1-1 By: Patterson, Ellis, Armbrister S.B. No. 173
1-2 (In the Senate - Filed January 8, 1997; January 15, 1997,
1-3 read first time and referred to Committee on State Affairs;
1-4 March 25, 1997, reported favorably, as amended, by the following
1-5 vote: Yeas 7, Nays 0; March 25, 1997, sent to printer.)
1-6 COMMITTEE AMENDMENT NO. 1 By: Carona
1-7 Amend SECTION 1 of S.B. No. 173 as follows:
1-8 (1) At the end of Subdivision (2), Subsection (a) of added
1-9 Article 5A.04, Revised Statutes (page 3, line 3, Introduced
1-10 Version), strike "or".
1-11 (2) At the end of Subdivision (3), Subsection (a) of added
1-12 Article 5A.04, Revised Statutes (page 3, line 7, Introduced
1-13 Version), strike the period and substitute "; or".
1-14 (3) After Subdivision (3), Subsection (a) of added Article
1-15 5A.04, Revised Statutes (page 3, after line 7, Introduced Version),
1-16 add the following:
1-17 "(4) a person contracted to make, originate, or
1-18 arrange loans qualified for purchase by the Federal National
1-19 Mortgage Association or Federal Home Loan Mortgage Corporation."
1-20 A BILL TO BE ENTITLED
1-21 AN ACT
1-22 relating to a voluntary, consensual encumbrance on homestead
1-23 property for the purpose of an equity loan.
1-24 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-25 SECTION 1. Subsection (b), Section 41.001, Property Code, is
1-26 amended to read as follows:
1-27 (b) Encumbrances may be properly fixed on homestead property
1-28 for:
1-29 (1) purchase money;
1-30 (2) taxes on the property;
1-31 (3) work and material used in constructing
1-32 improvements on the property if contracted for in writing as
1-33 provided by Sections 53.059(a), (b), and (c);
1-34 (4) an owelty of partition imposed against the
1-35 entirety of the property by a court order or by a written agreement
1-36 of the parties to the partition, including a debt of one spouse in
1-37 favor of the other spouse resulting from a division or an award of
1-38 a family homestead in a divorce proceeding; [or]
1-39 (5) the refinance of a lien against a homestead,
1-40 including a federal tax lien resulting from the tax debt of both
1-41 spouses, if the homestead is a family homestead, or from the tax
1-42 debt of the owner; or
1-43 (6) an equity loan, as defined by Article 5A.01, Title
1-44 79, Revised Statutes (Article 5069-5A.01, Vernon's Texas Civil
1-45 Statutes).
1-46 SECTION 2. Title 79, Revised Statutes (Article 5069-1.01 et
1-47 seq., Vernon's Texas Civil Statutes), is amended by adding Chapter
1-48 5A to read as follows:
1-49 CHAPTER 5A. EQUITY LOANS
1-50 Art. 5A.01. DEFINITIONS. In this chapter:
1-51 (1) "Advance" means a draw or extension of credit
1-52 under an equity loan structured as a contract for an open-end
1-53 account or as a reverse mortgage.
1-54 (2) "Application" means an oral or written request for
1-55 an equity loan made according to procedures established by the
1-56 lender.
1-57 (3) "Blended equity loan" means an equity loan made
1-58 for:
1-59 (A) the payment or refinancing of all or part of
1-60 the purchase money of a homestead, taxes on homestead property, a
1-61 federal tax lien on homestead property, an owelty of partition
1-62 imposed against homestead property, or the work and material used
1-63 in constructing improvements on a homestead or for the refinance of
1-64 any other lien against the homestead; and
2-1 (B) another purpose.
2-2 (4) "Business day" means a day other than a Sunday or
2-3 a legal public holiday listed by 5 U.S.C. Section 6103(a).
2-4 (5) "Equity loan" means an extension of credit under a
2-5 written agreement, including a contract for an open-end account,
2-6 blended equity loan, or reverse mortgage, that is:
2-7 (A) secured in whole or in part by a voluntary
2-8 lien on or other consensual security interest in a homestead; and
2-9 (B) created with the consent of each owner and
2-10 the spouse of each owner in accordance with applicable statutory
2-11 requirements.
2-12 (6) "Lender" means an authorized lender under Article
2-13 5A.04 of this title.
2-14 (7) "Reverse mortgage" means a nonrecourse equity
2-15 loan:
2-16 (A) under which advances are provided to a
2-17 borrower based on the equity in a borrower's homestead property;
2-18 and
2-19 (B) that requires no payment of principal or
2-20 interest until the entire loan becomes due and payable.
2-21 Art. 5A.02. CONSTRUCTION OF CHAPTER. (a) For the purposes
2-22 of this chapter, an equity loan is considered closed on the
2-23 earliest date on which both of the following are executed:
2-24 (1) each promissory note, or contract for an open-end
2-25 account, evidencing the equity loan; and
2-26 (2) a deed of trust or other security instrument
2-27 securing the equity loan.
