By Patterson S.B. No. 173
75R3345 DWS-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to a voluntary, consensual encumbrance on homestead
1-3 property for the purpose of an equity loan.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 41.001(b), Property Code, is amended to
1-6 read as follows:
1-7 (b) Encumbrances may be properly fixed on homestead property
1-8 for:
1-9 (1) purchase money;
1-10 (2) taxes on the property;
1-11 (3) work and material used in constructing
1-12 improvements on the property if contracted for in writing as
1-13 provided by Sections 53.059(a), (b), and (c);
1-14 (4) an owelty of partition imposed against the
1-15 entirety of the property by a court order or by a written agreement
1-16 of the parties to the partition, including a debt of one spouse in
1-17 favor of the other spouse resulting from a division or an award of
1-18 a family homestead in a divorce proceeding; [or]
1-19 (5) the refinance of a lien against a homestead,
1-20 including a federal tax lien resulting from the tax debt of both
1-21 spouses, if the homestead is a family homestead, or from the tax
1-22 debt of the owner; or
1-23 (6) an equity loan, as defined by Article 5A.01, Title
1-24 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,
2-26 blended equity loan, or reverse mortgage, that is:
2-27 (A) secured in whole or in part by a voluntary
3-1 lien on or other consensual security interest in a homestead; and
3-2 (B) created with the consent of each owner and
3-3 the spouse of each owner in accordance with applicable statutory
3-4 requirements.
3-5 (6) "Lender" means an authorized lender under Article
3-6 5A.04 of this title.
3-7 (7) "Reverse mortgage" means a nonrecourse equity
3-8 loan:
3-9 (A) under which advances are provided to a
3-10 borrower based on the equity in a borrower's homestead property;
3-11 and
3-12 (B) that requires no payment of principal or
3-13 interest until the entire loan becomes due and payable.
3-14 Art. 5A.02. CONSTRUCTION OF CHAPTER. (a) For the purposes
3-15 of this chapter, an equity loan is considered closed on the
3-16 earliest date on which both of the following are executed:
3-17 (1) each promissory note, or contract for an open-end
3-18 account, evidencing the equity loan; and
3-19 (2) a deed of trust or other security instrument
3-20 securing the equity loan.
3-21 (b) In establishing the fair market value of homestead
3-22 property, a lender shall rely on an appraisal or evaluation,
3-23 whichever may be appropriate, prepared in accordance with a state
3-24 or federal requirement applicable to the lender. If no state or
3-25 federal appraisal or evaluation requirement applies to an equity
3-26 loan, the fair market value of the homestead property may be, at
3-27 the lender's option, the value estimate set forth in:
4-1 (1) the most recent ad valorem tax appraisal district
4-2 valuation for the homestead property;
4-3 (2) an appraisal prepared by a licensed or certified
4-4 appraiser under the Texas Appraiser Licensing and Certification Act
4-5 (Article 6573a.2, Vernon's Texas Civil Statutes); or
4-6 (3) any other appraisal or evaluation.
4-7 Art. 5A.03. APPLICABILITY OF CHAPTER AND OTHER LAW. (a) A
4-8 lender making, originating, negotiating, or arranging an equity
4-9 loan, including a reverse mortgage, shall comply with:
4-10 (1) this chapter;
4-11 (2) any nonconflicting requirement of another law
4-12 relied on as authority for the rate or amount of interest provided
4-13 for in the loan; and
4-14 (3) applicable federal law.
4-15 (b) A blended equity loan is governed by this chapter.
4-16 (c) A loan made for the payment or refinancing of all or
4-17 part of a valid encumbrance on homestead property authorized by
4-18 Section 41.001(b)(1), (2), (3), (4), or (5), Property Code, is not
4-19 an equity loan, but may be made subject to this chapter if the
4-20 parties agree in the loan documents that the loan is to be governed
4-21 by this chapter. The inclusion of closing costs in the loan amount
4-22 for a loan described by this subsection does not cause the loan to
4-23 be an equity loan. Closing costs include discount points,
4-24 origination fees, private mortgage insurance premiums, property or
4-25 casualty insurance premiums, title insurance premiums, lender
4-26 escrow account impound deposits, inspection fees, recording fees,
4-27 courier and express mail delivery fees, underwriting fees,
5-1 attorney's fees for preparation of loan documents or loan
5-2 disclosures, title company imposed escrow fees, survey fees, and
5-3 other settlement charges.
