By Harris S.J.R. No. 37 76R7021 DWS-D A JOINT RESOLUTION 1-1 proposing a constitutional amendment relating to the application of 1-2 equity loan law to cooperative membership fees and certificates. 1-3 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-4 SECTION 1. Section 50(a), Article XVI, Texas Constitution, 1-5 is amended to read as follows: 1-6 (a) The homestead of a family, or of a single adult person, 1-7 shall be, and is hereby protected from forced sale, for the payment 1-8 of all debts except for: 1-9 (1) the purchase money thereof, or a part of such 1-10 purchase money; 1-11 (2) the taxes due thereon; 1-12 (3) an owelty of partition imposed against the 1-13 entirety of the property by a court order or by a written agreement 1-14 of the parties to the partition, including a debt of one spouse in 1-15 favor of the other spouse resulting from a division or an award of 1-16 a family homestead in a divorce proceeding; 1-17 (4) the refinance of a lien against a homestead, 1-18 including a federal tax lien resulting from the tax debt of both 1-19 spouses, if the homestead is a family homestead, or from the tax 1-20 debt of the owner; 1-21 (5) work and material used in constructing new 1-22 improvements thereon, if contracted for in writing, or work and 1-23 material used to repair or renovate existing improvements thereon 1-24 if: 2-1 (A) the work and material are contracted for in 2-2 writing, with the consent of both spouses, in the case of a family 2-3 homestead, given in the same manner as is required in making a sale 2-4 and conveyance of the homestead; 2-5 (B) the contract for the work and material is 2-6 not executed by the owner or the owner's spouse before the 12th day 2-7 after the owner makes written application for any extension of 2-8 credit for the work and material, unless the work and material are 2-9 necessary to complete immediate repairs to conditions on the 2-10 homestead property that materially affect the health or safety of 2-11 the owner or person residing in the homestead and the owner of the 2-12 homestead acknowledges such in writing; 2-13 (C) the contract for the work and material 2-14 expressly provides that the owner may rescind the contract without 2-15 penalty or charge within three days after the execution of the 2-16 contract by all parties, unless the work and material are necessary 2-17 to complete immediate repairs to conditions on the homestead 2-18 property that materially affect the health or safety of the owner 2-19 or person residing in the homestead and the owner of the homestead 2-20 acknowledges such in writing; and 2-21 (D) the contract for the work and material is 2-22 executed by the owner and the owner's spouse only at the office of 2-23 a third-party lender making an extension of credit for the work and 2-24 material, an attorney at law, or a title company; 2-25 (6) an extension of credit that: 2-26 (A) is secured by a voluntary lien on the 2-27 homestead created under a written agreement with the consent of 3-1 each owner and each owner's spouse; 3-2 (B) is of a principal amount that when added to 3-3 the aggregate total of the outstanding principal balances of all 3-4 other indebtedness secured by valid encumbrances of record against 3-5 the homestead does not exceed 80 percent of the fair market value 3-6 of the homestead on the date the extension of credit is made; 3-7 (C) is without recourse for personal liability 3-8 against each owner and the spouse of each owner, unless the owner 3-9 or spouse obtained the extension of credit by actual fraud; 3-10 (D) is secured by a lien that may be foreclosed 3-11 upon only by a court order; 3-12 (E) does not require the owner or the owner's 