Bill not drafted by TLC or Senate E&E.
Line and page numbers may not match official copy.
By: Harris S.J.R. No. 13
SENATE JOINT RESOLUTION
1-1 proposing a constitutional amendment authorizing a voluntary
1-2 consensual encumbrance on homestead property for the purpose of an
1-3 equity loan.
1-4 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 50, Article XVI, Texas Constitution is
1-6 amended to read as follows:
1-7 Sec. 50. (a) The homestead of a family, or of a single
1-8 adult person, shall be, and is hereby protected from forced sale,
1-9 for the payment of all debts except for:
1-10 (1) the purchase money thereof, or a part of such
1-11 purchase money;[,]
1-12 (2) the taxes due thereon;[,]
1-13 (3) an owelty of partition imposed against the
1-14 entirety of the property by a court order or a written agreement of
1-15 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;[,]
1-18 (4) 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;
1-22 (5) [, or for] work and material used in constructing
1-23 improvements thereon, if [and in this last case only when] the work
1-24 and material are contracted for in writing, with the consent of
2-1 both spouses, in the case of a family homestead, given in the same
2-2 manner as is required in making a sale and conveyance of the
2-3 homestead; or
2-4 (6) an equity loan.
2-5 (b) An [nor may the] owner or claimant of the property
2-6 claimed as homestead may not [, if married,] sell or abandon the
2-7 homestead without the consent of each owner and the [other] spouse
2-8 of each owner, given in such manner as may be prescribed by law.
2-9 (c) No mortgage, trust deed, or other lien on the homestead
2-10 shall ever be valid unless it secures a debt described by this
2-11 section [, except for a debt described by this section], whether
2-12 such mortgage, [or] trust deed, or other lien, shall have been
2-13 created by the owner alone, or together with his or her spouse, in
2-14 case the owner is married. All pretended sales of the homestead
2-15 involving any condition of defeasance shall be void.
2-16 (d) A purchaser or lender for value without actual knowledge
2-17 may conclusively rely on an affidavit that designates other
2-18 property as the homestead of the affiant and that states that the
2-19 property to be conveyed or encumbered is not the homestead of the
2-20 affiant.
2-21 (e) At the time the borrower first requests a lender to make
2-22 an equity loan, the lender of an equity loan must provide to the
2-23 borrower the following written notice in conspicuous bold
2-24 capitalized type:
2-25 "YOU ARE PLEDGING YOUR HOMESTEAD AS COLLATERAL TO SECURE
3-1 PAYMENT OF A LOAN. IF YOU DO NOT REPAY THE LOAN OR IF YOU FAIL TO
3-2 MEET THE TERMS OF THE LOAN, THE LENDER MAY FORECLOSE AND SELL YOUR
3-3 HOME. THE LENDER MUST GIVE YOU A COPY OF ALL DOCUMENTS YOU SIGN.
3-4 WHEN YOU PAY THE LOAN OFF, THE LENDER MUST CANCEL AND RETURN THE
3-5 NOTE TO YOU OR ASSIGN IT TO THE PERSON PAYING OFF THE LOAN."