5-4 Art. 5A.04. AUTHORIZED LENDERS. (a) An equity loan may be
5-5 made, originated, negotiated, or arranged only by:
5-6 (1) a bank, savings and loan association, savings
5-7 bank, or credit union doing business under the laws of this state
5-8 or of the United States;
5-9 (2) a person licensed under Chapter 3 of this title;
5-10 or
5-11 (3) a person approved as a mortgagee by the United
5-12 States Department of Housing and Urban Development to make insured
5-13 loans under the National Housing Act (12 U.S.C. Section 1701 et
5-14 seq.).
5-15 (b) A lender under Subsection (a) of this article may make
5-16 an equity loan in addition to any other loan authorized for that
5-17 lender.
5-18 Art. 5A.05. ELIGIBLE PROPERTY. An equity loan may not be
5-19 secured by homestead property that is designated for agricultural
5-20 use as provided by Subchapter C, Chapter 23, Tax Code.
5-21 Art. 5A.06. ONE EQUITY LOAN AUTHORIZED; IDENTIFICATION
5-22 REQUIREMENT. (a) At any time, a homestead may not be encumbered
5-23 by more than one equity loan in addition to any valid encumbrances
5-24 on homestead property authorized by Section 41.001(b)(1), (2), (3),
5-25 (4), or (5), Property Code.
5-26 (b) A recorded lien instrument securing an equity loan,
5-27 including a deed of trust or security agreement, must contain:
6-1 (1) the following phrase or its substantial equivalent
6-2 in bold type at the bottom of the first page: "THIS INSTRUMENT
6-3 SECURES AN EQUITY LOAN."; and
6-4 (2) one or more of the following headings near the top
6-5 of the first page:
6-6 (A) Equity Loan Mortgage;
6-7 (B) Equity Loan Deed of Trust;
6-8 (C) Equity Loan Security Agreement; or
6-9 (D) Equity Loan Lien.
6-10 (c) A recorded lien instrument securing an equity loan is
6-11 not made invalid because the lender fails to comply with this
6-12 article.
6-13 Art. 5A.07. ADVANCES AND REPAYMENT DETERMINED BY AGREEMENT.
6-14 An equity loan may provide for funding to or for the benefit of the
6-15 borrower in one or more advances at a frequency and for a term to
6-16 which the parties agree. An equity loan may provide for repayment
6-17 in one or more payments on a payment schedule and in amounts to
6-18 which the parties agree.
6-19 Art. 5A.08. CREDIT CARD ACCESS PROHIBITED. An equity loan
6-20 may not be in the form of a credit card transaction, as defined by
6-21 Section 1.01(g) of this title.
6-22 Art. 5A.09. PERCENT OF VALUE LIMIT. The committed principal
6-23 amount of an equity loan plus the aggregate total of the
6-24 outstanding balances of other indebtedness secured by valid
6-25 encumbrances of record against the homestead property may not
6-26 exceed 90 percent of the fair market value of the homestead
6-27 property on the date the equity loan is closed. Violation of this
7-1 article does not affect the validity of other indebtedness secured
7-2 by valid encumbrances of record against the homestead property.
7-3 Art. 5A.10. ADVANCE NOT INCLUDED AS OUTSTANDING
7-4 INDEBTEDNESS. For the purposes of Article 5A.09 of this title, the
7-5 aggregate total of the outstanding balances of indebtedness secured
7-6 by valid encumbrances of record against the homestead property does
7-7 not include any advance made by a lender to protect a lien,
7-8 security interest, or other valid encumbrance on the homestead
7-9 property securing the loan, including the payment of hazard
7-10 insurance premiums, repairs to the homestead property, or payments
7-11 on any indebtedness secured by a prior valid encumbrance on the
7-12 homestead property.
7-13 Art. 5A.11. LIMIT ON COLLATERAL AND USE OF PROCEEDS. (a) A
7-14 lender may not require or accept real or personal property as
7-15 additional collateral on an equity loan, except for a manufactured
7-16 home, as defined by the Texas Manufactured Housing Standards Act
7-17 (Article 5221f, Vernon's Texas Civil Statutes), personal property
7-18 affixed or to be affixed to the homestead in a manner that would
7-19 make the property a fixture, or rents derived from homestead
7-20 property. Only the homestead property securing an equity loan may
7-21 be collateral for the equity loan.
7-22 (b) A lender may not:
7-23 (1) require or accept a borrower's homestead property,
7-24 regardless of whether the property was previously encumbered by an
7-25 existing equity loan, as collateral on a debt not described by
7-26 Section 41.001(b), Property Code; or
7-27 (2) require a borrower to apply the proceeds of an
8-1 equity loan to repay a debt owed to the lender, other than a debt
8-2 described by Section 41.001(b), Property Code.
8-3 (c) This article does not:
8-4 (1) prohibit or limit any lawful statutory lien, valid
8-5 common law lien, or right of offset; or
8-6 (2) prevent a lender from requiring insurance
8-7 authorized by this chapter as additional security for an equity
8-8 loan.