3-13 spouse to pay, in addition to any interest or cooperative 3-14 membership fees, fees to any person that are necessary to 3-15 originate, evaluate, maintain, record, insure, or service the 3-16 extension of credit that exceed, in the aggregate, three percent of 3-17 the original principal amount of the extension of credit; 3-18 (F) is not a form of open-end account that may 3-19 be debited from time to time or under which credit may be extended 3-20 from time to time; 3-21 (G) is payable in advance without penalty or 3-22 other charge; 3-23 (H) is not secured by any additional real or 3-24 personal property other than the homestead or cooperative 3-25 membership certificates; 3-26 (I) is not secured by homestead property 3-27 designated for agricultural use as provided by statutes governing 4-1 property tax, unless such homestead property is used primarily for 4-2 the production of milk; 4-3 (J) may not be accelerated because of a decrease 4-4 in the market value of the homestead or because of the owner's 4-5 default under other indebtedness not secured by a prior valid 4-6 encumbrance against the homestead; 4-7 (K) is the only debt secured by the homestead at 4-8 the time the extension of credit is made unless the other debt was 4-9 made for a purpose described by Subsections (a)(1)-(a)(5) of this 4-10 section; 4-11 (L) is scheduled to be repaid in substantially 4-12 equal successive monthly installments beginning no later than two 4-13 months from the date the extension of credit is made, each of which 4-14 equals or exceeds the amount of accrued interest as of the date of 4-15 the scheduled installment; 4-16 (M) is closed not before: 4-17 (i) the 12th day after the later of the 4-18 date that the owner of the homestead submits an application to the 4-19 lender for the extension of credit or the date that the lender 4-20 provides the owner a copy of the notice prescribed by Subsection 4-21 (g) of this section; and 4-22 (ii) the first anniversary of the closing 4-23 date of any other extension of credit described by Subsection 4-24 (a)(6) of this section secured by the same homestead property; 4-25 (N) is closed only at the office of the lender, 4-26 an attorney at law, or a title company; 4-27 (O) permits a lender to contract for and receive 5-1 any fixed or variable rate of interest authorized under statute; 5-2 (P) is made by one of the following that has not 5-3 been found by a federal regulatory agency to have engaged in the 5-4 practice of refusing to make loans because the applicants for the 5-5 loans reside or the property proposed to secure the loans is 5-6 located in a certain area: 5-7 (i) a bank, savings and loan association, 5-8 savings bank, or credit union doing business under the laws of this 5-9 state or the United States; 5-10 (ii) a federally chartered lending 5-11 instrumentality or a person approved as a mortgagee by the United 5-12 States government to make federally insured loans; 5-13 (iii) a person licensed to make regulated 5-14 loans, as provided by statute of this state; 5-15 (iv) a person who sold the homestead 5-16 property to the current owner and who provided all or part of the 5-17 financing for the purchase; or 5-18 (v) a person who is related to the 5-19 homestead property owner within the second degree of affinity or 5-20 consanguinity; and 5-21 (Q) is made on the condition that: 5-22 (i) the owner of the homestead is not 5-23 required to apply the proceeds of the extension of credit to repay 5-24 another debt except debt secured by the homestead or debt to 5-25 another lender; 5-26 (ii) the owner of the homestead not assign 5-27 wages as security for the extension of credit; 6-1 (iii) the owner of the