3-6 "THE LENDER MAY NOT: (1) DEMAND THAT YOU PAY OFF THE LOAN
3-7 EARLIER THAN YOU AGREED IF THE VALUE OF YOUR HOME DECREASES OR IF
3-8 YOU DO NOT PAY SOME OTHER LOAN THAT IS NOT SECURED BY YOUR HOME;
3-9 (2) SEEK RECOURSE AGAINST YOU OR TAKE ANY ASSETS OTHER THAN YOUR
3-10 HOME IF YOU DO NOT REPAY THE LOAN OR MEET THE TERMS OF THE LOAN;
3-11 (3) FORECLOSE WITHOUT A COURT ORDER; (4) ESTABLISH AN OPEN LINE OF
3-12 CREDIT TO ACCESS THE LOAN, UNLESS THE LOAN IS MADE FOR EDUCATIONAL
3-13 OR MEDICAL PURPOSES OR IS A REVERSE MORTGAGE; (5) REQUIRE THAT YOU
3-14 USE THE LOAN TO PAY OFF ANOTHER LOAN THAT IS NOT SECURED BY YOUR
3-15 HOME; (6) CLOSE BEFORE 12 DAYS AFTER YOU APPLIED FOR THE LOAN;
3-16 (7) CHARGE YOU A PENALTY IF YOU REPAY THE LOAN IN ADVANCE;
3-17 (8) REQUIRE YOU TO PAY FEES, OTHER THAN INTEREST, THAT EXCEED, IN
3-18 THE AGGREGATE: 3% OF THE LOAN AMOUNT IF THIS LOAN IS A FIRST LIEN
3-19 OR 5% IF THIS LOAN IS NOT A FIRST LIEN; (9) ACCEPT AN ASSIGNMENT OF
3-20 WAGES AS SECURITY FOR THE LOAN; (10) ACCEPT A CONFESSION OF
3-21 JUDGMENT OR POWER OF ATTORNEY TO APPEAR FOR YOU AT A JUDICIAL
3-22 PROCEEDING; OR (11) ACCEPT AN INSTRUMENT WHICH YOU HAVE SIGNED THAT
3-23 HAS BLANKS LEFT TO BE FILLED IN."
3-24 "IF YOU CHANGE YOUR MIND ABOUT THIS LOAN, YOU HAVE AT LEAST
3-25 FIVE DAYS AFTER YOU SIGN THE LOAN DOCUMENTS TO NOTIFY THE LENDER
4-1 THAT YOU HAVE CHANGED YOUR MIND AND YOU WILL HAVE NO FURTHER
4-2 OBLIGATION TO THE LENDER. THIS LOAN MAY BE CLOSED ONLY AT THE
4-3 OFFICE OF THE LENDER, A TITLE COMPANY, OR AN ATTORNEY. THE LENDER
4-4 MAY FORFEIT THE RIGHT TO COLLECT THE LOAN IF THE LENDER DOES NOT
4-5 COMPLY WITH THE LAW GOVERNING EQUITY LOANS."
4-6 "THIS LOAN MAY BE MADE ONLY WITH THE VOLUNTARY CONSENT OF
4-7 EACH OWNER OF YOUR HOME AND EACH OWNER'S SPOUSE. THIS LOAN IS
4-8 WITHOUT PERSONAL LIABILITY AND MAY ONLY BE MADE BY A LAWFULLY
4-9 AUTHORIZED LENDER. THIS LOAN MAY NOT BE SECURED BY YOUR HOME IF:
4-10 (1) YOUR HOME IS DESIGNATED FOR AGRICULTURAL USE FOR TAX PURPOSES;
4-11 (2) YOUR HOME IS SECURITY FOR ANOTHER EQUITY LOAN THAT IS NOT A
4-12 FIRST LIEN; OR (3) IF THE LOAN IS TO BE SECURED WITH PROPERTY OTHER
4-13 THAN YOUR HOME. ALL THE DEBTS AGAINST YOUR HOME, INCLUDING THE
4-14 EQUITY LOAN, MAY NOT EXCEED 80 PERCENT OF THE VALUE OF YOUR HOME AT
4-15 THE TIME YOU APPLY FOR THIS LOAN. UNLESS THIS LOAN IS A REVERSE
4-16 MORTGAGE, IT MUST BE SCHEDULED TO BE REPAID IN EQUAL MONTHLY
4-17 INSTALLMENTS BEGINNING NO LATER THAN TWO MONTHS FROM THE DATE OF
4-18 THE LOAN, AND THE PAYMENTS MUST COVER, AT A MINIMUM, THE INTEREST
4-19 ACCRUED IN THE PAYMENT PERIOD."
