By Hartnett H.J.R. No. 20 76R1299 DWS-D A JOINT RESOLUTION 1-1 proposing a constitutional amendment relating to securing an equity 1-2 loan with a parcel of property containing an urban homestead and 1-3 real property adjoining the homestead. 1-4 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. Section 50(a), Article XVI, Texas Constitution, 1-6 is amended to read as follows: 1-7 (a) The homestead of a family, or of a single adult person, 1-8 shall be, and is hereby protected from forced sale, for the payment 1-9 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 by a written agreement 1-15 of 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) work and material used in constructing new 1-23 improvements thereon, if contracted for in writing, or work and 1-24 material used to repair or renovate existing improvements thereon 2-1 if: 2-2 (A) the work and material are contracted for in 2-3 writing, with the consent of both spouses, in the case of a family 2-4 homestead, given in the same manner as is required in making a sale 2-5 and conveyance of the homestead; 2-6 (B) the contract for the work and material is 2-7 not executed by the owner or the owner's spouse before the 12th day 2-8 after the owner makes written application for any extension of 2-9 credit for the work and material, unless the work and material are 2-10 necessary to complete immediate repairs to conditions on the 2-11 homestead property that materially affect the health or safety of 2-12 the owner or person residing in the homestead and the owner of the 2-13 homestead acknowledges such in writing; 2-14 (C) the contract for the work and material 2-15 expressly provides that the owner may rescind the contract without 2-16 penalty or charge within three days after the execution of the 2-17 contract by all parties, unless the work and material are necessary 2-18 to complete immediate repairs to conditions on the homestead 2-19 property that materially affect the health or safety of the owner 2-20 or person residing in the homestead and the owner of the homestead 2-21 acknowledges such in writing; and 2-22 (D) the contract for the work and material is 2-23 executed by the owner and the owner's spouse only at the office of 2-24 a third-party lender making an extension of credit for the work and 2-25 material, an attorney at law, or a title company; 2-26 (6) an extension of credit that: 2-27 (A) is secured by a voluntary lien on the 3-1 homestead created under a written agreement with the consent of 3-2 each owner and each owner's spouse; 3-3 (B) is of a principal amount that when added to 3-4 the aggregate total of the outstanding principal balances of all 3-5 other indebtedness secured by valid encumbrances of record against 3-6 the homestead does not exceed 80 percent of the fair market value 3-7 of the homestead on the date the extension of credit is made; 3-8 (C) is without recourse for personal liability 3-9 against each owner and the spouse of each owner, unless the owner 3-10 or spouse obtained the extension of credit by actual fraud; 3-11 (D) is secured by a lien that may be foreclosed 3-12 upon only by a court order; 3-13 (E) does not require the owner or the owner's 3-14 spouse to pay, in addition to any interest, fees to any person that 3-15 are necessary to originate, evaluate, maintain, record, insure, or 3-16 service the extension of credit that exceed, in the aggregate, 3-17 three percent of the original principal amount of the extension of 3-18 credit; 3-19 (F) is not a form of open-end account that may 3-20 be debited from time to time or under which credit may be extended 3-21 from