2-28 (b) In establishing the fair market value of homestead
2-29 property, a lender shall rely on an appraisal or evaluation,
2-30 whichever may be appropriate, prepared in accordance with a state
2-31 or federal requirement applicable to the lender. If no state or
2-32 federal appraisal or evaluation requirement applies to an equity
2-33 loan, the fair market value of the homestead property may be, at
2-34 the lender's option, the value estimate set forth in:
2-35 (1) the most recent ad valorem tax appraisal district
2-36 valuation for the homestead property;
2-37 (2) an appraisal prepared by a licensed or certified
2-38 appraiser under the Texas Appraiser Licensing and Certification Act
2-39 (Article 6573a.2, Vernon's Texas Civil Statutes); or
2-40 (3) any other appraisal or evaluation.
2-41 Art. 5A.03. APPLICABILITY OF CHAPTER AND OTHER LAW. (a) A
2-42 lender making, originating, negotiating, or arranging an equity
2-43 loan, including a reverse mortgage, shall comply with:
2-44 (1) this chapter;
2-45 (2) any nonconflicting requirement of another law
2-46 relied on as authority for the rate or amount of interest provided
2-47 for in the loan; and
2-48 (3) applicable federal law.
2-49 (b) A blended equity loan is governed by this chapter.
2-50 (c) A loan made for the payment or refinancing of all or
2-51 part of a valid encumbrance on homestead property authorized by
2-52 Section 41.001(b)(1), (2), (3), (4), or (5), Property Code, is not
2-53 an equity loan but may be made subject to this chapter if the
2-54 parties agree in the loan documents that the loan is to be governed
2-55 by this chapter. The inclusion of closing costs in the loan amount
2-56 for a loan described by this subsection does not cause the loan to
2-57 be an equity loan. Closing costs include discount points,
2-58 origination fees, private mortgage insurance premiums, property or
2-59 casualty insurance premiums, title insurance premiums, lender
2-60 escrow account impound deposits, inspection fees, recording fees,
2-61 courier and express mail delivery fees, underwriting fees,
2-62 attorney's fees for preparation of loan documents or loan
2-63 disclosures, title company imposed escrow fees, survey fees, and
2-64 other settlement charges.
2-65 Art. 5A.04. AUTHORIZED LENDERS. (a) An equity loan may be
2-66 made, originated, negotiated, or arranged only by:
2-67 (1) a bank, savings and loan association, savings
2-68 bank, or credit union doing business under the laws of this state
2-69 or the United States;
3-1 (2) a person licensed under Chapter 3 of this title;
3-2 or
3-3 (3) a person approved as a mortgagee by the United
3-4 States Department of Housing and Urban Development to make insured
3-5 loans under the National Housing Act (12 U.S.C. Section 1701 et
3-6 seq.).
3-7 (b) A lender under Subsection (a) of this article may make
3-8 an equity loan in addition to any other loan authorized for that
3-9 lender.
3-10 Art. 5A.05. ELIGIBLE PROPERTY. An equity loan may not be
3-11 secured by homestead property that is designated for agricultural
3-12 use as provided by Subchapter C, Chapter 23, Tax Code.
3-13 Art. 5A.06. ONE EQUITY LOAN AUTHORIZED; IDENTIFICATION
3-14 REQUIREMENT. (a) At any time, a homestead may not be encumbered
3-15 by more than one equity loan in addition to any valid encumbrances
3-16 on homestead property authorized by Section 41.001(b)(1), (2), (3),
3-17 (4), or (5), Property Code.
3-18 (b) A recorded lien instrument securing an equity loan,
3-19 including a deed of trust or security agreement, must contain:
3-20 (1) the following phrase or its substantial equivalent
3-21 in bold type at the bottom of the first page: "THIS INSTRUMENT
3-22 SECURES AN EQUITY LOAN."; and
3-23 (2) one or more of the following headings near the top
3-24 of the first page:
3-25 (A) Equity Loan Mortgage;
3-26 (B) Equity Loan Deed of Trust;
3-27 (C) Equity Loan Security Agreement; or
3-28 (D) Equity Loan Lien.
3-29 (c) A recorded lien instrument securing an equity loan is
3-30 not made invalid because the lender fails to comply with this
3-31 article.
3-32 Art. 5A.07. ADVANCES AND REPAYMENT DETERMINED BY AGREEMENT.
3-33 An equity loan may provide for funding to or for the benefit of the
3-34 borrower in one or more advances at a frequency and for a term to
3-35 which the parties agree. An equity loan may provide for repayment
3-36 in one or more payments on a payment schedule and in amounts to
3-37 which the parties agree.
3-38 Art. 5A.08. CREDIT CARD ACCESS PROHIBITED. An equity loan
3-39 may not be in the form of a credit card transaction, as defined by
3-40 Section 1.01(g) of this title.
