1-1 By: Harris S.J.R. No. 37 1-2 (In the Senate - Filed March 12, 1999; March 18, 1999, read 1-3 first time and referred to Committee on State Affairs; 1-4 April 9, 1999, reported favorably by the following vote: Yeas 9, 1-5 Nays 0; April 9, 1999, sent to printer.) 1-6 SENATE JOINT RESOLUTION 1-7 proposing a constitutional amendment relating to the application of 1-8 equity loan law to cooperative membership fees and certificates. 1-9 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-10 SECTION 1. Subsection (a), Section 50, Article XVI, Texas 1-11 Constitution, is amended to read as follows: 1-12 (a) The homestead of a family, or of a single adult person, 1-13 shall be, and is hereby protected from forced sale, for the payment 1-14 of all debts except for: 1-15 (1) the purchase money thereof, or a part of such 1-16 purchase money; 1-17 (2) the taxes due thereon; 1-18 (3) an owelty of partition imposed against the 1-19 entirety of the property by a court order or by a written agreement 1-20 of the parties to the partition, including a debt of one spouse in 1-21 favor of the other spouse resulting from a division or an award of 1-22 a family homestead in a divorce proceeding; 1-23 (4) the refinance of a lien against a homestead, 1-24 including a federal tax lien resulting from the tax debt of both 1-25 spouses, if the homestead is a family homestead, or from the tax 1-26 debt of the owner; 1-27 (5) work and material used in constructing new 1-28 improvements thereon, if contracted for in writing, or work and 1-29 material used to repair or renovate existing improvements thereon 1-30 if: 1-31 (A) the work and material are contracted for in 1-32 writing, with the consent of both spouses, in the case of a family 1-33 homestead, given in the same manner as is required in making a sale 1-34 and conveyance of the homestead; 1-35 (B) the contract for the work and material is 1-36 not executed by the owner or the owner's spouse before the 12th day 1-37 after the owner makes written application for any extension of 1-38 credit for the work and material, unless the work and material are 1-39 necessary to complete immediate repairs to conditions on the 1-40 homestead property that materially affect the health or safety of 1-41 the owner or person residing in the homestead and the owner of the 1-42 homestead acknowledges such in writing; 1-43 (C) the contract for the work and material 1-44 expressly provides that the owner may rescind the contract without 1-45 penalty or charge within three days after the execution of the 1-46 contract by all parties, unless the work and material are necessary 1-47 to complete immediate repairs to conditions on the homestead 1-48 property that materially affect the health or safety of the owner 1-49 or person residing in the homestead and the owner of the homestead 1-50 acknowledges such in writing; and 1-51 (D) the contract for the work and material is 1-52 executed by the owner and the owner's spouse only at the office of 1-53 a third-party lender making an extension of credit for the work and 1-54 material, an attorney at law, or a title company; 1-55 (6) an extension of credit that: 1-56 (A) is secured by a voluntary lien on the 1-57 homestead created under a written agreement with the consent of 1-58 each owner and each owner's spouse; 1-59 (B) is of a principal amount that when added to 1-60 the aggregate total of the outstanding principal balances of all 1-61 other indebtedness secured by valid encumbrances of record against 1-62 the homestead does not exceed 80 percent of the fair market value 1-63 of the homestead on the date the extension of credit is made; 1-64 (C) is without recourse for personal liability 2-1 against each owner and the spouse of each owner, unless the owner 2-2 or