By: Carona S.J.R. No. 42
Line and page numbers may not match official copy.
Bill not drafted by TLC or Senate E&E.
1-1 SENATE JOINT RESOLUTION
1-2 proposing a constitutional amendment correcting technical errors in
1-3 home equity lien provisions of the Texas Constitution and
1-4 clarifying a lender's ability to cure certain violations of the
1-5 home equity lien provisions.
1-6 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-7 SECTION 1. Section 50(a), Article XVI, Texas Constitution,
1-8 is amended to read as follows:
1-9 (a) The homestead of a family, or of a single adult person,
1-10 shall be, and is hereby protected from forced sale, for the payment
1-11 of all debts except for:
1-12 (1) the purchase money thereof, or a part of such
1-13 purchase money;
1-14 (2) the taxes due thereon;
1-15 (3) an owelty of partition imposed against the
1-16 entirety of the property by a court order or by a written agreement
1-17 of the parties to the partition, including a debt of one spouse in
1-18 favor of the other spouse resulting from a division or an award of
1-19 a family homestead in a divorce proceeding;
1-20 (4) the refinance of a lien against a homestead,
1-21 including a federal tax lien resulting from the tax debt of both
1-22 spouses, if the homestead is a family homestead, or from the tax
2-1 debt of the owner;
2-2 (5) work and material used in constructing new
2-3 improvements thereon, if contracted for in writing, or work and
2-4 material used to repair or renovate existing improvements thereon
2-5 if:
2-6 (A) the work and material are contracted for in
2-7 writing, with the consent of both spouses, in the case of a family
2-8 homestead, given in the same manner as is required in making a sale
2-9 and conveyance of the homestead;
2-10 (B) the contract for the work and material is
2-11 not executed by the owner or the owner's spouse before the 12th day
2-12 after the owner makes written application for any extension of
2-13 credit for the work and material, unless the work and material are
2-14 necessary to complete immediate repairs to conditions on the
2-15 homestead property that materially affect the health or safety of
2-16 the owner or person residing in the homestead and the owner of the
2-17 homestead acknowledges such in writing;
2-18 (C) the contract for the work and material
2-19 expressly provides that the owner may rescind the contract without
2-20 penalty or charge within three days after the execution of the
2-21 contract by all parties, unless the work and material are necessary
2-22 to complete immediate repairs to conditions on the homestead
2-23 property that materially affect the health or safety of the owner
2-24 or person residing in the homestead and the owner of the homestead
2-25 acknowledges such in writing; and
2-26 (D) the contract for the work and material is
3-1 executed by the owner and the owner's spouse only at the office of
3-2 a third-party lender making an extension of credit for the work and
3-3 material, an attorney at law, or a title company;
3-4 (6) an extension of credit that:
3-5 (A) is secured by a voluntary lien on the
3-6 homestead created under a written agreement with the consent of
3-7 each owner and each owner's spouse;
3-8 (B) is of a principal amount that when added to
3-9 the aggregate total of the outstanding principal balances of all
3-10 other indebtedness secured by valid encumbrances of record against
3-11 the homestead and other collateral permitted under Subsection
3-12 (a)(6)(H) does not exceed 80 percent of the fair market value of
3-13 the homestead and other collateral permitted under Subsection
3-14 (a)(6)(H) on the date the extension of credit is made unless the
3-15 extension of credit is made for the purpose described in Subsection
3-16 (a)(6)(S)(iii) or Subsection (t) of this section;
3-17 (C) is without recourse for personal liability
3-18 against each owner and the spouse of each owner, unless the owner
3-19 or spouse obtained the extension of credit by actual fraud;
3-20 (D) is secured by a lien that may be foreclosed
3-21 upon only by a court order;
3-22 (E) does not require the owner or the owner's
3-23 spouse to pay[, in addition to any interest,] fees other than
3-24 interest, late fees, returned check fees, and costs of foreclosure
3-25 to any person that are necessary to originate, evaluate, maintain,
3-26 record, [insure,] or service the extension of credit that exceed,
4-1 in the aggregate, three percent of the original principal amount of
4-2 the extension of credit;
4-3 (F) is not a form of open-end account that may