8-9 (d) Proceeds of a sale of the homestead or its fixtures, or
8-10 proceeds of insurance covering the property, are not considered
8-11 additional collateral and may be included as part of the security
8-12 for the loan.
8-13 (e) A provision of a deed of trust or other security
8-14 agreement that secures a loan other than an equity loan and that
8-15 makes the deed of trust or security agreement applicable to other
8-16 indebtedness of the borrower does not apply to the collateral
8-17 securing an equity loan of the borrower. This subsection does not
8-18 affect the validity of the provision as applied to a loan other
8-19 than an equity loan.
8-20 (f) An equity loan may not contain a provision that makes
8-21 the lien on homestead property security for any other indebtedness
8-22 of the borrower.
8-23 Art. 5A.12. ACCELERATION PROHIBITED. (a) A lender may not
8-24 accelerate the remaining payments of an equity loan or demand
8-25 payment of the loan in full because of a decrease in the market
8-26 value of the homestead property securing the equity loan, unless
8-27 the decrease in the market value is caused by substantial damage or
9-1 destruction to the property, a condemnation or other taking of the
9-2 property, the discovery of an environmental hazard on the property,
9-3 or the use of the property in a manner that constitutes waste on
9-4 the property or a nuisance. This article does not prohibit a
9-5 lender, if permitted by the loan documents, from refusing to make
9-6 additional advances under an equity loan, other than a reverse
9-7 mortgage, if the market value of the homestead property decreases,
9-8 regardless of the cause of the decrease.
9-9 (b) A lender may not accelerate the remaining payments of an
9-10 equity loan or demand payment of the loan in full because of the
9-11 borrower's default under any other indebtedness not secured by a
9-12 prior valid encumbrance on the homestead property, regardless of
9-13 whether the indebtedness is owed to the lender. This article does
9-14 not prohibit a lender, if permitted by the loan documents, from
9-15 refusing to make additional advances under an equity loan, other
9-16 than a reverse mortgage, if the borrower has defaulted in the
9-17 performance or payment of another indebtedness owed to the lender
9-18 or another creditor.
9-19 Art. 5A.13. NOTICE. (a) The lender in an equity loan shall
9-20 provide to a borrower the following notice in type that is
9-21 boldfaced, capitalized, or underlined, or otherwise set out from
9-22 surrounding written material so as to be conspicuous:
9-23 "YOU ARE PLEDGING YOUR HOMESTEAD AS COLLATERAL TO SECURE THE
9-24 PAYMENT OF A LOAN. IF YOU DO NOT PAY, OR IF YOU FAIL TO PERFORM
9-25 THE TERMS OF THE LOAN CONTRACT, THE LENDER HAS THE RIGHT TO
9-26 FORECLOSE ON YOUR HOMESTEAD AND SELL IT TO REPAY THE LOAN.
9-27 "YOUR HOMESTEAD MAY NOT BE PLEDGED TO SECURE THE PAYMENT OF
10-1 MORE THAN ONE EQUITY LOAN AT A TIME.
10-2 "ALL THE DEBTS AGAINST YOUR HOMESTEAD, INCLUDING THE EQUITY
10-3 LOAN, MAY NOT EXCEED 90 PERCENT OF THE VALUE OF YOUR HOMESTEAD.
10-4 "YOUR LENDER MAY NOT REQUIRE ANY OTHER PROPERTY YOU OWN,
10-5 OTHER THAN A MANUFACTURED HOME, AS ADDITIONAL COLLATERAL FOR YOUR
10-6 LOAN.
10-7 "YOU HAVE AT LEAST 12 DAYS FROM THE DATE YOU REQUESTED THE
10-8 LOAN TO CHANGE YOUR MIND ABOUT THE LOAN BEFORE YOU CAN SIGN THE
10-9 LOAN DOCUMENTS. IN ADDITION, YOU HAVE THREE BUSINESS DAYS AFTER
10-10 YOU SIGN THE LOAN DOCUMENTS TO CHANGE YOUR MIND ABOUT THE LOAN. IF
10-11 YOU DECIDE NOT TO TAKE THE LOAN DURING ONE OF THESE PERIODS, YOU
10-12 WILL HAVE NO FURTHER OBLIGATION TO THE LENDER.
10-13 "THE LOAN DOCUMENTS MAY NOT BE SIGNED AT YOUR HOME. THE LOAN
10-14 DOCUMENTS MAY BE SIGNED ONLY AT:
10-15 (1) THE LENDER'S OFFICE;
10-16 (2) A TITLE COMPANY; OR
10-17 (3) A TEXAS ATTORNEY'S OFFICE.
