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.

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