3-41 Art. 5A.09. PERCENT OF VALUE LIMIT. The committed principal
3-42 amount of an equity loan plus the aggregate total of the
3-43 outstanding balances of other indebtedness secured by valid
3-44 encumbrances of record against the homestead property may not
3-45 exceed 90 percent of the fair market value of the homestead
3-46 property on the date the equity loan is closed. Violation of this
3-47 article does not affect the validity of other indebtedness secured
3-48 by valid encumbrances of record against the homestead property.
3-49 Art. 5A.10. ADVANCE NOT INCLUDED AS OUTSTANDING
3-50 INDEBTEDNESS. For the purposes of Article 5A.09 of this title, the
3-51 aggregate total of the outstanding balances of indebtedness secured
3-52 by valid encumbrances of record against the homestead property does
3-53 not include any advance made by a lender to protect a lien,
3-54 security interest, or other valid encumbrance on the homestead
3-55 property securing the loan, including the payment of hazard
3-56 insurance premiums, repairs to the homestead property, or payments
3-57 on any indebtedness secured by a prior valid encumbrance on the
3-58 homestead property.
3-59 Art. 5A.11. LIMIT ON COLLATERAL AND USE OF PROCEEDS. (a) A
3-60 lender may not require or accept real or personal property as
3-61 additional collateral on an equity loan, except for a manufactured
3-62 home as defined by the Texas Manufactured Housing Standards Act
3-63 (Article 5221f, Vernon's Texas Civil Statutes), personal property
3-64 affixed or to be affixed to the homestead in a manner that would
3-65 make the property a fixture, or rents derived from homestead
3-66 property. Only the homestead property securing an equity loan may
3-67 be collateral for the equity loan.
3-68 (b) A lender may not:
3-69 (1) require or accept a borrower's homestead property,
4-1 regardless of whether the property was previously encumbered by an
4-2 existing equity loan, as collateral on a debt not described by
4-3 Section 41.001(b), Property Code; or
4-4 (2) require a borrower to apply the proceeds of an
4-5 equity loan to repay a debt owed to the lender, other than a debt
4-6 described by Section 41.001(b), Property Code.
4-7 (c) This article does not:
4-8 (1) prohibit or limit any lawful statutory lien, valid
4-9 common-law lien, or right of offset; or
4-10 (2) prevent a lender from requiring insurance
4-11 authorized by this chapter as additional security for an equity
4-12 loan.
4-13 (d) Proceeds of a sale of the homestead or its fixtures or
4-14 proceeds of insurance covering the property are not considered
4-15 additional collateral and may be included as part of the security
4-16 for the loan.
4-17 (e) A provision of a deed of trust or other security
4-18 agreement that secures a loan other than an equity loan and that
4-19 makes the deed of trust or security agreement applicable to other
4-20 indebtedness of the borrower does not apply to the collateral
4-21 securing an equity loan of the borrower. This subsection does not
4-22 affect the validity of the provision as applied to a loan other
4-23 than an equity loan.
4-24 (f) An equity loan may not contain a provision that makes
4-25 the lien on homestead property security for any other indebtedness
4-26 of the borrower.
4-27 Art. 5A.12. ACCELERATION PROHIBITED. (a) A lender may not
4-28 accelerate the remaining payments of an equity loan or demand
4-29 payment of the loan in full because of a decrease in the market
4-30 value of the homestead property securing the equity loan, unless
4-31 the decrease in the market value is caused by substantial damage or
4-32 destruction to the property, a condemnation or other taking of the
4-33 property, the discovery of an environmental hazard on the property,
4-34 or the use of the property in a manner that constitutes waste on
4-35 the property or a nuisance. This article does not prohibit a
4-36 lender, if permitted by the loan documents, from refusing to make
4-37 additional advances under an equity loan, other than a reverse
4-38 mortgage, if the market value of the homestead property decreases,
4-39 regardless of the cause of the decrease.
4-40 (b) A lender may not accelerate the remaining payments of an
4-41 equity loan or demand payment of the loan in full because of the
4-42 borrower's default under any other indebtedness not secured by a
4-43 prior valid encumbrance on the homestead property, regardless of
4-44 whether the indebtedness is owed to the lender. This article does
4-45 not prohibit a lender, if permitted by the loan documents, from
4-46 refusing to make additional advances under an equity loan, other
4-47 than a reverse mortgage, if the borrower has defaulted in the
4-48 performance or payment of another indebtedness owed to the lender
4-49 or another creditor.
4-50 Art. 5A.13. NOTICE. (a) The lender in an equity loan shall
4-51 provide to a borrower the following notice in type that is
4-52 boldfaced, capitalized, or underlined or otherwise set out from
4-53 surrounding written material so as to be conspicuous:
4-54 "YOU ARE PLEDGING YOUR HOMESTEAD AS COLLATERAL TO
4-55 SECURE THE PAYMENT OF A LOAN. IF YOU DO NOT PAY, OR IF
4-56 YOU FAIL TO PERFORM THE TERMS OF THE LOAN CONTRACT, THE
4-57 LENDER HAS THE RIGHT TO FORECLOSE ON YOUR HOMESTEAD AND
4-58 SELL IT TO REPAY THE LOAN.