10-18 "UNLESS THE INFORMATION IS CONTAINED IN YOUR NOTE OR ANOTHER
10-19 LOAN DOCUMENT, YOUR LENDER IS REQUIRED TO GIVE YOU A WRITTEN
10-20 STATEMENT WITH ITS NAME AND ADDRESS AND YOUR NAME AND ADDRESS
10-21 EITHER BEFORE OR WHEN YOU SIGN THE LOAN DOCUMENTS. THE STATEMENT
10-22 MUST ALSO INCLUDE A DESCRIPTION OF ANY INSURANCE YOU PURCHASED, AND
10-23 HOW MUCH YOU PAID, IN CONNECTION WITH THE LOAN.
10-24 "ON YOUR REQUEST, YOUR LENDER IS REQUIRED TO GIVE YOU A
10-25 RECEIPT IF YOU MAKE A PAYMENT ON THE LOAN IN CASH."
10-26 (b) The lender shall provide the notice when the lender
10-27 receives an application for the loan.
11-1 Art. 5A.14. WAITING PERIOD; RESCISSION. (a) An equity loan
11-2 may not be closed before the 12th day after the date the lender
11-3 receives an application for the loan.
11-4 (b) Each owner of homestead property securing an equity loan
11-5 may rescind the loan. Compliance with all applicable state and
11-6 federal law regarding the right to rescind, including 12 C.F.R.
11-7 Sections 226.15 and 226.23, is considered compliance with this
11-8 chapter regarding rescission.
11-9 (c) The right of rescission provided by this article applies
11-10 to each equity loan made under this chapter, regardless of the
11-11 purpose of the loan. An owner of the homestead property securing
11-12 an equity loan may not waive the right of rescission required by
11-13 this article, regardless of whether applicable state or federal law
11-14 provides for a waiver.
11-15 Art. 5A.15. LOCATION OF CLOSING. (a) An equity loan may
11-16 not be closed at the residence of the borrower. An equity loan
11-17 shall be closed only at an office of:
11-18 (1) the lender;
11-19 (2) a title company; or
11-20 (3) an attorney licensed to practice law in this
11-21 state.
11-22 (b) A recital in the deed of trust or other security
11-23 agreement securing an equity loan stating the location of closing
11-24 is conclusive evidence that the equity loan was closed at that
11-25 location.
11-26 Art. 5A.16. GENERAL PROVISIONS RELATING TO REVERSE
11-27 MORTGAGES. (a) Notwithstanding any other provision of this
12-1 chapter, payment in whole or in part shall be permitted without
12-2 penalty at any time during the term of a reverse mortgage.
12-3 (b) Advances made under a reverse mortgage and interest on
12-4 those advances have priority over a lien filed for record in the
12-5 real property records in the county where the homestead property is
12-6 located after the reverse mortgage is filed for record in the real
12-7 property records of that county.
12-8 (c) A reverse mortgage may provide for an interest rate that
12-9 is fixed or adjustable and may also provide for interest that is
12-10 contingent on appreciation in the fair market value of the
12-11 homestead property.
12-12 (d) If a reverse mortgage provides for periodic advances to
12-13 a borrower, the advances may not be reduced in amount or number
12-14 because of an adjustment in the interest rate.
12-15 (e) A lender who fails to make loan advances as required in
12-16 the loan documents, and who fails to cure the default as required
12-17 in the loan documents, forfeits any right to collect all interest.
12-18 Art. 5A.17. REPAYMENT OF REVERSE MORTGAGE. (a) A reverse
12-19 mortgage becomes due and payable if:
12-20 (1) the homestead property securing the loan is sold;
12-21 (2) all borrowers cease occupying the homestead
12-22 property as a principal residence; or
12-23 (3) an event that is specified in the loan documents,
12-24 including the death of all borrowers, occurs and jeopardizes the
12-25 lender's security.
12-26 (b) Temporary absences from the homestead property by all
12-27 borrowers for a period not exceeding 60 consecutive calendar days
13-1 may not cause the reverse mortgage to become due and payable.
13-2 Temporary absences from the homestead property by all borrowers for
13-3 a period exceeding 60 consecutive calendar days but not exceeding
13-4 one year may not cause the reverse mortgage to become due and
13-5 payable if the borrower has taken prior action to secure the home
13-6 in a manner satisfactory to the lender.
13-7 (c) The lender's right to collect reverse mortgage payments
13-8 is subject to the applicable statute of limitations for a debt as
13-9 provided by Sections 16.004(a), 16.035, and 16.036, Civil Practice
13-10 and Remedies Code, and Section 3.118, Business & Commerce Code.
