HBA-TYH C.S.S.J.R. 12 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.S.J.R. 12 By: Carona Financial Institutions 5/10/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Currently, the Texas Constitution authorizes senior citizens to obtain a reverse mortgage. Generally, a reverse mortgage, under current law, allows a senior citizen to receive an extension of credit by mortgaging the credit against the person's homestead without paying the credit until the person dies. As proposed, C.S.S.J.R. 12 requires the submission to the voters of a constitutional amendment relating to the making of advances under a reverse mortgage and payment of a reverse mortgage. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority previously delegated to the Texas Supreme Court is modified in SECTION 1 (Section 50, Article XVI, Texas Constitution) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Subsections (k), (p), and (r), Section 50, Article XVI, Texas Constitution, as follows: (k) Defines "reverse mortgage" as an extension of credit: (1) Makes no change; (2) that is made to a person who is or whose spouse is 62, rather than 55, years or older; (3)-(5) Makes no change; (6) that requires no payment of principal or interest until all borrowers have died, the homestead property securing the loan is sold or transferred, all borrowers cease occupying the homestead property for a period of longer than 12 consecutive months without prior written approval from the lender, rather than for 180 consecutive days and the location of the homestead property owner is unknown to the lender; or the borrower commits one of the enumerated violations; and (7) that provides that if the lender fails to make loan advances as required in the loan documents and if the lender fails to cure the default as required in the loan documents after notice from the borrower, the lender forfeits all principal and interest of the reverse mortgage; (8) Makes a conforming change; (9) that requires the lender, at the time the loan is made, to disclose to the borrower by written notice the specific provisions contained in Subdivision (6) under which the borrower is required to repay the loan; (10) that does not permit the lender to commence foreclosure until the lender gives written notice to the borrower that a ground for foreclosure exists and gives the borrower at least 30 days, or at least 20 days in the event of a default under Subdivision (6)(D)(iii), to carry out the enumerated actions to remedy the default leading to the foreclosure; and (11) that is secured by a lien that may be foreclosed upon only by a court order, if the foreclosure is for a ground other than a ground stated by Subdivision (6)(A) or (B). (p) Provides that the advances made on a reverse mortgage loan under which more than one advance is made must be made according to the terms established by the loan documents by one or more of the specified methods, rather than providing that an advance made must be made at regular intervals according to a plan established by the original loan agreement. (r) Requires the supreme court to promulgate rules of civil procedure for expedited foreclosure proceedings related to foreclosure of a reverse mortgage lien that requires a court order. SECTION 2. Requires this proposed constitutional amendment to be submitted to the voters at an election to be held on November 2, 1999. Sets forth the required language for the ballot. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute modifies the original bill in SECTION 1 (Section 50(k), Article XVI, Texas Constitution) by making conforming changes and other changes, as follows: (k)(1)-(3) Makes no change; (4) Removes the provision permitting advances to be based on "the value of the borrower's homestead;" (5) Makes no change; (6) Adds new provisions to provide that a reverse mortgage means an extension of credit that requires no payment of principal or interest until: _borrowers cease to occupying the property for more than 12 consecutive months without prior written approval of the lender, rather than simply cease occupying the property for more than 12 consecutive months; or; _the borrower fails to pay assessments, as well as taxes, or maintain the priority of the lender's lien on the homestead property by promptly discharging any lien that has priority or may obtain priority over the lender's lien within 10 days after the date the borrower receives the notice, unless borrower performs enumerated actions related to reconciling the lien; (7)-(8) Makes no change; (9) New subdivision. Provides that a reverse mortgage is an extension of credit that requires the lender, at the time the loan is made, to disclose to the borrower by written notice the specific provisions contained in Subdivision (6) under which the borrower is required to repay the loan; (10) New subdivision. Provides that a reverse mortgage is an extension of credit that does not permit the lender to commence foreclosure until the lender gives written notice to the borrower that a ground for foreclosure exists and gives the borrower at least 30 days, or at least 20 days in the event of a default under Subdivision (6)(D)(iii), to carry out the enumerated actions to remedy the default leading to the foreclosure; and (11) New subdivision. Provides that a reverse mortgage is an extension of credit that is secured by a lien that may be foreclosed upon only by a court order, if the foreclosure is for a ground other than a ground stated by Subdivision (6)(A) or (B). The substitute modifies the original bill in SECTION 1 (Section 50(p), Article XVI, Texas Constitution) by adding the following methods to provide that reverse mortgage advances must be made at regular intervals or: _at regular intervals in which the amounts advanced may be reduced, for one or more advances, at the request of the borrower; or _at any time by the lender, on behalf of the borrower, if the borrower fails to timely pay any of the enumerated items for which the borrower is obligated to protect the lender's interest in or the value of the homestead property. The substitute modifies the original bill in SECTION 1 by amending Section 50(r), Article XVI, Texas Constitution to require the supreme court to promulgate rules of civil procedure for expedited foreclosure proceedings related to the foreclosure of liens under Subdivision (a)(6) and to foreclosure of a reverse mortgage lien that requires a court order. Subsection (r) was not addressed by the original resolution.