4-4 be debited from time to time or under which credit may be extended
4-5 from time to time;
4-6 (G) is payable in advance without penalty or
4-7 other charge;
4-8 (H) is not secured by any additional real or
4-9 personal property other than the land and improvements that the
4-10 borrower claims as homestead and any property or rights appurtenant
4-11 to the land and improvements;
4-12 (I) is not secured by homestead property
4-13 designated for agricultural use as provided by statutes governing
4-14 property tax, unless such homestead property is used primarily for
4-15 the production of milk;
4-16 (J) may not be accelerated because of a decrease
4-17 in the market value of the homestead or because of the owner's
4-18 default under other indebtedness not secured by a prior valid
4-19 encumbrance against the homestead;
4-20 (K) is the only debt secured by the homestead at
4-21 the time the extension of credit is made unless the other debt was
4-22 made for a purpose described by Subsections (a)(1)-(a)(5) of this
4-23 section;
4-24 (L) is scheduled to be repaid in substantially
4-25 equal successive monthly installments beginning no later than two
4-26 months from the date the extension of credit is made, each of which
5-1 equals or exceeds the amount of accrued interest as of the date of
5-2 the scheduled installment;
5-3 (M) is closed not before:
5-4 (i) the 12th day after the later of the
5-5 date that the owner of the homestead submits an application to the
5-6 lender for the extension of credit or the date that the lender
5-7 provides the owner a copy of the notice prescribed by Subsection
5-8 (g) of this section; and
5-9 (ii) the first anniversary of the closing
5-10 date of any other extension of credit described by Subsection
5-11 (a)(6) of this section secured by the same homestead property
5-12 unless the extension of credit is made for the purpose described in
5-13 Subsection (a)(6)(S)(iii) or Subsection (t) of this section;
5-14 (N) is closed only at the office of the lender,
5-15 an attorney at law, or a title company;
5-16 (O) permits a lender to contract for and receive
5-17 any fixed or variable rate of interest authorized under statute;
5-18 (P) is made by one of the following that has not
5-19 been found by a federal regulatory agency to have engaged in the
5-20 practice of refusing to make loans because the applicants for the
5-21 loans reside or the property proposed to secure the loans is
5-22 located in a certain area:
5-23 (i) a bank, savings and loan association,
5-24 savings bank, or credit union doing business under the laws of this
5-25 state or the United States;
5-26 (ii) a federally chartered lending
6-1 instrumentality or a person approved as a mortgagee by the United
6-2 States government to make federally insured loans;
6-3 (iii) a person licensed to make regulated
6-4 loans, as provided by statute of this state;
6-5 (iv) a person who sold the homestead
6-6 property to the current owner and who provided all or part of the
6-7 financing for the purchase; or
6-8 (v) a person who is related to the
6-9 homestead property owner within the second degree of affinity or
6-10 consanguinity; [and]
6-11 (Q) does not require the owner of the homestead
6-12 to [is made on the condition that]:
6-13 (i) [the owner of the homestead is not
6-14 required to] apply the proceeds of the extension of credit to repay
6-15 another debt except debt secured by the homestead or debt to
6-16 another lender;
6-17 (ii) [the owner of the homestead not]
6-18 assign wages as security for the extension of credit;
6-19 (iii) [the owner of the homestead not]
6-20 sign any instrument in which blanks are left to be filled in; or
6-21 (iv) [the owner of the homestead not] sign
6-22 a confession of judgment or power of attorney to the lender or to a
6-23 third person to confess judgment or to appear for the owner in a
6-24 judicial proceeding;
6-25 (R) complies with the requirement that:
6-26 (i) [(v)] the lender, at the time the
7-1 extension of credit is made, provide the owner of the homestead a
7-2 copy of all documents signed by the owner related to the extension
7-3 of credit; and
7-4 (ii) the owner of the homestead and the
7-5 lender sign a written acknowledgment as to the fair market value of
7-6 the homestead property on the date the extension of credit is made;
7-7 (S) is secured by security instruments that:
7-8 [(vi) the security instruments securing the extension of credit]
7-9 (i) contain a disclosure that the
7-10 extension of credit is the type of credit defined by Section