4-20 (f) A lender or any holder of an equity loan must:
4-21 (1) deliver to the borrower a copy of the promissory
4-22 note and all other documents signed by the borrower related to the
4-23 equity loan;
4-24 (2) disclose in any mortgage, deed of trust, security
4-25 instrument, or other instrument securing the loan that the loan is
5-1 an equity loan made under the authority of this section and the
5-2 purpose or purposes under Subdivision (4) of Subsection (k) of this
5-3 section for which the equity loan is made; and
5-4 (3) within a reasonable time after termination and
5-5 full payment of the equity loan:
5-6 (a) cancel and return the note to the borrower
5-7 and give the borrower a release of any mortgage, deed of trust,
5-8 security instrument, or other instrument securing the loan; or
5-9 (b) endorse the note and assign any mortgage,
5-10 deed of trust, or other security instrument to a lender that is
5-11 refinancing the loan who is advancing funds to discharge the equity
5-12 loan indebtedness at the request of the borrower and in renewal and
5-13 extension of the security instrument.
5-14 (g) A lender or any holder of an equity loan may not:
5-15 (1) demand payment of or accelerate the remaining
5-16 payments of any equity loan because of a decrease in the market
5-17 value of the homestead or because of the borrower's default under
5-18 any other indebtedness not secured by a prior valid encumbrance on
5-19 the homestead;
5-20 (2) seek recourse against or expose the assets of a
5-21 borrower other than the property securing the equity loan for
5-22 failure to meet an obligation of the equity loan;
5-23 (3) foreclose the equity loan without a court judgment
5-24 foreclosing the lien and ordering the sale of the security of the
5-25 equity loan;
6-1 (4) establish a form of open-end account that may be
6-2 debited from time to time, unless the equity loan is made for the
6-3 purposes stated in Subdivision (4)(a), (4)(b), or (4)(c) of
6-4 Subsection (k) of this section;
6-5 (5) require the borrower to apply the proceeds of the
6-6 equity loan to repay another debt that is not secured by the
6-7 homestead;
6-8 (6) close the equity loan before the 12th day after
6-9 the date the lender receives a completed application for the equity
6-10 loan;
6-11 (7) charge a penalty for advance payments made by the
6-12 borrower;
6-13 (8) require the borrower to pay, in addition to any
6-14 interest, fees to the lender or any other person that are necessary
6-15 to originate, evaluate, maintain, record, insure, service, or
6-16 enforce the loan that exceed, in the aggregate:
6-17 (a) 3 percent of the original amount of the
6-18 equity loan if the equity loan is the first and only lien secured
6-19 by the homestead at closing; or
6-20 (b) 5 percent of the original amount of the
6-21 equity loan if the equity loan is not the first and only lien
6-22 secured by the homestead at closing.
6-23 (9) accept an assignment of wages as security for the
6-24 loan;
6-25 (10) accept a confession of judgment or power of
7-1 attorney running to the lender or to a third person to confess
7-2 judgment or to appear for a borrower in a judicial proceeding;
7-3 and/or
7-4 (11) accept an instrument in which blanks are left to
7-5 be filled in by the borrower.
7-6 (h) Any owner and any spouse of any owner of the homestead
7-7 property securing an equity loan, within five days after the lender
7-8 closes the equity loan, may rescind the equity loan without
7-9 penalty.
7-10 (i) An equity loan may close only at an office of the
7-11 lender, a title company, or an attorney licensed to practice law in
7-12 this state.
7-13 (j) A lender or holder of an equity loan shall forfeit all
7-14 principal and interest of the equity loan, and shall pay reasonable
7-15 attorney fees set by the court, if the lender:
7-16 (1) fails to make loan advances as required by the
7-17 equity loan documents and if the lender fails to cure the default
7-18 within a reasonable time after receiving notice of the default; or
7-19 (2) fails to comply with this section within a
7-20 reasonable time after receiving notice of its failure to comply.