4-59 "YOUR HOMESTEAD MAY NOT BE PLEDGED TO SECURE THE
4-60 PAYMENT OF MORE THAN ONE EQUITY LOAN AT A TIME.
4-61 "ALL THE DEBTS AGAINST YOUR HOMESTEAD, INCLUDING
4-62 THE EQUITY LOAN, MAY NOT EXCEED 90 PERCENT OF THE VALUE
4-63 OF YOUR HOMESTEAD.
4-64 "YOUR LENDER MAY NOT REQUIRE ANY OTHER PROPERTY
4-65 YOU OWN, OTHER THAN A MANUFACTURED HOME, AS ADDITIONAL
4-66 COLLATERAL FOR YOUR LOAN.
4-67 "YOU HAVE AT LEAST 12 DAYS FROM THE DATE YOU
4-68 REQUESTED THE LOAN TO CHANGE YOUR MIND ABOUT THE LOAN
4-69 BEFORE YOU CAN SIGN THE LOAN DOCUMENTS. IN ADDITION,
5-1 YOU HAVE THREE BUSINESS DAYS AFTER YOU SIGN THE LOAN
5-2 DOCUMENTS TO CHANGE YOUR MIND ABOUT THE LOAN. IF YOU
5-3 DECIDE NOT TO TAKE THE LOAN DURING ONE OF THESE
5-4 PERIODS, YOU WILL HAVE NO FURTHER OBLIGATION TO THE
5-5 LENDER.
5-6 "THE LOAN DOCUMENTS MAY NOT BE SIGNED AT YOUR
5-7 HOME. THE LOAN DOCUMENTS MAY BE SIGNED ONLY AT:
5-8 (1) THE LENDER'S OFFICE;
5-9 (2) A TITLE COMPANY; OR
5-10 (3) A TEXAS ATTORNEY'S OFFICE.
5-11 "UNLESS THE INFORMATION IS CONTAINED IN YOUR NOTE
5-12 OR ANOTHER LOAN DOCUMENT, YOUR LENDER IS REQUIRED TO
5-13 GIVE YOU A WRITTEN STATEMENT WITH ITS NAME AND ADDRESS
5-14 AND YOUR NAME AND ADDRESS EITHER BEFORE OR WHEN YOU
5-15 SIGN THE LOAN DOCUMENTS. THE STATEMENT MUST ALSO
5-16 INCLUDE A DESCRIPTION OF ANY INSURANCE YOU PURCHASED
5-17 AND HOW MUCH YOU PAID IN CONNECTION WITH THE LOAN.
5-18 "ON YOUR REQUEST, YOUR LENDER IS REQUIRED TO GIVE
5-19 YOU A RECEIPT IF YOU MAKE A PAYMENT ON THE LOAN IN
5-20 CASH."
5-21 (b) The lender shall provide the notice when the lender
5-22 receives an application for the loan.
5-23 Art. 5A.14. WAITING PERIOD; RESCISSION. (a) An equity loan
5-24 may not be closed before the 12th day after the date the lender
5-25 receives an application for the loan.
5-26 (b) Each owner of homestead property securing an equity loan
5-27 may rescind the loan. Compliance with all applicable state and
5-28 federal law regarding the right to rescind, including 12 C.F.R.
5-29 Sections 226.15 and 226.23, is considered compliance with this
5-30 chapter regarding rescission.
5-31 (c) The right of rescission provided by this article applies
5-32 to each equity loan made under this chapter, regardless of the
5-33 purpose of the loan. An owner of the homestead property securing
5-34 an equity loan may not waive the right of rescission required by
5-35 this article, regardless of whether applicable state or federal law
5-36 provides for a waiver.
5-37 Art. 5A.15. LOCATION OF CLOSING. (a) An equity loan may
5-38 not be closed at the residence of the borrower. An equity loan
5-39 shall be closed only at an office of:
5-40 (1) the lender;
5-41 (2) a title company; or
5-42 (3) an attorney licensed to practice law in this
5-43 state.
5-44 (b) A recital in the deed of trust or other security
5-45 agreement securing an equity loan stating the location of closing
5-46 is conclusive evidence that the equity loan was closed at that
5-47 location.
5-48 Art. 5A.16. GENERAL PROVISIONS RELATING TO REVERSE
5-49 MORTGAGES. (a) Notwithstanding any other provision of this
5-50 chapter, payment in whole or in part shall be permitted without
5-51 penalty at any time during the term of a reverse mortgage.
5-52 (b) Advances made under a reverse mortgage and interest on
5-53 those advances have priority over a lien filed for record in the
5-54 real property records in the county where the homestead property is
5-55 located after the reverse mortgage is filed for record in the real
5-56 property records of that county.
5-57 (c) A reverse mortgage may provide for an interest rate that
5-58 is fixed or adjustable and may also provide for interest that is
5-59 contingent on appreciation in the fair market value of the
5-60 homestead property.
5-61 (d) If a reverse mortgage provides for periodic advances to
5-62 a borrower, the advances may not be reduced in amount or number
5-63 because of an adjustment in the interest rate.