homestead not sign 6-2 any instrument in which blanks are left to be filled in; 6-3 (iv) the owner of the homestead not sign a 6-4 confession of judgment or power of attorney to the lender or to a 6-5 third person to confess judgment or to appear for the owner in a 6-6 judicial proceeding; 6-7 (v) the lender, at the time the extension 6-8 of credit is made, provide the owner of the homestead a copy of all 6-9 documents signed by the owner related to the extension of credit; 6-10 (vi) the security instruments securing the 6-11 extension of credit contain a disclosure that the extension of 6-12 credit is the type of credit defined by Section 50(a)(6), Article 6-13 XVI, Texas Constitution; 6-14 (vii) within a reasonable time after 6-15 termination and full payment of the extension of credit, the lender 6-16 cancel and return the promissory note to the owner of the homestead 6-17 and give the owner, in recordable form, a release of the lien 6-18 securing the extension of credit or a copy of an endorsement and 6-19 assignment of the lien to a lender that is refinancing the 6-20 extension of credit; 6-21 (viii) the owner of the homestead and any 6-22 spouse of the owner may, within three days after the extension of 6-23 credit is made, rescind the extension of credit without penalty or 6-24 charge; 6-25 (ix) the owner of the homestead and the 6-26 lender sign a written acknowledgment as to the fair market value of 6-27 the homestead property on the date the extension of credit is made; 7-1 and 7-2 (x) the lender or any holder of the note 7-3 for the extension of credit shall forfeit all principal and 7-4 interest of the extension of credit if the lender or holder fails 7-5 to comply with the lender's or holder's obligations under the 7-6 extension of credit within a reasonable time after the lender or 7-7 holder is notified by the borrower of the lender's failure to 7-8 comply; or 7-9 (7) a reverse mortgage. 7-10 SECTION 2. Section 50(g), Article XVI, Texas Constitution, 7-11 is amended to read as follows: 7-12 (g) An extension of credit described by Subsection (a)(6) of 7-13 this section may be secured by a valid lien against homestead 7-14 property if the extension of credit is not closed before the 12th 7-15 day after the lender provides the owner with the following written 7-16 notice on a separate instrument: 7-17 "NOTICE CONCERNING EXTENSIONS OF CREDIT DEFINED BY SECTION 7-18 50(a)(6), ARTICLE XVI, TEXAS CONSTITUTION: 7-19 "SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS CONSTITUTION 7-20 ALLOWS CERTAIN LOANS TO BE SECURED AGAINST THE EQUITY IN YOUR HOME. 7-21 SUCH LOANS ARE COMMONLY KNOWN AS EQUITY LOANS. IF YOU DO NOT REPAY 7-22 THE LOAN OR IF YOU FAIL TO MEET THE TERMS OF THE LOAN, THE LENDER 7-23 MAY FORECLOSE AND SELL YOUR HOME. THE CONSTITUTION PROVIDES THAT: 7-24 "(A) THE LOAN MUST BE VOLUNTARILY CREATED WITH THE 7-25 CONSENT OF EACH OWNER OF YOUR HOME AND EACH OWNER'S SPOUSE; 7-26 "(B) THE PRINCIPAL LOAN AMOUNT AT THE TIME THE LOAN IS 7-27 MADE MUST NOT EXCEED AN AMOUNT THAT, WHEN ADDED TO THE PRINCIPAL 8-1 BALANCES OF ALL OTHER LIENS AGAINST YOUR HOME, IS MORE THAN 80 8-2 PERCENT OF THE FAIR MARKET VALUE OF YOUR HOME; 8-3 "(C) THE LOAN MUST BE WITHOUT RECOURSE FOR PERSONAL 8-4 LIABILITY AGAINST YOU AND YOUR SPOUSE UNLESS YOU OR YOUR SPOUSE 8-5 OBTAINED THIS EXTENSION OF CREDIT BY ACTUAL FRAUD; 8-6 "(D) THE LIEN SECURING THE LOAN MAY BE FORECLOSED UPON 8-7 ONLY WITH A COURT ORDER; 8-8 "(E) FEES AND CHARGES TO MAKE THE LOAN, EXCLUDING 8-9 COOPERATIVE MEMBERSHIP FEES, MAY NOT EXCEED 3 PERCENT OF THE LOAN 8-10 AMOUNT; 8-11 "(F) THE LOAN MAY NOT BE AN OPEN-END ACCOUNT THAT MAY 8-12 BE DEBITED FROM TIME TO TIME OR UNDER WHICH CREDIT