7-21 (k) "Equity loan" means an extension of credit, under a
7-22 written agreement, that:
7-23 (1) is secured by a voluntary lien on a homestead or
7-24 other consensual security interest in a homestead;
7-25 (2) is created with the consent of each owner and the
8-1 spouse of each owner;
8-2 (3) is without recourse for personal liability against
8-3 each owner and the spouse of each owner;
8-4 (4) is made only for the purpose or purposes of:
8-5 (a) the lender directly paying an educational
8-6 institution for the education of the owner or a member of the
8-7 owner's family;
8-8 (b) the lender directly paying a medical
8-9 institution for medical treatment of the owner or a member of the
8-10 owner's family;
8-11 (c) making a reverse mortgage to the owner; or
8-12 (d) making an extension of credit that is the
8-13 only debt secured by the homestead and that requires any prior debt
8-14 secured by the homestead to be paid in full at or before the
8-15 closing of the equity loan;
8-16 (5) is made by:
8-17 (a) a bank, savings and loan association,
8-18 savings bank, or credit union doing business under the laws of this
8-19 state or the United States;
8-20 (b) a person approved as a mortgagee by the
8-21 United States government to make federally insured loans, as
8-22 determined by statute; or
8-23 (c) a person licensed to make regulated loans,
8-24 as provided by statute of this state;
8-25 (6) is not secured by homestead property that is
9-1 designated for agricultural use as provided by statutes governing
9-2 property tax;
9-3 (7) is not secured with property encumbered by a prior
9-4 duly recorded equity loan that is not the first lien secured by the
9-5 property;
9-6 (8) is not secured by any additional real or personal
9-7 property, other than the homestead;
9-8 (9) is not of a principal amount that, when added to
9-9 the aggregate total of the outstanding balance of all other
9-10 indebtedness against the homestead, equals a sum that exceeds 80
9-11 percent of the market value of the homestead property on the date
9-12 the borrower applies for the equity loan;
9-13 (10) is, except for reverse mortgages, scheduled to be
9-14 repaid in substantially equal successive monthly installments
9-15 beginning no later than two months from the date of the equity
9-16 loan; and
9-17 (11) requires, except for reverse mortgages, each
9-18 installment under the schedule of payments by the borrower to equal
9-19 or exceed the amount of interest scheduled to accrue as of the date
9-20 of the installment or that would accrue as of the installment date
9-21 through amortization of the equity loan on the date of the equity
9-22 loan.
9-23 (l) "Reverse mortgage" means a non-recourse loan:
9-24 (1) made to an owner who is 55 years of age or older;
9-25 (2) under which advances are provided to a borrower
10-1 based on the equity in a borrower's homestead;
10-2 (3) that does not permit the lender to reduce the
10-3 amount of or number of advances because of an adjustment in the
10-4 interest rate if periodic advances are to be made; and
10-5 (4) that requires no payment of principal or interest
10-6 until:
10-7 (a) the homestead property securing the loan is
10-8 sold; or
10-9 (b) all borrowers cease occupying the homestead
10-10 property as a principal residence for more than 180 days.
10-11 (m) "Family" means the owner, the owner's spouse, the
10-12 children or grandchildren of the owner or the owner's spouse, and
10-13 the parents of the owner or the owner's spouse.
10-14 (n) "Closing" means the execution by the borrower of a
10-15 promissory note and the security instruments securing the loan.
10-16 SECTION 2. The following temporary provision is added to the
10-17 Texas Constitution:
10-18 TEMPORARY PROVISION. (a) This temporary provision applies
10-19 to the constitutional amendment proposed by the 75th Legislature,
10-20 Regular Session, 1997, authorizing a voluntary, consensual
10-21 encumbrance on homestead property.
10-22 (b) The constitutional amendment takes effect May 1, 1998.
10-23 (c) This temporary provision takes effect on the adoption of
10-24 the amendment by the voters and expires May 2, 1998.
10-25 SECTION 3. This proposed constitutional amendment shall be
11-1 submitted to the voters at an election to be held November 4, 1997.
11-2 The ballot shall be printed to permit voting for or against the
11-3 proposition: "The amendment to the Texas Constitution expanding
11-4 the types of liens that a lender, with the homeowner's consent, may
11-5 place against a homestead property and against the equity in the
11-6 homestead. The purposes of such liens will be expanded from
11-7 purchase money, improvement, and tax purposes to additionally
11-8 include educational, medical, and reverse-mortgage purposes, as
11-9 well as any other purpose if only one lien is against the
11-10 homestead."