5-64 (e) A lender who fails to make loan advances as required in
5-65 the loan documents and who fails to cure the default as required in
5-66 the loan documents forfeits any right to collect all interest.
5-67 Art. 5A.17. REPAYMENT OF REVERSE MORTGAGE. (a) A reverse
5-68 mortgage becomes due and payable if:
5-69 (1) the homestead property securing the loan is sold;
6-1 (2) all borrowers cease occupying the homestead
6-2 property as a principal residence; or
6-3 (3) an event that is specified in the loan documents,
6-4 including the death of all borrowers, occurs and jeopardizes the
6-5 lender's security.
6-6 (b) Temporary absences from the homestead property by all
6-7 borrowers for a period not exceeding 60 consecutive calendar days
6-8 may not cause the reverse mortgage to become due and payable.
6-9 Temporary absences from the homestead property by all borrowers for
6-10 a period exceeding 60 consecutive calendar days but not exceeding
6-11 one year may not cause the reverse mortgage to become due and
6-12 payable if the borrower has taken prior action to secure the home
6-13 in a manner satisfactory to the lender.
6-14 (c) The lender's right to collect reverse mortgage payments
6-15 is subject to the applicable statute of limitations for a debt as
6-16 provided by Sections 16.004(a), 16.035, and 16.036, Civil Practice
6-17 and Remedies Code, and Section 3.118, Business & Commerce Code.
6-18 The limitations period for the lien securing an equity loan is
6-19 governed by Sections 16.035 and 16.036, Civil Practice and Remedies
6-20 Code.
6-21 (d) In the loan documents, the lender must prominently
6-22 disclose any interest or fee to be charged during the period that
6-23 begins on the date the reverse mortgage becomes due and payable and
6-24 ends when repayment is made in full.
6-25 Art. 5A.18. INAPPLICABILITY OF OTHER STATUTES TO REVERSE
6-26 MORTGAGE. A reverse mortgage loan may be made or acquired without
6-27 regard to the following provisions of any applicable state or
6-28 federal statute:
6-29 (1) a limitation on the purpose and use of future
6-30 advances or other mortgage proceeds;
6-31 (2) a limitation on future advances to a term of years
6-32 or a limitation on the term of open-end account advances;
6-33 (3) a limitation on the term during which future
6-34 advances take priority over intervening advances;
6-35 (4) a requirement that a maximum loan amount be stated
6-36 in the reverse mortgage loan documents;
6-37 (5) a limitation on loan-to-value ratios, other than a
6-38 limitation provided by this chapter;
6-39 (6) a prohibition on balloon payments;
6-40 (7) a prohibition on compound interest and interest on
6-41 interest;
6-42 (8) a prohibition on contracting for, charging, or
6-43 receiving any rate of interest authorized under Article 1.04 of
6-44 this title or under any other statute authorizing a lender to
6-45 contract for a rate of interest; and
6-46 (9) a requirement that a percentage of the reverse
6-47 mortgage proceeds be advanced before the assignment of the reverse
6-48 mortgage.
6-49 Art. 5A.19. STATUS OF REVERSE MORTGAGE LOAN UNDER PUBLIC
6-50 ASSISTANCE PROGRAM. For the purposes of determining eligibility
6-51 under any statute relating to payments, allowance, benefits, or
6-52 services provided on a means-tested basis by this state, including
6-53 supplemental security income, low-income energy assistance,
6-54 property tax relief, medical assistance, and general assistance:
6-55 (1) reverse mortgage loan advances made to a borrower
6-56 are considered proceeds from a loan and not income; and
6-57 (2) undisbursed funds under a reverse mortgage loan
6-58 are considered equity in a borrower's home and not proceeds from a
6-59 loan.
6-60 Art. 5A.20. REVERSE MORTGAGE LOAN INFORMATION AND
6-61 COUNSELING. A lender may not make a reverse mortgage commitment
6-62 unless the loan applicant attests in writing that the applicant
6-63 received from the lender, at the time the notice is required by
6-64 Article 5A.13 of this title, a statement prepared by the Consumer
6-65 Credit Commissioner regarding the advisability and availability of
6-66 independent information and counseling services on reverse
6-67 mortgages. The Consumer Credit Commissioner shall:
6-68 (1) develop the content and format of the statement;
6-69 (2) provide independent consumer information on
7-1 reverse mortgages and their alternatives; and
7-2 (3) refer consumers to independent counseling services
7-3 with expertise in reverse mortgages.
7-4 Art. 5A.21. INTEREST. A lender may contract for and receive
7-5 on an equity loan any fixed or variable rate of interest that does
7-6 not exceed the maximum rate of interest authorized under Article
7-7 1.04 of this title or under any other state or federal statute
7-8 authorizing the lender to contract for a rate of interest.