7-11 50(a)(6), Article XVI, Texas Constitution;
7-12 (ii) provide that the lender shall,
7-13 [(vii)] within a reasonable time after termination and full payment
7-14 of the extension of credit, [the lender] cancel and return the
7-15 promissory note to the owner of the homestead and give the owner,
7-16 in recordable form, a release of the lien securing the extension of
7-17 credit or a copy of an endorsement and assignment of the lien to a
7-18 lender that is refinancing the extension of credit;
7-19 [(viii) the owner of the homestead and any
7-20 spouse of the owner may, within three days after the extension of
7-21 credit is made, rescind the extension of credit without penalty or
7-22 charge;]
7-23 [(ix) the owner of the homestead and the
7-24 lender sign a written acknowledgment as to the fair market value of
7-25 the homestead property on the date the extension of credit is
7-26 made;] and
8-1 (iii) provide that if the lender or holder
8-2 of the note for the extension of credit fails to comply with the
8-3 lender's or holder's obligations under the extension of credit, the
8-4 lender or holder shall forfeit all principal and interest of the
8-5 extension of credit unless the failure to comply is not a bad faith
8-6 failure to comply and the lender or holder, not later than 60 days
8-7 after the lender or holder actually discovers the failure to
8-8 comply, either corrects the failure to comply or, if the failure to
8-9 comply is not capable of correction, offers the owner of the
8-10 homestead the right to elect one of the following within 90 days
8-11 from the date the owner of the homestead receives the offer:
8-12 (I) a right to refinance the
8-13 outstanding principal balance of the extension of credit with the
8-14 lender or holder at no cost to the owner of the homestead and on
8-15 the same terms, including the interest rate, as the original
8-16 extension of credit with any modifications necessary to comply with
8-17 this section or on terms otherwise acceptable to the owner of the
8-18 homestead and the lender or holder; or
8-19 (II) payment from the lender or
8-20 holder in an amount equal to the greater of $500 or the owner's
8-21 actual damages caused by the failure to comply; and [(x) the
8-22 lender or any holder of the note for the extension of credit shall
8-23 forfeit all principal and interest of the extension of credit if
8-24 the lender or holder fails to comply with the lender's or holder's
8-25 obligations under the extension of credit within a reasonable time
8-26 after the lender or holder is notified by the borrower of the
9-1 lender's failure to comply;]
9-2 (T) permits the owner of the homestead and any
9-3 spouse of the owner to rescind the extension of credit without
9-4 penalty or charge within three days after the extension of credit
9-5 is made; or
9-6 (7) a reverse mortgage.
9-7 SECTION 2. Section 50(e)-(g), Article XVI, Texas
9-8 Constitution, is amended to read as follows:
9-9 (e) If a [A] refinance of debt secured by a homestead and
9-10 described by any subsection under Subsections (a)(1)-(a)(5) [that]
9-11 includes the advance of additional funds, the additional funds may
9-12 not be secured by a valid lien against the homestead except to the
9-13 extent that [unless]:
9-14 (1) the refinance of the debt is an extension of
9-15 credit described by Subsection (a)(6) or (a)(7) of this section; or
9-16 (2) [the advance of all] the additional funds are [is]
9-17 for actual [reasonable] costs and reserves required by the lender
9-18 [necessary] to refinance such debt or for a purpose described by
9-19 Subsection (a)(2), (a)(3), or (a)(5) of this section.
9-20 (f) A refinance of debt secured by the homestead, any
9-21 portion of which is an extension of credit described by Subsection
9-22 (a)(6) of this section, may not be secured by a valid lien against
9-23 the homestead unless the refinance of the debt is an extension of
9-24 credit described by Subsection (a)(6) or (a)(7) of this section.
9-25 (g) An extension of credit described by Subsection (a)(6) of
9-26 this section may be secured by a valid lien against homestead
10-1 property if the extension of credit is not closed before the 12th
10-2 day after the lender provides the owner with the following written
10-3 notice on a separate instrument:
10-4 "NOTICE CONCERNING EXTENSIONS OF CREDIT DEFINED BY SECTION
10-5 50(a)(6), ARTICLE XVI, TEXAS CONSTITUTION:
10-6 "SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS CONSTITUTION
10-7 ALLOWS CERTAIN LOANS TO BE SECURED AGAINST THE EQUITY IN YOUR HOME.
