By: Nixon S.B. No. 214
A BILL TO BE ENTITLED
AN ACT
1-1 relating to a voluntary, consensual encumbrance on a business
1-2 homestead 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 on a business homestead as provided
1-23 by Section 41.008. An equity loan on a business may not be secured
2-1 by any homestead property that is designated for agricultural use
2-2 as provided by Subchapter C, Chapter 23, Tax Code.
2-3 SECTION 2. Subchapter A, Chapter 41, Property Code, is
2-4 amended by adding Section 41.008 to read as follows:
2-5 Sec. 41.008. EQUITY LOAN ON BUSINESS HOMESTEAD. (a) An
2-6 equity loan may be secured by a business homestead. A lender may
2-7 not require or accept a borrower's homestead, regardless of whether
2-8 the homestead was previously encumbered by an existing equity loan,
2-9 as collateral on a debt not described by Section 41.001(b).
2-10 (b) A lender may not accelerate the remaining payments of an
2-11 equity loan or demand payment of a loan in full because of a
2-12 decrease in the market value of the business homestead securing the
2-13 equity loan, unless the decrease in the market value is caused by
2-14 substantial damage or destruction to the homestead, a condemnation
2-15 or other taking of the homestead, the discovery of an environmental
2-16 hazard on the homestead, or the use of the homestead in a manner
2-17 that constitutes waste on the homestead or a nuisance. This
2-18 section does not prohibit a lender, if permitted by the loan
2-19 documents, from refusing to make additional advances under an
2-20 equity loan if the value of the homestead decreases, regardless of
2-21 the cause of the decrease.
2-22 (c) A lender may not accelerate the remaining payments of an
2-23 equity loan or demand payment of the loan in full because of the
2-24 borrower's default under any other indebtedness not secured by a
2-25 prior valid encumbrance on the business homestead, regardless of
3-1 whether the indebtedness is owed to the lender. This section does
3-2 not prohibit a lender, if permitted by the loan documents, from
3-3 refusing to make additional advances under an equity loan if the
3-4 borrower has defaulted in the performance or payment of another
3-5 indebtedness owed to the lender or another creditor.
3-6 (d) The principal amount of an equity loan plus the
3-7 aggregate total of the outstanding balances of other indebtedness
3-8 secured by valid encumbrances of record against the business
3-9 homestead may not exceed 90 percent of the fair market value of the
3-10 homestead on the date the equity loan is made.
3-11 (e) In this section:
3-12 (1) "Business homestead" means a homestead used
3-13 exclusively for business purposes. This term does not include
3-14 homestead property designated for agricultural use as provided by
3-15 Subchapter C, Chapter 23, Tax Code.
3-16 (2) "Equity loan" means a loan made for a purpose
3-17 other than a purpose listed in Section 41.001(b)(1)-(5).
3-18 SECTION 3. This Act takes effect May 1, 1998, but only if
3-19 the constitutional amendment proposed by S.J.R. No. 14, 75th
3-20 Legislature, Regular Session, 1997, allowing voluntary, consensual
3-21 encumbrances on a business homestead for the purpose of equity
3-22 loans is approved by the voters. If that amendment is not approved
3-23 by the voters, this Act has no effect.
3-24 SECTION 4. The importance of this legislation and the
3-25 crowded condition of the calendars in both houses create an
4-1 emergency and an imperative public necessity that the
4-2 constitutional rule requiring bills to be read on three several
4-3 days in each house be suspended, and this rule is hereby suspended.