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.