10-8 SUCH LOANS ARE COMMONLY KNOWN AS EQUITY LOANS. IF YOU DO NOT REPAY
10-9 THE LOAN OR IF YOU FAIL TO MEET THE TERMS OF THE LOAN, THE LENDER
10-10 MAY FORECLOSE AND SELL YOUR HOME. THE CONSTITUTION PROVIDES THAT:
10-11 "(A) THE LOAN MUST BE VOLUNTARILY CREATED WITH THE
10-12 CONSENT OF EACH OWNER OF YOUR HOME AND EACH OWNER'S SPOUSE;
10-13 "(B) THE PRINCIPAL LOAN AMOUNT AT THE TIME THE LOAN IS
10-14 MADE MUST NOT EXCEED AN AMOUNT THAT, WHEN ADDED TO THE PRINCIPAL
10-15 BALANCES OF ALL OTHER LIENS AGAINST YOUR HOME, IS MORE THAN 80
10-16 PERCENT OF THE FAIR MARKET VALUE OF YOUR HOME UNLESS THE LOAN IS
10-17 MADE TO CORRECT AN ERROR IN A PRIOR EQUITY LOAN;
10-18 "(C) THE LOAN MUST BE WITHOUT RECOURSE FOR PERSONAL
10-19 LIABILITY AGAINST YOU AND YOUR SPOUSE UNLESS YOU OR YOUR SPOUSE
10-20 OBTAINED THIS EXTENSION OF CREDIT BY ACTUAL FRAUD;
10-21 "(D) THE LIEN SECURING THE LOAN MAY BE FORECLOSED UPON
10-22 ONLY WITH A COURT ORDER;
10-23 "(E) OTHER THAN INTEREST, LATE FEES, RETURNED CHECK
10-24 FEES, AND COSTS OF FORECLOSURE, YOU ARE NOT REQUIRED TO PAY FEES TO
10-25 ORIGINATE, EVALUATE, MAINTAIN, RECORD, OR SERVICE THE LOAN THAT
10-26 EXCEED 3 PERCENT OF THE LOAN AMOUNT [FEES AND CHARGES TO MAKE THE
11-1 LOAN MAY NOT EXCEED 3 PERCENT OF THE LOAN AMOUNT];
11-2 "(F) THE LOAN MAY NOT BE AN OPEN-END ACCOUNT THAT MAY
11-3 BE DEBITED FROM TIME TO TIME OR UNDER WHICH CREDIT MAY BE EXTENDED
11-4 FROM TIME TO TIME;
11-5 "(G) YOU MAY PREPAY THE LOAN WITHOUT PENALTY OR
11-6 CHARGE;
11-7 "(H) NO [ADDITIONAL] COLLATERAL OTHER THAN THE
11-8 PROPERTY YOU CLAIM TO BE YOUR HOMESTEAD AND THE PROPERTY RIGHTS
11-9 APPURTENANT TO IT MAY BE SECURITY FOR THE LOAN;
11-10 "(I) THE LOAN MAY NOT BE SECURED BY AGRICULTURAL
11-11 HOMESTEAD PROPERTY, UNLESS THE AGRICULTURAL HOMESTEAD PROPERTY IS
11-12 USED PRIMARILY FOR THE PRODUCTION OF MILK;
11-13 "(J) YOU ARE NOT REQUIRED TO REPAY THE LOAN EARLIER
11-14 THAN AGREED SOLELY BECAUSE THE FAIR MARKET VALUE OF YOUR HOME
11-15 DECREASES OR BECAUSE YOU DEFAULT ON ANOTHER LOAN THAT IS NOT
11-16 SECURED BY YOUR HOME;
11-17 "(K) ONLY ONE LOAN DESCRIBED BY SECTION 50(a)(6),
11-18 ARTICLE XVI, OF THE TEXAS CONSTITUTION MAY BE SECURED WITH YOUR
11-19 HOME AT ANY GIVEN TIME;
11-20 "(L) THE LOAN MUST BE SCHEDULED TO BE REPAID IN
11-21 PAYMENTS THAT EQUAL OR EXCEED THE AMOUNT OF ACCRUED INTEREST FOR