time to time; 3-22 (G) is payable in advance without penalty or 3-23 other charge; 3-24 (H) is not secured by any additional real or 3-25 personal property other than the homestead, except that if a 3-26 homestead that is in a city, town, or village is included in a 3-27 parcel of land that is larger than the homestead, the extension of 4-1 credit may be secured by the entire parcel and improvements on the 4-2 entire parcel; 4-3 (I) is not secured by homestead property 4-4 designated for agricultural use as provided by statutes governing 4-5 property tax, unless such homestead property is used primarily for 4-6 the production of milk; 4-7 (J) may not be accelerated because of a decrease 4-8 in the market value of the homestead or because of the owner's 4-9 default under other indebtedness not secured by a prior valid 4-10 encumbrance against the homestead; 4-11 (K) is the only debt secured by the homestead at 4-12 the time the extension of credit is made unless the other debt was 4-13 made for a purpose described by Subsections (a)(1)-(a)(5) of this 4-14 section; 4-15 (L) is scheduled to be repaid in substantially 4-16 equal successive monthly installments beginning no later than two 4-17 months from the date the extension of credit is made, each of which 4-18 equals or exceeds the amount of accrued interest as of the date of 4-19 the scheduled installment; 4-20 (M) is closed not before: 4-21 (i) the 12th day after the later of the 4-22 date that the owner of the homestead submits an application to the 4-23 lender for the extension of credit or the date that the lender 4-24 provides the owner a copy of the notice prescribed by Subsection 4-25 (g) of this section; and 4-26 (ii) the first anniversary of the closing 4-27 date of any other extension of credit described by Subsection 5-1 (a)(6) of this section secured by the same homestead property; 5-2 (N) is closed only at the office of the lender, 5-3 an attorney at law, or a title company; 5-4 (O) permits a lender to contract for and receive 5-5 any fixed or variable rate of interest authorized under statute; 5-6 (P) is made by one of the following that has not 5-7 been found by a federal regulatory agency to have engaged in the 5-8 practice of refusing to make loans because the applicants for the 5-9 loans reside or the property proposed to secure the loans is 5-10 located in a certain area: 5-11 (i) a bank, savings and loan association, 5-12 savings bank, or credit union doing business under the laws of this 5-13 state or the United States; 5-14 (ii) a federally chartered lending 5-15 instrumentality or a person approved as a mortgagee by the United 5-16 States government to make federally insured loans; 5-17 (iii) a person licensed to make regulated 5-18 loans, as provided by statute of this state; 5-19 (iv) a person who sold the homestead 5-20 property to the current owner and who provided all or part of the 5-21 financing for the purchase; or 5-22 (v) a person who is related to the 5-23 homestead property owner within the second degree of affinity or 5-24 consanguinity; and 5-25 (Q) is made on the condition that: 5-26 (i) the owner of the homestead is not 5-27 required to apply the proceeds of the extension of credit to repay 6-1 another debt except debt secured by the homestead or debt to 6-2 another lender; 6-3 (ii) the owner of the homestead not assign 6-4 wages as security for the extension of credit; 6-5 (iii) the owner of the homestead not sign 6-6 any instrument in which blanks are left to be filled in; 6-7 (iv) the owner of the homestead not sign a 6-8 confession of judgment or power of attorney to the lender