By Nixon                                         S.B. No. 214

      75R1979 DWS-F                           

                                A BILL TO BE ENTITLED

 1-1                                   AN ACT

 1-2     relating to a voluntary, consensual encumbrance on a business

 1-3     homestead 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 on a business homestead as provided

1-24     by Section 41.008.

 2-1           SECTION 2.  Subchapter A, Chapter 41, Property Code, is

 2-2     amended by adding Section 41.008 to read as follows:

 2-3           Sec. 41.008.  EQUITY LOAN ON BUSINESS HOMESTEAD.  (a)  An

 2-4     equity loan may not be secured by a homestead other than a business

 2-5     homestead. A lender may not require or accept a borrower's

 2-6     homestead, regardless of whether the homestead was previously

 2-7     encumbered by an existing equity loan, as collateral on a debt not

 2-8     described by Section 41.001(b).

 2-9           (b)  A lender may not accelerate the remaining payments of an

2-10     equity loan or demand payment of the loan in full because of a

2-11     decrease in the market value of the business homestead securing the

2-12     equity loan, unless the decrease in the market value is caused by

2-13     substantial damage or destruction to the homestead, a condemnation

2-14     or other taking of the homestead, the discovery of an environmental

2-15     hazard on the homestead, or the use of the homestead in a manner

2-16     that constitutes waste on the homestead or a nuisance.  This

2-17     section does not prohibit a lender, if permitted by the loan

2-18     documents, from refusing to make additional advances under an

2-19     equity loan, other than a reverse mortgage, if the value of the

2-20     homestead decreases, regardless of the cause of the decrease.

2-21           (c)  A lender may not accelerate the remaining payments of an

2-22     equity loan or demand payment of the loan in full because of the

2-23     borrower's default under any other indebtedness not secured by a

2-24     prior valid encumbrance on the business homestead, regardless of

2-25     whether the indebtedness is owed to the lender.  This section does

2-26     not prohibit a lender, if permitted by the loan documents, from

2-27     refusing to make additional advances under an equity loan, other

 3-1     than a reverse mortgage, if the borrower has defaulted in the

 3-2     performance or payment of another indebtedness owed to the lender

 3-3     or another creditor.

 3-4           (d)  The principal amount of an equity loan plus the

 3-5     aggregate total of the outstanding balances of other indebtedness

 3-6     secured by valid encumbrances of record against the business

 3-7     homestead may not exceed 90 percent of the fair market value of the

 3-8     homestead on the date the equity loan is made.

 3-9           (e)  In this section:

3-10                 (1)  "Business homestead" means a homestead used

3-11     exclusively for business purposes.

3-12                 (2)  "Equity loan" means a loan made for a purpose

3-13     other than a purpose listed in Section 41.001(b)(1)-(5).

3-14                 (3)  "Reverse mortgage" means a nonrecourse equity

3-15     loan:

3-16                       (A)  under which advances are provided to a

3-17     borrower based on the equity in a borrower's business homestead;

3-18     and

3-19                       (B)  that requires no payment of principal or

3-20     interest until the entire loan becomes due and payable.

3-21           SECTION 3.  This Act takes effect May 1, 1998, but only if

3-22     the constitutional amendment proposed by   J.R. No.   , 75th

3-23     Legislature, Regular Session, 1997, allowing voluntary, consensual

3-24     encumbrances on a business homestead for the purpose of equity

3-25     loans, is approved by the voters.  If that amendment is not

3-26     approved by the voters, this Act has no effect.

3-27           SECTION 4.  The importance of this legislation and the

 4-1     crowded condition of the calendars in both houses create an

 4-2     emergency and an imperative public necessity that the

 4-3     constitutional rule requiring bills to be read on three several

 4-4     days in each house be suspended, and this rule is hereby suspended.