7-9 Interest shall be accrued and earned by applying the simple annual
7-10 interest rate or rates under the loan contract to the principal
7-11 balance, which may include unpaid interest and additions to
7-12 principal authorized by the loan contract. In determining the
7-13 amount of interest accrued, the lender may assume that the payments
7-14 have been made as originally scheduled and ignore any difference
7-15 created by late or early payments. Although payment of principal
7-16 or interest shall not be required under a reverse mortgage until
7-17 the entire loan becomes due and payable, interest may accrue and be
7-18 compounded during the term of the loan as provided by the reverse
7-19 mortgage loan agreement.
7-20 Art. 5A.22. CLOSED-END EQUITY LOANS. (a) Each closed-end
7-21 equity loan shall be scheduled to be repaid in substantially equal
7-22 successive monthly installments, except that the first installment
7-23 may be scheduled beyond one month from the date of the loan but not
7-24 beyond two months from the date of the loan.
7-25 (b) The amount of each installment under the schedule of
7-26 payments for a closed-end equity loan shall equal or exceed the
7-27 amount of interest scheduled to accrue as of the date of the
7-28 installment or that would accrue as of the installment date through
7-29 amortization of the loan on the date of the loan.
7-30 Art. 5A.23. CHARGES AND FEES. A contract for an equity loan
7-31 may permit a lender to collect the following fees and charges in
7-32 connection with the loan:
7-33 (1) a reasonable expense or cost paid, or that will be
7-34 paid, to a third party that is not an employee or affiliate of the
7-35 lender if the expense or cost:
7-36 (A) is for an abstract, a title report,
7-37 attorney's fees for a legal opinion or document preparation, a
7-38 courier fee or express mail service fee actually incurred, a tax
7-39 certificate charged actually incurred, a title insurance premium,
7-40 an escrow fee that does not violate Section 8, Real Estate
7-41 Settlement Procedures Act (12 U.S.C. Section 2607), and is imposed
7-42 by a title insurance company, title insurance agent, or direct
7-43 operation, an escrow for future payments of taxes and insurance, an
7-44 annuity, an appraisal or evaluation, a survey, or a credit report;
7-45 or
7-46 (B) is actually incurred in the making or
7-47 servicing of an equity loan and necessary or proper for the
7-48 protection of the lender;
7-49 (2) a fee prescribed by law paid, or that will be
7-50 paid, to a public official for determining the existence of or for
7-51 recording any documents in connection with the closing of an equity
7-52 loan;
7-53 (3) a bona fide commitment fee for the separate
7-54 consideration of committing to make an equity loan in the future;
7-55 (4) any other fee required by federal statute;
7-56 (5) a reasonable fee or charge paid to the trustee in
7-57 connection with a deed of trust or similar instrument executed in
7-58 connection with the equity loan, including a fee for enforcing the
7-59 lien or for posting for sale, selling, or releasing the property
7-60 secured by the deed of trust;
7-61 (6) a reasonable fee paid to an attorney who is not an
7-62 employee of the lender in the collection of a delinquent equity
7-63 loan and any court cost or fee incurred in the collection or
7-64 foreclosure of a lien created by the loan;
7-65 (7) a fee not to exceed the amount permitted by law
7-66 for the return by a depository institution of a dishonored check,
7-67 negotiable order of withdrawal, share draft, or deposit draft
7-68 offered in full or partial payment of an equity loan;
7-69 (8) a late charge or penalty, if all or part of a
8-1 scheduled payment continues unpaid for 15 or more days after the
8-2 date the payment was due, except that:
8-3 (A) only one late charge or penalty authorized
8-4 by this article may be charged for each scheduled payment that is
8-5 past due; and
8-6 (B) the late charge or penalty may not exceed
8-7 five percent of the unpaid amount of the scheduled payment that is
8-8 past due; and
8-9 (9) the premiums received in connection with the sale
8-10 of insurance as provided by Article 5A.24 of this title.
8-11 Art. 5A.24. INSURANCE. (a) Under an equity loan, a lender
8-12 may request or require a borrower to provide insurance:
8-13 (1) in the amounts and under the conditions that apply
8-14 to secondary mortgage loans as provided by Articles 5.02 and 5.03
8-15 of this title;
8-16 (2) in the amounts and under the terms and conditions
8-17 of:
8-18 (A) the home equity conversion mortgage
8-19 insurance program under the Housing and Community Development Act
8-20 of 1987 (Pub. L. No. 100-242);
8-21 (B) Section 255, National Housing Act (12 U.S.C.
8-22 Section 1715z-20); and
8-23 (C) 24 C.F.R. Part 206; and
8-24 (3) in the amounts and under the terms and conditions
8-25 provided for by any state or federal statute authorizing or
8-26 requiring any type of insurance relating to a loan or other
8-27 extension of credit, including insurance authorized under Chapters
8-28 3, 4, 5, and 15 of this title.
8-29 (b) Premiums for insurance under this article may be added
8-30 to the loan contract.
8-31 Art. 5A.25. LENDER'S DUTY TO BORROWER. (a) The lender
8-32 under an equity loan shall deliver to the borrower, or to one of
8-33 the borrowers if there are more than one, a copy of the note or the
8-34 contract for an open-end account, a copy of all other documents
8-35 signed by the borrower or borrowers, and a written statement of:
8-36 (1) the name and address of each borrower and of the
8-37 lender; and
8-38 (2) each type of insurance, if any, for which a charge
8-39 to a borrower is included in the loan agreement and the amount of
8-40 the charge for the insurance.
