1-1 By: Nixon S.B. No. 214
1-2 (In the Senate - Filed January 15, 1997; January 16, 1997,
1-3 read first time and referred to Committee on State Affairs;
1-4 March 19, 1997, reported adversely, with favorable Committee
1-5 Substitute; March 26, 1997, recommitted to Committee on State
1-6 Affairs; April 4, 1997, reported adversely, with favorable
1-7 Committee Substitute by the following vote: Yeas 13, Nays 0;
1-8 April 4, 1997, sent to printer.)
1-9 COMMITTEE SUBSTITUTE FOR S.B. No. 214 By: Nixon
1-10 A BILL TO BE ENTITLED
1-11 AN ACT
1-12 relating to a voluntary, consensual encumbrance on a business
1-13 homestead for the purpose of an equity loan.
1-14 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-15 SECTION 1. Subsection (b), Section 41.001, Property Code, is
1-16 amended to read as follows:
1-17 (b) Encumbrances may be properly fixed on homestead property
1-18 for:
1-19 (1) purchase money;
1-20 (2) taxes on the property;
1-21 (3) work and material used in constructing
1-22 improvements on the property if contracted for in writing as
1-23 provided by Sections 53.059(a), (b), and (c);
1-24 (4) an owelty of partition imposed against the
1-25 entirety of the property by a court order or by a written agreement
1-26 of the parties to the partition, including a debt of one spouse in
1-27 favor of the other spouse resulting from a division or an award of
1-28 a family homestead in a divorce proceeding; [or]
1-29 (5) the refinance of a lien against a homestead,
1-30 including a federal tax lien resulting from the tax debt of both
1-31 spouses, if the homestead is a family homestead, or from the tax
1-32 debt of the owner; or
1-33 (6) an equity loan on a business homestead as provided
1-34 by Section 41.008. An equity loan on a business may not be secured
1-35 by any homestead property that is designated for agricultural use
1-36 as provided by Subchapter C, Chapter 23, Tax Code.
1-37 SECTION 2. Subchapter A, Chapter 41, Property Code, is
1-38 amended by adding Section 41.008 to read as follows:
1-39 Sec. 41.008. EQUITY LOAN ON BUSINESS HOMESTEAD. (a) An
1-40 equity loan may not be secured by a homestead other than a business
1-41 homestead. A lender may not require or accept a borrower's
1-42 homestead, regardless of whether the homestead was previously
1-43 encumbered by an existing equity loan, as collateral on a debt not
1-44 described by Section 41.001(b).
1-45 (b) A lender may not accelerate the remaining payments of an
1-46 equity loan or demand payment of a loan in full because of a
1-47 decrease in the market value of the business homestead securing the
1-48 equity loan, unless the decrease in the market value is caused by
1-49 substantial damage or destruction to the homestead, a condemnation
1-50 or other taking of the homestead, the discovery of an environmental
1-51 hazard on the homestead, or the use of the homestead in a manner
1-52 that constitutes waste on the homestead or a nuisance. This
1-53 section does not prohibit a lender, if permitted by the loan
1-54 documents, from refusing to make additional advances under an
1-55 equity loan if the value of the homestead decreases, regardless of
1-56 the cause of the decrease.
1-57 (c) A lender may not accelerate the remaining payments of an
1-58 equity loan or demand payment of the loan in full because of the
1-59 borrower's default under any other indebtedness not secured by a
1-60 prior valid encumbrance on the business homestead, regardless of
1-61 whether the indebtedness is owed to the lender. This section does
1-62 not prohibit a lender, if permitted by the loan documents, from
1-63 refusing to make additional advances under an equity loan if the
1-64 borrower has defaulted in the performance or payment of another
2-1 indebtedness owed to the lender or another creditor.
2-2 (d) The principal amount of an equity loan plus the
2-3 aggregate total of the outstanding balances of other indebtedness
2-4 secured by valid encumbrances of record against the business
2-5 homestead may not exceed 90 percent of the fair market value of the
2-6 homestead on the date the equity loan is made.
2-7 (e) In this section:
2-8 (1) "Business homestead" means a homestead used
2-9 exclusively for business purposes. This term does not include
2-10 homestead property designated for agricultural use as provided by
2-11 Subchapter C, Chapter 23, Tax Code.
2-12 (2) "Equity loan" means a loan made for a purpose
2-13 other than a purpose listed in Section 41.001(b)(1)-(5).
2-14 SECTION 3. This Act takes effect May 1, 1998, but only if
2-15 the constitutional amendment proposed by S.J.R. No. 14, 75th
2-16 Legislature, Regular Session, 1997, allowing voluntary, consensual
2-17 encumbrances on a business homestead for the purpose of equity
2-18 loans is approved by the voters. If that amendment is not approved
2-19 by the voters, this Act has no effect.
2-20 SECTION 4. The importance of this legislation and the
2-21 crowded condition of the calendars in both houses create an
2-22 emergency and an imperative public necessity that the
2-23 constitutional rule requiring bills to be read on three several
2-24 days in each house be suspended, and this rule is hereby suspended.
2-25 * * * * *