13-11 The limitations period for the lien securing an equity loan is
13-12 governed by Sections 16.035 and 16.036, Civil Practice and Remedies
13-13 Code.
13-14 (d) In the loan documents, the lender must prominently
13-15 disclose any interest or fee to be charged during the period that
13-16 begins on the date the reverse mortgage becomes due and payable and
13-17 ends when repayment is made in full.
13-18 Art. 5A.18. INAPPLICABILITY OF OTHER STATUTES TO REVERSE
13-19 MORTGAGE. A reverse mortgage loan may be made or acquired without
13-20 regard to the following provisions of any applicable state or
13-21 federal statute:
13-22 (1) a limitation on the purpose and use of future
13-23 advances or other mortgage proceeds;
13-24 (2) a limitation on future advances to a term of years
13-25 or a limitation on the term of open-end account advances;
13-26 (3) a limitation on the term during which future
13-27 advances take priority over intervening advances;
14-1 (4) a requirement that a maximum loan amount be stated
14-2 in the reverse mortgage loan documents;
14-3 (5) a limitation on loan-to-value ratios, other than a
14-4 limitation provided by this chapter;
14-5 (6) a prohibition on balloon payments;
14-6 (7) a prohibition on compound interest and interest on
14-7 interest;
14-8 (8) a prohibition on contracting for, charging, or
14-9 receiving any rate of interest authorized under Article 1.04 of
14-10 this title or under any other statute authorizing a lender to
14-11 contract for a rate of interest; and
14-12 (9) a requirement that a percentage of the reverse
14-13 mortgage proceeds be advanced before the assignment of the reverse
14-14 mortgage.
14-15 Art. 5A.19. STATUS OF REVERSE MORTGAGE LOAN UNDER PUBLIC
14-16 ASSISTANCE PROGRAM. For the purposes of determining eligibility
14-17 under any statute relating to payments, allowance, benefits, or
14-18 services provided on a means-tested basis by this state, including
14-19 supplemental security income, low-income energy assistance,
14-20 property tax relief, medical assistance, and general assistance:
14-21 (1) reverse mortgage loan advances made to a borrower
14-22 are considered proceeds from a loan and not income; and
14-23 (2) undisbursed funds under a reverse mortgage loan
14-24 are considered equity in a borrower's home and not proceeds from a
14-25 loan.
14-26 Art. 5A.20. REVERSE MORTGAGE LOAN INFORMATION AND
14-27 COUNSELING. A lender may not make a reverse mortgage commitment
15-1 unless the loan applicant attests in writing that the applicant
15-2 received from the lender, at the time the notice is required by
15-3 Article 5A.13 of this title, a statement prepared by the consumer
15-4 credit commissioner regarding the advisability and availability of
15-5 independent information and counseling services on reverse
15-6 mortgages. The consumer credit commissioner shall:
15-7 (1) develop the content and format of the statement;
15-8 (2) provide independent consumer information on
15-9 reverse mortgages and their alternatives; and
15-10 (3) refer consumers to independent counseling services
15-11 with expertise in reverse mortgages.
15-12 Art. 5A.21. INTEREST. A lender may contract for and receive
15-13 on an equity loan any fixed or variable rate of interest that does
15-14 not exceed the maximum rate of interest authorized under Article
15-15 1.04 of this title or under any other state or federal statute
15-16 authorizing the lender to contract for a rate of interest.
15-17 Interest shall be accrued and earned by applying the simple annual
15-18 interest rate or rates under the loan contract to the principal
15-19 balance, which may include unpaid interest and additions to
15-20 principal authorized by the loan contract. In determining the
15-21 amount of interest accrued, the lender may assume that the payments
15-22 have been made as originally scheduled and ignore any difference
15-23 created by late or early payments. Although payment of principal
15-24 or interest shall not be required under a reverse mortgage until
15-25 the entire loan becomes due and payable, interest may accrue and be
15-26 compounded during the term of the loan as provided by the reverse
15-27 mortgage loan agreement.
16-1 Art. 5A.22. CLOSED-END EQUITY LOANS. (a) Each closed-end
16-2 equity loan shall be scheduled to be repaid in substantially equal
16-3 successive monthly installments, except that the first installment
16-4 may be scheduled beyond one month from the date of the loan but not
16-5 beyond two months from the date of the loan.
16-6 (b) The amount of each installment under the schedule of
16-7 payments for a closed-end equity loan shall equal or exceed the
16-8 amount of interest scheduled to accrue as of the date of the
16-9 installment or that would accrue as of the installment date through
16-10 amortization of the loan on the date of the loan.
