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.