8-41 (b) If the note or another loan document contains the
8-42 information required by Subsection (a) of this article, a copy of
8-43 the note or document may be delivered to the borrower rather than
8-44 the separate written statement.
8-45 (c) If requested by the borrower, the lender shall give a
8-46 receipt to a person making a cash payment on an equity loan.
8-47 (d) Except as prohibited by Articles 1.07 and 5A.16 of this
8-48 title or by applicable federal law, a prepayment fee, charge, or
8-49 penalty may be collected on an equity loan.
8-50 (e) On termination and full payment of an equity loan, the
8-51 holder shall within a reasonable time:
8-52 (1) cancel and return any note to the borrower and
8-53 give the borrower a release of any mortgage, deed of trust,
8-54 security instrument, or other instrument securing the loan; or
8-55 (2) endorse the note and assign any mortgage, deed of
8-56 trust, or other security instrument to a refinancing lender who
8-57 advances funds to discharge the equity loan indebtedness at the
8-58 request of the borrower and in renewal and extension of the
8-59 security instrument.
8-60 Art. 5A.26. PROHIBITED PRACTICES. (a) A lender may not
8-61 accept an assignment of wages as security for a loan made under
8-62 this chapter.
8-63 (b) In connection with an equity loan, a lender may not
8-64 accept a confession of judgment or power of attorney running to the
8-65 lender or to a third person to confess judgment or to appear for a
8-66 borrower in a judicial proceeding.
8-67 (c) A lender may not accept an instrument in which blanks
8-68 are left to be filled in after an equity loan is executed.
8-69 Art. 5A.27. OWNER ACKNOWLEDGMENT. A lienholder or assignee
9-1 for value may conclusively rely on an acknowledgment by the owner
9-2 of homestead property and the owner's spouse, if the owner is
9-3 married, of compliance with applicable requirements for an equity
9-4 loan secured by a mortgage, trust deed, or other lien on a
9-5 homestead.
9-6 Art. 5A.28. REPORT BY LENDERS. (a) Before March 1 of each
9-7 year, a lender that makes an equity loan shall submit to the
9-8 director of the division of access to financial services a report
9-9 of the lender's home equity loan activity during the calendar year
9-10 preceding the year the report is submitted. For each home equity
9-11 loan for which the lender received an application, the report must
9-12 state the primary purpose of the loan, whether the loan was
9-13 granted, and the applicant's income and census tract. The director
9-14 of the division of access to financial services may set and collect
9-15 from the lender a reasonable filing fee in connection with the
9-16 submission of the report in an amount necessary and reasonable to
9-17 enable the director of the division of access to financial services
9-18 to carry out this article.
9-19 (b) The director of the division of access to financial
9-20 services may accept a copy of a report submitted by the lender to a
9-21 federal agency instead of the report required under Subsection (a)
9-22 of this article if the report submitted to the federal agency
9-23 contains the information required for a report under Subsection (a)
9-24 of this article.
9-25 (c) A lender that does not make a home equity loan during
9-26 the period covered by a report is not required to submit the
9-27 report.
9-28 Art. 5A.29. EQUITY LOAN RECOVERY FUND. (a) The Consumer
9-29 Credit Commissioner shall establish and maintain an equity loan
9-30 recovery fund. Money in the fund shall be used for reimbursing
9-31 aggrieved persons who suffer actual damages that:
9-32 (1) result from misrepresentation, dishonesty, or
9-33 fraud committed by an authorized lender in the course of making an
9-34 equity loan; and
9-35 (2) are ordered by a court against a lender that the
9-36 court determines is unable to make the payment.
9-37 (b) An action for a judgment that subsequently results in an
9-38 order for collection from the equity loan recovery fund may not be
9-39 started later than two years after the date of accrual of the cause
9-40 of action.
9-41 (c) Money received by the Consumer Credit Commissioner for
9-42 deposit in the equity loan recovery fund shall be held by the
9-43 Consumer Credit Commissioner in trust for carrying out the purposes
9-44 of the fund.
9-45 (d) The finance commission shall establish and collect
9-46 reasonable and necessary fees from each authorized lender for each
9-47 home equity loan originated by the lender to accomplish the
9-48 purposes of this article. Fees collected shall be deposited into
9-49 the fund.
9-50 (e) The finance commission shall adopt rules necessary to
9-51 implement this article.
9-52 SECTION 3. Chapter 2, Title 79, Revised Statutes (Article
9-53 5069-2.01 et seq., Vernon's Texas Civil Statutes), is amended by
9-54 adding Articles 2.02E and 2.02F to read as follows:
9-55 Art. 2.02E. DIVISION OF ACCESS TO FINANCIAL SERVICES.