16-11 Art. 5A.23. CHARGES AND FEES. A contract for an equity loan
16-12 may permit a lender to collect the following fees and charges in
16-13 connection with the loan:
16-14 (1) a reasonable expense or cost paid, or that will be
16-15 paid, to a third party that is not an employee or affiliate of the
16-16 lender if the expense or cost:
16-17 (A) is for an abstract, a title report,
16-18 attorney's fees for a legal opinion or document preparation, a
16-19 courier fee or express mail service fee actually incurred, a tax
16-20 certificate charged actually incurred, a title insurance premium,
16-21 an escrow fee that does not violate Section 8, Real Estate
16-22 Settlement Procedures Act (12 U.S.C. Section 2607), and is imposed
16-23 by a title insurance company, title insurance agent, or direct
16-24 operation, an escrow for future payments of taxes and insurance, an
16-25 annuity, an appraisal or evaluation, a survey, or a credit report;
16-26 or
16-27 (B) is actually incurred in the making or
17-1 servicing of an equity loan and necessary or proper for the
17-2 protection of the lender;
17-3 (2) a fee prescribed by law paid, or that will be
17-4 paid, to a public official for determining the existence of or for
17-5 recording any documents in connection with the closing of an equity
17-6 loan;
17-7 (3) a bona fide commitment fee for the separate
17-8 consideration of committing to make an equity loan in the future;
17-9 (4) any other fee required by federal statute;
17-10 (5) a reasonable fee or charge paid to the trustee in
17-11 connection with a deed of trust or similar instrument executed in
17-12 connection with the equity loan, including a fee for enforcing the
17-13 lien or for posting for sale, selling, or releasing the property
17-14 secured by the deed of trust;
17-15 (6) a reasonable fee paid to an attorney who is not an
17-16 employee of the lender in the collection of a delinquent equity
17-17 loan and any court cost or fee incurred in the collection or
17-18 foreclosure of a lien created by the loan;
17-19 (7) a fee not to exceed the amount permitted by law
17-20 for the return by a depository institution of a dishonored check,
17-21 negotiable order of withdrawal, share draft, or deposit draft
17-22 offered in full or partial payment of an equity loan;
17-23 (8) a late charge or penalty, if all or part of a
17-24 scheduled payment continues unpaid for 15 or more days after the
17-25 date the payment was due, except that:
17-26 (A) only one late charge or penalty authorized
17-27 by this article may be charged for each scheduled payment that is
18-1 past due; and
18-2 (B) the late charge or penalty may not exceed
18-3 five percent of the unpaid amount of the scheduled payment that is
18-4 past due; and
18-5 (9) the premiums received in connection with the sale
18-6 of insurance as provided by Article 5A.24 of this title.
18-7 Art. 5A.24. INSURANCE. (a) Under an equity loan, a lender
18-8 may request or require a borrower to provide insurance:
18-9 (1) in the amounts and under the conditions that apply
18-10 to secondary mortgage loans as provided by Articles 5.02 and 5.03
18-11 of this title;
18-12 (2) in the amounts and under the terms and conditions
18-13 of:
18-14 (A) the Home Equity Conversion Mortgage
18-15 Insurance Program under the Housing and Community Development Act
18-16 of 1987 (Pub. L. No. 100-242);
18-17 (B) Section 255, National Housing Act (12 U.S.C.
18-18 Section 1715z-20); and
18-19 (C) 24 C.F.R. Part 206; and
18-20 (3) in the amounts and under the terms and conditions
18-21 provided for by any state or federal statute authorizing or
18-22 requiring any type of insurance relating to a loan or other
18-23 extension of credit, including insurance authorized under Chapters
18-24 3, 4, 5, and 15 of this title.
18-25 (b) Premiums for insurance under this article may be added
18-26 to the loan contract.
18-27 Art. 5A.25. LENDER'S DUTY TO BORROWER. (a) The lender
19-1 under an equity loan shall deliver to the borrower, or to one of
19-2 the borrowers if there are more than one, a copy of the note or the
19-3 contract for an open-end account, a copy of all other documents
19-4 signed by the borrower or borrowers, and a written statement of:
19-5 (1) the name and address of each borrower and of the
19-6 lender; and
19-7 (2) each type of insurance, if any, for which a charge
19-8 to a borrower is included in the loan agreement and the amount of
19-9 the charge for the insurance.
19-10 (b) If the note or another loan document contains the
19-11 information required by Subsection (a) of this article, a copy of
19-12 the note or document may be delivered to the borrower rather than
19-13 the separate written statement.
19-14 (c) If requested by the borrower, the lender shall give a
19-15 receipt to a person making a cash payment on an equity loan.