or to a 6-9 third person to confess judgment or to appear for the owner in a 6-10 judicial proceeding; 6-11 (v) the lender, at the time the extension 6-12 of credit is made, provide the owner of the homestead a copy of all 6-13 documents signed by the owner related to the extension of credit; 6-14 (vi) the security instruments securing the 6-15 extension of credit contain a disclosure that the extension of 6-16 credit is the type of credit defined by Section 50(a)(6), Article 6-17 XVI, Texas Constitution; 6-18 (vii) within a reasonable time after 6-19 termination and full payment of the extension of credit, the lender 6-20 cancel and return the promissory note to the owner of the homestead 6-21 and give the owner, in recordable form, a release of the lien 6-22 securing the extension of credit or a copy of an endorsement and 6-23 assignment of the lien to a lender that is refinancing the 6-24 extension of credit; 6-25 (viii) the owner of the homestead and any 6-26 spouse of the owner may, within three days after the extension of 6-27 credit is made, rescind the extension of credit without penalty or 7-1 charge; 7-2 (ix) the owner of the homestead and the 7-3 lender sign a written acknowledgment as to the fair market value of 7-4 the homestead property on the date the extension of credit is made; 7-5 and 7-6 (x) the lender or any holder of the note 7-7 for the extension of credit shall forfeit all principal and 7-8 interest of the extension of credit if the lender or holder fails 7-9 to comply with the lender's or holder's obligations under the 7-10 extension of credit within a reasonable time after the lender or 7-11 holder is notified by the borrower of the lender's failure to 7-12 comply; or 7-13 (7) a reverse mortgage. 7-14 SECTION 2. Section 50(g), Article XVI, Texas Constitution, 7-15 is amended to read as follows: 7-16 (g) An extension of credit described by Subsection (a)(6) of 7-17 this section may be secured by a valid lien against homestead 7-18 property if the extension of credit is not closed before the 12th 7-19 day after the lender provides the owner with the following written 7-20 notice on a separate instrument: 7-21 "NOTICE CONCERNING EXTENSIONS OF CREDIT DEFINED BY SECTION 7-22 50(a)(6), ARTICLE XVI, TEXAS CONSTITUTION: 7-23 "SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS CONSTITUTION 7-24 ALLOWS CERTAIN LOANS TO BE SECURED AGAINST THE EQUITY IN YOUR HOME. 7-25 SUCH LOANS ARE COMMONLY KNOWN AS EQUITY LOANS. IF YOU DO NOT REPAY 7-26 THE LOAN OR IF YOU FAIL TO MEET THE TERMS OF THE LOAN, THE LENDER 7-27 MAY FORECLOSE AND SELL YOUR HOME. THE CONSTITUTION PROVIDES THAT: 8-1 "(A) THE LOAN MUST BE VOLUNTARILY CREATED WITH THE 8-2 CONSENT OF EACH OWNER OF YOUR HOME AND EACH OWNER'S SPOUSE; 8-3 "(B) THE PRINCIPAL LOAN AMOUNT AT THE TIME THE LOAN IS 8-4 MADE MUST NOT EXCEED AN AMOUNT THAT, WHEN ADDED TO THE PRINCIPAL 8-5 BALANCES OF ALL OTHER LIENS AGAINST YOUR HOME, IS MORE THAN 80 8-6 PERCENT OF THE FAIR MARKET VALUE OF YOUR HOME; 8-7 "(C) THE LOAN MUST BE WITHOUT RECOURSE FOR PERSONAL 8-8 LIABILITY AGAINST YOU AND YOUR SPOUSE UNLESS YOU OR YOUR SPOUSE 8-9 OBTAINED THIS EXTENSION OF CREDIT BY ACTUAL FRAUD; 8-10 "(D) THE LIEN SECURING THE LOAN MAY BE FORECLOSED UPON 8-11 ONLY WITH A COURT ORDER; 8-12 "(E) FEES AND CHARGES TO MAKE THE LOAN MAY NOT EXCEED 8-13 3 PERCENT OF THE LOAN AMOUNT; 8-14 "(F) THE LOAN MAY NOT BE AN OPEN-END ACCOUNT THAT MAY 8-15 BE DEBITED FROM TIME TO TIME OR UNDER WHICH CREDIT MAY BE EXTENDED 8-16 FROM TIME TO TIME; 8-17 "(G) YOU MAY PREPAY THE LOAN WITHOUT PENALTY OR 8-18 CHARGE; 8-19 "(H) NO ADDITIONAL COLLATERAL MAY BE SECURITY