MAY BE EXTENDED 8-13 FROM TIME TO TIME; 8-14 "(G) YOU MAY PREPAY THE LOAN WITHOUT PENALTY OR 8-15 CHARGE; 8-16 "(H) NO ADDITIONAL COLLATERAL, OTHER THAN COOPERATIVE 8-17 MEMBERSHIP CERTIFICATES, MAY BE SECURITY FOR THE LOAN; 8-18 "(I) THE LOAN MAY NOT BE SECURED BY AGRICULTURAL 8-19 HOMESTEAD PROPERTY, UNLESS THE AGRICULTURAL HOMESTEAD PROPERTY IS 8-20 USED PRIMARILY FOR THE PRODUCTION OF MILK; 8-21 "(J) YOU ARE NOT REQUIRED TO REPAY THE LOAN EARLIER 8-22 THAN AGREED SOLELY BECAUSE THE FAIR MARKET VALUE OF YOUR HOME 8-23 DECREASES OR BECAUSE YOU DEFAULT ON ANOTHER LOAN THAT IS NOT 8-24 SECURED BY YOUR HOME; 8-25 "(K) ONLY ONE LOAN DESCRIBED BY SECTION 50(a)(6), 8-26 ARTICLE XVI, OF THE TEXAS CONSTITUTION MAY BE SECURED WITH YOUR 8-27 HOME AT ANY GIVEN TIME; 9-1 "(L) THE LOAN MUST BE SCHEDULED TO BE REPAID IN 9-2 PAYMENTS THAT EQUAL OR EXCEED THE AMOUNT OF ACCRUED INTEREST FOR 9-3 EACH PAYMENT PERIOD; 9-4 "(M) THE LOAN MAY NOT CLOSE BEFORE 12 DAYS AFTER YOU 9-5 SUBMIT A WRITTEN APPLICATION TO THE LENDER OR BEFORE 12 DAYS AFTER 9-6 YOU RECEIVE THIS NOTICE, WHICHEVER DATE IS LATER; AND IF YOUR HOME 9-7 WAS SECURITY FOR THE SAME TYPE OF LOAN WITHIN THE PAST YEAR, A NEW 9-8 LOAN SECURED BY THE SAME PROPERTY MAY NOT CLOSE BEFORE ONE YEAR HAS 9-9 PASSED FROM THE CLOSING DATE OF THE OTHER LOAN; 9-10 "(N) THE LOAN MAY CLOSE ONLY AT THE OFFICE OF THE 9-11 LENDER, TITLE COMPANY, OR AN ATTORNEY AT LAW; 9-12 "(O) THE LENDER MAY CHARGE ANY FIXED OR VARIABLE RATE 9-13 OF INTEREST AUTHORIZED BY STATUTE; 9-14 "(P) ONLY A LAWFULLY AUTHORIZED LENDER MAY MAKE LOANS 9-15 DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS 9-16 CONSTITUTION; AND 9-17 "(Q) LOANS DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, 9-18 OF THE TEXAS CONSTITUTION MUST: 9-19 "(1) NOT REQUIRE YOU TO APPLY THE PROCEEDS TO 9-20 ANOTHER DEBT THAT IS NOT SECURED BY YOUR HOME OR TO ANOTHER DEBT TO 9-21 THE SAME LENDER; 9-22 "(2) NOT REQUIRE THAT YOU ASSIGN WAGES AS 9-23 SECURITY; 9-24 "(3) NOT REQUIRE THAT YOU EXECUTE INSTRUMENTS 9-25 WHICH HAVE BLANKS LEFT TO BE FILLED IN; 9-26 "(4) NOT REQUIRE THAT YOU SIGN A CONFESSION OF 9-27 JUDGMENT OR POWER OF ATTORNEY TO ANOTHER PERSON TO CONFESS JUDGMENT 10-1 OR APPEAR IN A LEGAL PROCEEDING ON YOUR BEHALF; 10-2 "(5) PROVIDE THAT YOU RECEIVE A COPY OF ALL 10-3 DOCUMENTS YOU SIGN AT CLOSING; 10-4 "(6) PROVIDE THAT THE SECURITY INSTRUMENTS 10-5 CONTAIN A DISCLOSURE THAT THIS LOAN IS A LOAN DEFINED BY SECTION 10-6 50(a)(6), ARTICLE XVI, OF THE TEXAS CONSTITUTION; 10-7 "(7) PROVIDE THAT WHEN THE LOAN IS PAID IN FULL, 10-8 THE LENDER WILL SIGN AND GIVE YOU A RELEASE OF LIEN OR AN 10-9 ASSIGNMENT OF THE LIEN, WHICHEVER IS APPROPRIATE; 10-10 "(8) PROVIDE THAT YOU MAY, WITHIN 3 DAYS AFTER 10-11 CLOSING, RESCIND THE LOAN WITHOUT PENALTY OR CHARGE; 10-12 "(9) PROVIDE THAT YOU AND THE LENDER ACKNOWLEDGE 10-13 THE FAIR MARKET VALUE OF YOUR HOME ON THE DATE THE LOAN CLOSES; 10-14 AND 10-15 "(10) PROVIDE THAT THE LENDER WILL FORFEIT ALL 10-16 PRINCIPAL AND INTEREST IF THE LENDER FAILS TO COMPLY WITH THE 10-17 LENDER'S OBLIGATIONS." 10-18 If the discussions with the borrower are conducted primarily 10-19 in a language other than English, the lender shall, before closing, 10-20 provide an additional copy of the notice translated into the 10-21 written language in which the discussions were conducted. 10-22 SECTION 3. This proposed constitutional amendment shall be 10-23 submitted to the voters at an election to be held November 2, 1999. 10-24 The ballot shall be printed to permit voting for or against the 10-25 proposition: "The constitutional amendment relating to application 10-26 of equity loan law to cooperative membership fees and 10-27 certificates."