19-16 (d) Except as prohibited by Articles 1.07 and 5A.16 of this
19-17 title or by applicable federal law, a prepayment fee, charge, or
19-18 penalty may be collected on an equity loan.
19-19 (e) On termination and full payment of an equity loan, the
19-20 holder shall within a reasonable time:
19-21 (1) cancel and return any note to the borrower and
19-22 give the borrower a release of any mortgage, deed of trust,
19-23 security instrument, or other instrument securing the loan; or
19-24 (2) endorse the note and assign any mortgage, deed of
19-25 trust, or other security instrument to a refinancing lender who
19-26 advances funds to discharge the equity loan indebtedness at the
19-27 request of the borrower and in renewal and extension of the
20-1 security instrument.
20-2 Art. 5A.26. PROHIBITED PRACTICES. (a) A lender may not
20-3 accept an assignment of wages as security for a loan made under
20-4 this chapter.
20-5 (b) In connection with an equity loan, a lender may not
20-6 accept a confession of judgment or power of attorney running to the
20-7 lender or to a third person to confess judgment or to appear for a
20-8 borrower in a judicial proceeding.
20-9 (c) A lender may not accept an instrument in which blanks
20-10 are left to be filled in after an equity loan is executed.
20-11 Art. 5A.27. OWNER ACKNOWLEDGMENT. A lienholder or assignee
20-12 for value may conclusively rely on an acknowledgment by the owner
20-13 of homestead property and the owner's spouse, if the owner is
20-14 married, of compliance with applicable requirements for an equity
20-15 loan secured by a mortgage, trust deed, or other lien on a
20-16 homestead.
20-17 Art. 5A.28. REPORT BY LENDERS. (a) Before March 1 of each
20-18 year, a lender that makes an equity loan shall submit to the
20-19 director of the division of access to financial services a report
20-20 of the lender's home equity loan activity during the calendar year
20-21 preceding the year the report is submitted. For each home equity
20-22 loan for which the lender received an application, the report must
20-23 state the primary purpose of the loan, whether the loan was
20-24 granted, and the applicant's income and census tract. The director
20-25 of the division of access to financial services may set and collect
20-26 from the lender a reasonable filing fee in connection with the
20-27 submission of the report in an amount necessary and reasonable to
21-1 enable the director of the division of access to financial services
21-2 to carry out this article.
21-3 (b) The director of the division of access to financial
21-4 services may accept a copy of a report submitted by the lender to a
21-5 federal agency instead of the report required under Subsection (a)
21-6 of this article if the report submitted to the federal agency
21-7 contains the information required for a report under Subsection (a)
21-8 of this article.
21-9 (c) A lender that does not make a home equity loan during
21-10 the period covered by a report is not required to submit the
21-11 report.
21-12 Art. 5A.29. EQUITY LOAN RECOVERY FUND. (a) The consumer
21-13 credit commissioner shall establish and maintain an equity loan
21-14 recovery fund. Money in the fund shall be used for reimbursing
21-15 aggrieved persons who suffer actual damages that:
21-16 (1) result from misrepresentation, dishonesty, or
21-17 fraud committed by an authorized lender in the course of making an
21-18 equity loan; and
21-19 (2) are ordered by a court against a lender that the
21-20 court determines is unable to make the payment.
21-21 (b) An action for a judgment that subsequently results in an
21-22 order for collection from the equity loan recovery fund may not be
21-23 started later than two years after the date of accrual of the cause
21-24 of action.
21-25 (c) Money received by the consumer credit commissioner for
21-26 deposit in the equity loan recovery fund shall be held by the
21-27 consumer credit commissioner in trust for carrying out the purposes
22-1 of the fund.
22-2 (d) The finance commission shall establish and collect
22-3 reasonable and necessary fees from each authorized lender for each
22-4 home equity loan originated by the lender to accomplish the
22-5 purposes of this article. Fees collected shall be deposited into
22-6 the fund.
22-7 (e) The finance commission shall adopt rules necessary to
22-8 implement this article.
22-9 SECTION 3. Chapter 2, Title 79, Revised Statutes (Article
22-10 5069-2.01 et seq., Vernon's Texas Civil Statutes), is amended by
22-11 adding Articles 2.02E and 2.02F to read as follows:
22-12 Art. 2.02E. DIVISION OF ACCESS TO FINANCIAL SERVICES. (a)
22-13 The division of access to financial services is created in the
22-14 Office of Consumer Credit Commissioner to inform, monitor, and
22-15 report on the availability and quality of home equity loans,
22-16 including equity loans offered by lenders in the state to
22-17 agricultural businesses, small businesses, and individual consumers
22-18 in the state.
22-19 (b) The division shall be administered by a director
22-20 appointed by the consumer credit commissioner.