FOR THE 8-20 LOAN OTHER THAN LAND AND IMPROVEMENTS LOCATED IN THE SAME PARCEL OF 8-21 LAND AS AN URBAN HOMESTEAD; 8-22 "(I) THE LOAN MAY NOT BE SECURED BY AGRICULTURAL 8-23 HOMESTEAD PROPERTY, UNLESS THE AGRICULTURAL HOMESTEAD PROPERTY IS 8-24 USED PRIMARILY FOR THE PRODUCTION OF MILK; 8-25 "(J) YOU ARE NOT REQUIRED TO REPAY THE LOAN EARLIER 8-26 THAN AGREED SOLELY BECAUSE THE FAIR MARKET VALUE OF YOUR HOME 8-27 DECREASES OR BECAUSE YOU DEFAULT ON ANOTHER LOAN THAT IS NOT 9-1 SECURED BY YOUR HOME; 9-2 "(K) ONLY ONE LOAN DESCRIBED BY SECTION 50(a)(6), 9-3 ARTICLE XVI, OF THE TEXAS CONSTITUTION MAY BE SECURED WITH YOUR 9-4 HOME AT ANY GIVEN TIME; 9-5 "(L) THE LOAN MUST BE SCHEDULED TO BE REPAID IN 9-6 PAYMENTS THAT EQUAL OR EXCEED THE AMOUNT OF ACCRUED INTEREST FOR 9-7 EACH PAYMENT PERIOD; 9-8 "(M) THE LOAN MAY NOT CLOSE BEFORE 12 DAYS AFTER YOU 9-9 SUBMIT A WRITTEN APPLICATION TO THE LENDER OR BEFORE 12 DAYS AFTER 9-10 YOU RECEIVE THIS NOTICE, WHICHEVER DATE IS LATER; AND IF YOUR HOME 9-11 WAS SECURITY FOR THE SAME TYPE OF LOAN WITHIN THE PAST YEAR, A NEW 9-12 LOAN SECURED BY THE SAME PROPERTY MAY NOT CLOSE BEFORE ONE YEAR HAS 9-13 PASSED FROM THE CLOSING DATE OF THE OTHER LOAN; 9-14 "(N) THE LOAN MAY CLOSE ONLY AT THE OFFICE OF THE 9-15 LENDER, TITLE COMPANY, OR AN ATTORNEY AT LAW; 9-16 "(O) THE LENDER MAY CHARGE ANY FIXED OR VARIABLE RATE 9-17 OF INTEREST AUTHORIZED BY STATUTE; 9-18 "(P) ONLY A LAWFULLY AUTHORIZED LENDER MAY MAKE LOANS 9-19 DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS 9-20 CONSTITUTION; AND 9-21 "(Q) LOANS DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, 9-22 OF THE TEXAS CONSTITUTION MUST: 9-23 "(1) NOT REQUIRE YOU TO APPLY THE PROCEEDS TO 9-24 ANOTHER DEBT THAT IS NOT SECURED BY YOUR HOME OR TO ANOTHER DEBT TO 9-25 THE SAME LENDER; 9-26 "(2) NOT REQUIRE THAT YOU ASSIGN WAGES AS 9-27 SECURITY; 10-1 "(3) NOT REQUIRE THAT YOU EXECUTE INSTRUMENTS 10-2 WHICH HAVE BLANKS LEFT TO BE FILLED IN; 10-3 "(4) NOT REQUIRE THAT YOU SIGN A CONFESSION OF 10-4 JUDGMENT OR POWER OF ATTORNEY TO ANOTHER PERSON TO CONFESS JUDGMENT 10-5 OR APPEAR IN A LEGAL PROCEEDING ON YOUR BEHALF; 10-6 "(5) PROVIDE THAT YOU RECEIVE A COPY OF ALL 10-7 DOCUMENTS YOU SIGN AT CLOSING; 10-8 "(6) PROVIDE THAT THE SECURITY INSTRUMENTS 10-9 CONTAIN A DISCLOSURE THAT THIS LOAN IS A LOAN DEFINED BY SECTION 10-10 50(a)(6), ARTICLE XVI, OF THE TEXAS CONSTITUTION; 10-11 "(7) PROVIDE THAT WHEN THE LOAN IS PAID IN FULL, 10-12 THE LENDER WILL SIGN AND GIVE YOU A RELEASE OF LIEN OR AN 10-13 ASSIGNMENT OF THE LIEN, WHICHEVER IS APPROPRIATE; 10-14 "(8) PROVIDE THAT YOU MAY, WITHIN 3 DAYS AFTER 10-15 CLOSING, RESCIND THE LOAN WITHOUT PENALTY OR CHARGE; 10-16 "(9) PROVIDE THAT YOU AND THE LENDER ACKNOWLEDGE 10-17 THE FAIR MARKET VALUE OF YOUR HOME ON THE DATE THE LOAN CLOSES; 10-18 AND 10-19 "(10) PROVIDE THAT THE LENDER WILL FORFEIT ALL 10-20 PRINCIPAL AND INTEREST IF THE LENDER FAILS TO COMPLY WITH THE 10-21 LENDER'S OBLIGATIONS." 10-22 If the discussions with the borrower are conducted primarily 10-23 in a language other than English, the lender shall, before closing, 10-24 provide an additional copy of the notice translated into the 10-25 written language in which the discussions were conducted. 10-26 SECTION 3. This proposed constitutional amendment shall be 10-27 submitted to the voters at an election to be held November 2, 1999. 11-1 The ballot shall be printed to permit voting for or against the 11-2 proposition: "The constitutional amendment to allow an equity loan 11-3 to be secured by a parcel of property containing an urban homestead 11-4 and real property adjoining the homestead."