25-2 business entities in the state that provide equity loans to
25-3 agricultural businesses, small businesses, and individual consumers
25-4 in the state;
25-5 (3) conduct a public information campaign to provide
25-6 low-income and elderly consumers with information and counseling
25-7 about the benefits and liabilities associated with equity loans;
25-8 (4) compile a summary of the information received from
25-9 each lender under Article 5A.28 of this title, including an
25-10 analysis of census tract demographic data, to produce reports on
25-11 equity-lending patterns with regard to the rate of application and
25-12 loan acceptance by income and census tract of the home; and
25-13 (5) not later than December 1 of each even-numbered
25-14 year, provide to the legislature a report detailing the findings of
25-15 the division and recommending any action the division believes is
25-16 necessary to protect consumers with respect to equity lending.
25-17 (e) The division shall prepare information of public
25-18 interest describing the functions of the division and make the
25-19 information available to the public and appropriate state and
25-20 federal agencies.
25-21 (f) The division may:
25-22 (1) apply for and receive public and private grants
25-23 and gifts; and
25-24 (2) contract with public and private entities to carry
25-25 out studies and analyses under this article.
26-1 (g) The Consumer Credit Commissioner shall establish and
26-2 collect reasonable and necessary fees to accomplish the purposes of
26-3 this article.
26-4 Art. 2.02F. STUDY AND REPORT; EQUITY LOANS. (a) After May
26-5 1, 2000, the director of the division of access to financial
26-6 services shall conduct a study of equity lending under Chapter 5A
26-7 of this title.
26-8 (b) Before January 1, 2001, the director of the division of
26-9 access to financial services shall submit a report on its study to
26-10 the governor, lieutenant governor, and speaker of the house of
26-11 representatives. The report must include:
26-12 (1) a summary of the information received by the
26-13 director of the division of access to financial services under
26-14 Article 5A.28 of this title;
26-15 (2) an analysis of the effectiveness of the provisions
26-16 of Chapter 5A of this title; and
26-17 (3) other information the director of the division of
26-18 access to financial services considers relevant to the regulation
26-19 of equity loans.
26-20 (c) This section expires January 2, 2001.
26-21 SECTION 4. Article 9.02, Insurance Code, is amended by
26-22 adding Subsection (r) to read as follows:
26-23 (r) "Equity loan mortgagee policy" means a mortgagee policy
26-24 of title insurance that insures the validity and priority of a
26-25 security interest in homestead property securing an equity loan, as
27-1 defined by Article 5A.01, Title 79, Revised Statutes (Article
27-2 5069-5A.01, Vernon's Texas Civil Statutes).
27-3 SECTION 5. Article 9.07, Insurance Code, is amended by
27-4 adding Subsection (g) to read as follows:
27-5 (g) The commissioner shall promulgate an endorsement that
27-6 must be attached to an equity loan mortgagee policy. The
27-7 endorsement must insure the priority of future advances made in
27-8 accordance with the document creating the security interest and
27-9 applicable law, subject to any legal limits on priority and to the
27-10 other terms of the policy. The endorsement must insure the
27-11 validity of the security interest, subject to the terms of the
27-12 policy and to an exclusion for compliance by the lender with any
27-13 constitutional or statutory requirements for, and limitations on,
27-14 equity loans secured by a security interest in a homestead. The
27-15 endorsement must affirmatively insure against invalidity of the
27-16 security interest because of the failure of each owner and the
27-17 spouse of each owner to join in the document creating the security
27-18 interest. The commissioner may promulgate other policies and
27-19 endorsements relating to an equity loan security interest in a
27-20 homestead.
27-21 SECTION 6. This Act takes effect January 1, 1998, but only
27-22 if the constitutional amendment proposed by __J.R. No. __, Acts of
27-23 the 75th Legislature, Regular Session, 1997, allowing voluntary,
27-24 consensual encumbrances on homestead property for the purpose of
27-25 equity loans, is approved by the voters. If that amendment is not
28-1 approved by the voters, this Act has no effect.
28-2 SECTION 7. The importance of this legislation and the
28-3 crowded condition of the calendars in both houses create an
28-4 emergency and an imperative public necessity that the
28-5 constitutional rule requiring bills to be read on three several
28-6 days in each house be suspended, and this rule is hereby suspended.