22-21 (c) The director shall adequately staff the division to
22-22 carry out the division's functions under this article.
22-23 (d) The division shall:
22-24 (1) conduct research on the effect of equity lending
22-25 on the availability, quality, and cost of equity loans for
22-26 agricultural businesses, small businesses, and individual consumers
22-27 in various regions of the state;
23-1 (2) conduct research on the effect of the practices of
23-2 business entities in the state that provide equity loans to
23-3 agricultural businesses, small businesses, and individual consumers
23-4 in the state;
23-5 (3) conduct a public information campaign to provide
23-6 low-income and elderly consumers with information and counseling
23-7 about the benefits and liabilities associated with equity loans;
23-8 (4) compile a summary of the information received from
23-9 each lender under Article 5A.28 of this title, including an
23-10 analysis of census tract demographic data, to produce reports on
23-11 equity lending patterns with regard to the rate of application and
23-12 loan acceptance by income and census tract of the home; and
23-13 (5) not later than December 1 of each even-numbered
23-14 year, provide to the legislature a report detailing the findings of
23-15 the division and recommending any action the division believes is
23-16 necessary to protect consumers with respect to equity lending.
23-17 (e) The division shall prepare information of public
23-18 interest describing the functions of the division and make the
23-19 information available to the public and appropriate state and
23-20 federal agencies.
23-21 (f) The division may:
23-22 (1) apply for and receive public and private grants
23-23 and gifts; and
23-24 (2) contract with public and private entities to carry
23-25 out studies and analyses under this article.
23-26 (g) The consumer credit commissioner shall establish and
23-27 collect reasonable and necessary fees to accomplish the purposes of
24-1 this article.
24-2 Art. 2.02F. STUDY AND REPORT; EQUITY LOANS. (a) After May
24-3 1, 2000, the director of the division of access to financial
24-4 services shall conduct a study of equity lending under Chapter 5A
24-5 of this title.
24-6 (b) Before January 1, 2001, the director of the division of
24-7 access to financial services shall submit a report on its study to
24-8 the governor, lieutenant governor, and speaker of the house of
24-9 representatives. The report must include:
24-10 (1) a summary of the information received by the
24-11 director of the division of access to financial services under
24-12 Article 5A.28 of this title;
24-13 (2) an analysis of the effectiveness of the provisions
24-14 of Chapter 5A of this title; and
24-15 (3) other information the director of the division of
24-16 access to financial services considers relevant to the regulation
24-17 of equity loans.
24-18 (c) This section expires January 2, 2001.
24-19 SECTION 4. Article 9.02, Insurance Code, is amended by
24-20 adding Subsection (r) to read as follows:
24-21 (r) "Equity loan mortgagee policy" means a mortgagee policy
24-22 of title insurance that insures the validity and priority of a
24-23 security interest in homestead property securing an equity loan, as
24-24 defined by Article 5A.01, Title 79, Revised Statutes (Article
24-25 5069-5A.01, Vernon's Texas Civil Statutes).
24-26 SECTION 5. Section 9.07, Insurance Code, is amended by
24-27 adding Subsection (g) to read as follows:
25-1 (g) The commissioner shall promulgate an endorsement that
25-2 must be attached to an equity loan mortgagee policy. The
25-3 endorsement must insure the priority of future advances made in
25-4 accordance with the document creating the security interest and
25-5 applicable law, subject to any legal limits on priority and to the
25-6 other terms of the policy. The endorsement must insure the
25-7 validity of the security interest subject to the terms of the
25-8 policy and to an exclusion for compliance by the lender with any
25-9 constitutional or statutory requirements for, and limitations on,
25-10 equity loans secured by a security interest in a homestead. The
25-11 endorsement must affirmatively insure against invalidity of the
25-12 security interest because of the failure of each owner and the
25-13 spouse of each owner to join in the document creating the security
25-14 interest. The commissioner may promulgate other policies and
25-15 endorsements relating to an equity loan security interest in a
25-16 homestead.
25-17 SECTION 6. This Act takes effect January 1, 1998, but only
25-18 if the constitutional amendment proposed by __J.R. No. __, Acts of
25-19 the 75th Legislature, Regular Session, 1997, allowing voluntary,
25-20 consensual encumbrances on homestead property for the purpose of
25-21 equity loans, is approved by the voters. If that amendment is not
25-22 approved by the voters, this Act has no effect.
25-23 SECTION 7. The importance of this legislation and the
25-24 crowded condition of the calendars in both houses create an
25-25 emergency and an imperative public necessity that the
25-26 constitutional rule requiring bills to be read on three several
25-27 days in each house be suspended, and this rule is hereby suspended.