spouse obtained the extension of credit by actual fraud; 2-3 (D) is secured by a lien that may be foreclosed 2-4 upon only by a court order; 2-5 (E) does not require the owner or the owner's 2-6 spouse to pay, in addition to any interest or cooperative 2-7 membership fees, fees to any person that are necessary to 2-8 originate, evaluate, maintain, record, insure, or service the 2-9 extension of credit that exceed, in the aggregate, three percent of 2-10 the original principal amount of the extension of credit; 2-11 (F) is not a form of open-end account that may 2-12 be debited from time to time or under which credit may be extended 2-13 from time to time; 2-14 (G) is payable in advance without penalty or 2-15 other charge; 2-16 (H) is not secured by any additional real or 2-17 personal property other than the homestead or cooperative 2-18 membership certificates; 2-19 (I) is not secured by homestead property 2-20 designated for agricultural use as provided by statutes governing 2-21 property tax, unless such homestead property is used primarily for 2-22 the production of milk; 2-23 (J) may not be accelerated because of a decrease 2-24 in the market value of the homestead or because of the owner's 2-25 default under other indebtedness not secured by a prior valid 2-26 encumbrance against the homestead; 2-27 (K) is the only debt secured by the homestead at 2-28 the time the extension of credit is made unless the other debt was 2-29 made for a purpose described by Subsections (a)(1)-(a)(5) of this 2-30 section; 2-31 (L) is scheduled to be repaid in substantially 2-32 equal successive monthly installments beginning no later than two 2-33 months from the date the extension of credit is made, each of which 2-34 equals or exceeds the amount of accrued interest as of the date of 2-35 the scheduled installment; 2-36 (M) is closed not before: 2-37 (i) the 12th day after the later of the 2-38 date that the owner of the homestead submits an application to the 2-39 lender for the extension of credit or the date that the lender 2-40 provides the owner a copy of the notice prescribed by Subsection 2-41 (g) of this section; and 2-42 (ii) the first anniversary of the closing 2-43 date of any other extension of credit described by Subsection 2-44 (a)(6) of this section secured by the same homestead property; 2-45 (N) is closed only at the office of the lender, 2-46 an attorney at law, or a title company; 2-47 (O) permits a lender to contract for and receive 2-48 any fixed or variable rate of interest authorized under statute; 2-49 (P) is made by one of the following that has not 2-50 been found by a federal regulatory agency to have engaged in the 2-51 practice of refusing to make loans because the applicants for the 2-52 loans reside or the property proposed to secure the loans is 2-53 located in a certain area: 2-54 (i) a bank, savings and loan association, 2-55 savings bank, or credit union doing business under the laws of this 2-56 state or the United States; 2-57 (ii) a federally chartered lending 2-58 instrumentality or a person approved as a mortgagee by the United 2-59 States government to make federally insured loans; 2-60 (iii) a person licensed to make regulated 2-61 loans, as provided by statute of this state; 2-62 (iv) a person who sold the homestead 2-63 property to the current owner and who provided all or part of the 2-64 financing for the purchase; or 2-65 (v) a person who is related to the 2-66 homestead property owner within the second degree of affinity or 2-67 consanguinity; and 2-68 (Q) is made on the condition that: 2-69 (i) the owner of the homestead is not 3-1 required to apply the proceeds of the extension of credit to repay 3-2 another debt except debt secured by the homestead or debt to 3-3 another lender; 