9-56 (a) The division of access to financial services is created in the
9-57 Office of Consumer Credit Commissioner to inform, monitor, and
9-58 report on the availability and quality of home equity loans,
9-59 including equity loans offered by lenders in the state to
9-60 agricultural businesses, small businesses, and individual consumers
9-61 in the state.
9-62 (b) The division shall be administered by a director
9-63 appointed by the Consumer Credit Commissioner.
9-64 (c) The director shall adequately staff the division to
9-65 carry out the division's functions under this article.
9-66 (d) The division shall:
9-67 (1) conduct research on the effect of equity lending
9-68 on the availability, quality, and cost of equity loans for
9-69 agricultural businesses, small businesses, and individual consumers
10-1 in various regions of the state;
10-2 (2) conduct research on the effect of the practices of
10-3 business entities in the state that provide equity loans to
10-4 agricultural businesses, small businesses, and individual consumers
10-5 in the state;
10-6 (3) conduct a public information campaign to provide
10-7 low-income and elderly consumers with information and counseling
10-8 about the benefits and liabilities associated with equity loans;
10-9 (4) compile a summary of the information received from
10-10 each lender under Article 5A.28 of this title, including an
10-11 analysis of census tract demographic data, to produce reports on
10-12 equity-lending patterns with regard to the rate of application and
10-13 loan acceptance by income and census tract of the home; and
10-14 (5) not later than December 1 of each even-numbered
10-15 year, provide to the legislature a report detailing the findings of
10-16 the division and recommending any action the division believes is
10-17 necessary to protect consumers with respect to equity lending.
10-18 (e) The division shall prepare information of public
10-19 interest describing the functions of the division and make the
10-20 information available to the public and appropriate state and
10-21 federal agencies.
10-22 (f) The division may:
10-23 (1) apply for and receive public and private grants
10-24 and gifts; and
10-25 (2) contract with public and private entities to carry
10-26 out studies and analyses under this article.
10-27 (g) The Consumer Credit Commissioner shall establish and
10-28 collect reasonable and necessary fees to accomplish the purposes of
10-29 this article.
10-30 Art. 2.02F. STUDY AND REPORT; EQUITY LOANS. (a) After May
10-31 1, 2000, the director of the division of access to financial
10-32 services shall conduct a study of equity lending under Chapter 5A
10-33 of this title.
10-34 (b) Before January 1, 2001, the director of the division of
10-35 access to financial services shall submit a report on its study to
10-36 the governor, lieutenant governor, and speaker of the house of
10-37 representatives. The report must include:
10-38 (1) a summary of the information received by the
10-39 director of the division of access to financial services under
10-40 Article 5A.28 of this title;
10-41 (2) an analysis of the effectiveness of the provisions
10-42 of Chapter 5A of this title; and
10-43 (3) other information the director of the division of
10-44 access to financial services considers relevant to the regulation
10-45 of equity loans.
10-46 (c) This section expires January 2, 2001.
10-47 SECTION 4. Article 9.02, Insurance Code, is amended by
10-48 adding Subsection (r) to read as follows:
10-49 (r) "Equity loan mortgagee policy" means a mortgagee policy
10-50 of title insurance that insures the validity and priority of a
10-51 security interest in homestead property securing an equity loan, as
10-52 defined by Article 5A.01, Title 79, Revised Statutes (Article
10-53 5069-5A.01, Vernon's Texas Civil Statutes).
10-54 SECTION 5. Article 9.07, Insurance Code, is amended by
10-55 adding Subsection (g) to read as follows:
10-56 (g) The commissioner shall promulgate an endorsement that
10-57 must be attached to an equity loan mortgagee policy. The
10-58 endorsement must insure the priority of future advances made in
10-59 accordance with the document creating the security interest and
10-60 applicable law, subject to any legal limits on priority and to the
10-61 other terms of the policy. The endorsement must insure the
10-62 validity of the security interest, subject to the terms of the
10-63 policy and to an exclusion for compliance by the lender with any
10-64 constitutional or statutory requirements for, and limitations on,
10-65 equity loans secured by a security interest in a homestead. The
10-66 endorsement must affirmatively insure against invalidity of the
10-67 security interest because of the failure of each owner and the
10-68 spouse of each owner to join in the document creating the security
10-69 interest. The commissioner may promulgate other policies and
11-1 endorsements relating to an equity loan security interest in a
11-2 homestead.
11-3 SECTION 6. This Act takes effect January 1, 1998, but only
11-4 if the constitutional amendment proposed by __J.R. No. __, Acts of
11-5 the 75th Legislature, Regular Session, 1997, allowing voluntary,
11-6 consensual encumbrances on homestead property for the purpose of
11-7 equity loans, is approved by the voters. If that amendment is not
11-8 approved by the voters, this Act has no effect.
11-9 SECTION 7. The importance of this legislation and the
11-10 crowded condition of the calendars in both houses create an
11-11 emergency and an imperative public necessity that the
11-12 constitutional rule requiring bills to be read on three several
11-13 days in each house be suspended, and this rule is hereby suspended.
11-14 * * * * *