3-4 (ii) the owner of the homestead not assign 3-5 wages as security for the extension of credit; 3-6 (iii) the owner of the homestead not sign 3-7 any instrument in which blanks are left to be filled in; 3-8 (iv) the owner of the homestead not sign a 3-9 confession of judgment or power of attorney to the lender or to a 3-10 third person to confess judgment or to appear for the owner in a 3-11 judicial proceeding; 3-12 (v) the lender, at the time the extension 3-13 of credit is made, provide the owner of the homestead a copy of all 3-14 documents signed by the owner related to the extension of credit; 3-15 (vi) the security instruments securing the 3-16 extension of credit contain a disclosure that the extension of 3-17 credit is the type of credit defined by Section 50(a)(6), Article 3-18 XVI, Texas Constitution; 3-19 (vii) within a reasonable time after 3-20 termination and full payment of the extension of credit, the lender 3-21 cancel and return the promissory note to the owner of the homestead 3-22 and give the owner, in recordable form, a release of the lien 3-23 securing the extension of credit or a copy of an endorsement and 3-24 assignment of the lien to a lender that is refinancing the 3-25 extension of credit; 3-26 (viii) the owner of the homestead and any 3-27 spouse of the owner may, within three days after the extension of 3-28 credit is made, rescind the extension of credit without penalty or 3-29 charge; 3-30 (ix) the owner of the homestead and the 3-31 lender sign a written acknowledgment as to the fair market value of 3-32 the homestead property on the date the extension of credit is made; 3-33 and 3-34 (x) the lender or any holder of the note 3-35 for the extension of credit shall forfeit all principal and 3-36 interest of the extension of credit if the lender or holder fails 3-37 to comply with the lender's or holder's obligations under the 3-38 extension of credit within a reasonable time after the lender or 3-39 holder is notified by the borrower of the lender's failure to 3-40 comply; or 3-41 (7) a reverse mortgage. 3-42 SECTION 2. Subsection (g), Section 50, Article XVI, Texas 3-43 Constitution, is amended to read as follows: 3-44 (g) An extension of credit described by Subsection (a)(6) of 3-45 this section may be secured by a valid lien against homestead 3-46 property if the extension of credit is not closed before the 12th 3-47 day after the lender provides the owner with the following written 3-48 notice on a separate instrument: 3-49 "NOTICE CONCERNING EXTENSIONS OF CREDIT DEFINED BY SECTION 3-50 50(a)(6), ARTICLE XVI, TEXAS CONSTITUTION: 3-51 "SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS CONSTITUTION 3-52 ALLOWS CERTAIN LOANS TO BE SECURED AGAINST THE EQUITY IN YOUR HOME. 3-53 SUCH LOANS ARE COMMONLY KNOWN AS EQUITY LOANS. IF YOU DO NOT REPAY 3-54 THE LOAN OR IF YOU FAIL TO MEET THE TERMS OF THE LOAN, THE LENDER 3-55 MAY FORECLOSE AND SELL YOUR HOME. THE CONSTITUTION PROVIDES THAT: 3-56 "(A) THE LOAN MUST BE VOLUNTARILY CREATED WITH THE 3-57 CONSENT OF EACH OWNER OF YOUR HOME AND EACH OWNER'S SPOUSE; 3-58 "(B) THE PRINCIPAL LOAN AMOUNT AT THE TIME THE LOAN IS 3-59 MADE MUST NOT EXCEED AN AMOUNT THAT, WHEN ADDED TO THE PRINCIPAL 3-60 BALANCES OF ALL OTHER LIENS AGAINST YOUR HOME, IS MORE THAN 80 3-61 PERCENT OF THE FAIR MARKET VALUE OF YOUR HOME; 3-62 "(C) THE LOAN MUST BE WITHOUT RECOURSE FOR PERSONAL 3-63 LIABILITY AGAINST YOU AND YOUR SPOUSE UNLESS YOU OR YOUR SPOUSE 3-64 OBTAINED THIS EXTENSION OF CREDIT BY ACTUAL FRAUD; 3-65 "(D) THE LIEN SECURING THE LOAN MAY BE FORECLOSED UPON 3-66 ONLY WITH A COURT ORDER; 3-67 "(E) FEES AND CHARGES TO MAKE THE LOAN, EXCLUDING 3-68 COOPERATIVE MEMBERSHIP FEES, MAY NOT EXCEED 3 PERCENT OF THE LOAN 3-69 AMOUNT; 4-1 "(F) THE LOAN MAY NOT BE AN OPEN-END ACCOUNT THAT MAY 4-2 BE DEBITED FROM TIME TO TIME OR UNDER WHICH CREDIT MAY BE EXTENDED 4-3 FROM TIME TO TIME; 4-4 "(G) YOU MAY PREPAY THE LOAN WITHOUT PENALTY OR 4-5 CHARGE; 4-6 "(H) NO ADDITIONAL COLLATERAL, OTHER THAN COOPERATIVE 4-7 MEMBERSHIP CERTIFICATES, MAY BE SECURITY FOR THE LOAN; 4-8 "(I) THE LOAN MAY NOT BE SECURED BY AGRICULTURAL 4-9 HOMESTEAD PROPERTY, UNLESS THE AGRICULTURAL HOMESTEAD PROPERTY IS 4-10 USED PRIMARILY FOR THE PRODUCTION OF MILK; 4-11 "(J) YOU ARE NOT REQUIRED TO REPAY THE LOAN EARLIER 4-12 THAN AGREED SOLELY BECAUSE THE FAIR MARKET VALUE OF YOUR HOME 4-13 DECREASES OR BECAUSE YOU DEFAULT ON ANOTHER LOAN THAT IS NOT 4-14 SECURED BY YOUR HOME; 4-15 "(K) ONLY ONE LOAN DESCRIBED BY SECTION 50(a)(6), 4-16 ARTICLE XVI, OF THE TEXAS CONSTITUTION MAY BE SECURED WITH YOUR 4-17 HOME AT ANY GIVEN TIME; 4-18 "(L) THE LOAN MUST BE SCHEDULED TO BE REPAID IN 4-19 PAYMENTS THAT EQUAL OR EXCEED THE AMOUNT OF ACCRUED INTEREST FOR 4-20 EACH PAYMENT PERIOD; 4-21 "(M) THE LOAN MAY NOT CLOSE BEFORE 12 DAYS AFTER YOU 4-22 SUBMIT A WRITTEN APPLICATION TO THE LENDER OR BEFORE 12 DAYS AFTER 4-23 YOU RECEIVE THIS NOTICE, WHICHEVER DATE IS LATER; AND IF YOUR HOME 4-24 WAS SECURITY FOR THE SAME TYPE OF LOAN WITHIN THE PAST YEAR, A NEW 4-25 LOAN SECURED BY THE SAME PROPERTY MAY NOT CLOSE BEFORE ONE YEAR HAS 4-26 PASSED FROM THE CLOSING DATE OF THE OTHER LOAN; 4-27 "(N) THE LOAN MAY CLOSE ONLY AT THE OFFICE OF THE 4-28 LENDER, TITLE COMPANY, OR AN ATTORNEY AT LAW; 4-29 "(O) THE LENDER MAY CHARGE ANY FIXED OR VARIABLE RATE 4-30 OF INTEREST AUTHORIZED BY STATUTE; 4-31 "(P) ONLY A LAWFULLY AUTHORIZED LENDER MAY MAKE LOANS 4-32 DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS 4-33 CONSTITUTION; AND 4-34 "(Q) LOANS DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, 4-35 OF THE TEXAS CONSTITUTION MUST: 4-36 "(1) NOT REQUIRE YOU TO APPLY THE PROCEEDS TO 4-37 ANOTHER DEBT THAT IS NOT SECURED BY YOUR HOME OR TO ANOTHER DEBT TO 4-38 THE SAME LENDER; 4-39 "(2) NOT REQUIRE THAT YOU ASSIGN WAGES AS 4-40 SECURITY; 4-41 "(3) NOT REQUIRE THAT YOU EXECUTE INSTRUMENTS 4-42 WHICH HAVE BLANKS LEFT TO BE FILLED IN; 4-43 "(4) NOT REQUIRE THAT YOU SIGN A CONFESSION OF 4-44 JUDGMENT OR POWER OF ATTORNEY TO ANOTHER PERSON TO CONFESS JUDGMENT 4-45 OR APPEAR IN A LEGAL PROCEEDING ON YOUR BEHALF; 4-46 "(5) PROVIDE THAT YOU RECEIVE A COPY OF ALL 4-47 DOCUMENTS YOU SIGN AT CLOSING; 4-48 "(6) PROVIDE THAT THE SECURITY INSTRUMENTS 4-49 CONTAIN A DISCLOSURE THAT THIS LOAN IS A LOAN DEFINED BY SECTION 4-50 50(a)(6), ARTICLE XVI, OF THE TEXAS CONSTITUTION; 4-51 "(7) PROVIDE THAT WHEN THE LOAN IS PAID IN FULL, 4-52 THE LENDER WILL SIGN AND GIVE YOU A RELEASE OF LIEN OR AN 4-53 ASSIGNMENT OF THE LIEN, WHICHEVER IS APPROPRIATE; 4-54 "(8) PROVIDE THAT YOU MAY, WITHIN 3 DAYS AFTER 4-55 CLOSING, RESCIND THE LOAN WITHOUT PENALTY OR CHARGE; 4-56 "(9) PROVIDE THAT YOU AND THE LENDER ACKNOWLEDGE 4-57 THE FAIR MARKET VALUE OF YOUR HOME ON THE DATE THE LOAN CLOSES; 4-58 AND 4-59 "(10) PROVIDE THAT THE LENDER WILL FORFEIT ALL 4-60 PRINCIPAL AND INTEREST IF THE LENDER FAILS TO COMPLY WITH THE 4-61 LENDER'S OBLIGATIONS." 4-62 If the discussions with the borrower are conducted primarily 4-63 in a language other than English, the lender shall, before closing, 4-64 provide an additional copy of the notice translated into the 4-65 written language in which the discussions were conducted. 4-66 SECTION 3. This proposed constitutional amendment shall be 4-67 submitted to the voters at an election to be held November 2, 1999. 4-68 The ballot shall be printed to permit voting for or against the 4-69 proposition: "The constitutional amendment relating to application 5-1 of equity loan law to cooperative membership fees and 5-2 certificates." 5-3 * * * * *