11-22 EACH PAYMENT PERIOD;
11-23 "(M) THE LOAN MAY NOT CLOSE BEFORE 12 DAYS AFTER YOU
11-24 SUBMIT AN [A WRITTEN] APPLICATION TO THE LENDER OR BEFORE 12 DAYS
11-25 AFTER THE LENDER PROVIDES YOU [RECEIVE] THIS NOTICE, WHICHEVER DATE
11-26 IS LATER; AND IF YOUR HOME WAS SECURITY FOR THE SAME TYPE OF LOAN
12-1 WITHIN THE PAST YEAR, A NEW LOAN SECURED BY THE SAME PROPERTY MAY
12-2 NOT CLOSE BEFORE ONE YEAR HAS PASSED FROM THE CLOSING DATE OF THE
12-3 OTHER LOAN UNLESS THE LOAN IS MADE TO CORRECT AN ERROR IN A PRIOR
12-4 EQUITY LOAN;
12-5 "(N) THE LOAN MAY CLOSE ONLY AT THE OFFICE OF THE
12-6 LENDER, TITLE COMPANY, OR AN ATTORNEY AT LAW;
12-7 "(O) THE LENDER MAY CHARGE ANY FIXED OR VARIABLE RATE
12-8 OF INTEREST AUTHORIZED BY STATUTE;
12-9 "(P) ONLY A LAWFULLY AUTHORIZED LENDER MAY MAKE LOANS
12-10 DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS
12-11 CONSTITUTION; [AND]
12-12 "(Q) THE LENDER MAY NOT REQUIRE YOU TO [LOANS
12-13 DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS
12-14 CONSTITUTION MUST]:
12-15 "(1) [NOT REQUIRE YOU TO] APPLY THE PROCEEDS OF
12-16 THE LOAN TO ANOTHER DEBT, EXCEPT A DEBT THAT IS [NOT] SECURED BY
12-17 YOUR HOME OR [TO ANOTHER] DEBT YOU OWE TO ANOTHER [TO THE SAME]
12-18 LENDER;
12-19 "(2) [NOT REQUIRE THAT YOU] ASSIGN WAGES AS
12-20 SECURITY;
12-21 "(3) [NOT REQUIRE THAT YOU] EXECUTE INSTRUMENTS
12-22 WHICH HAVE BLANKS LEFT TO BE FILLED IN; OR
12-23 "(4) [NOT REQUIRE THAT YOU] SIGN A CONFESSION OF
12-24 JUDGMENT OR POWER OF ATTORNEY TO ANOTHER PERSON TO CONFESS JUDGMENT
12-25 OR APPEAR IN A LEGAL PROCEEDING ON YOUR BEHALF;
12-26 "(R) IS MADE ON THE CONDITION THAT:
13-1 "(1) [(5) PROVIDE THAT] YOU RECEIVE A COPY OF
13-2 ALL DOCUMENTS YOU SIGN AT CLOSING; AND
13-3 "(2) YOU AND THE LENDER ACKNOWLEDGE THE FAIR
13-4 MARKET VALUE OF YOUR HOMESTEAD ON THE DATE THE LOAN CLOSES;
13-5 "(S) THE SECURITY INSTRUMENTS FOR THE LOAN MUST:
13-6 "(1) [(6) PROVIDE THAT THE SECURITY INSTRUMENTS]
13-7 CONTAIN A DISCLOSURE THAT THIS LOAN IS A LOAN DEFINED BY SECTION
13-8 50(a)(6), ARTICLE XVI, OF THE TEXAS CONSTITUTION;
13-9 "(2) [(7)] PROVIDE THAT WHEN THE LOAN IS PAID IN
13-10 FULL, THE LENDER WILL SIGN AND GIVE YOU A RELEASE OF LIEN OR AN
13-11 ASSIGNMENT OF THE LIEN, WHICHEVER IS APPROPRIATE;
13-12 ["(8) PROVIDE THAT YOU MAY, WITHIN 3 DAYS AFTER
13-13 CLOSING, RESCIND THE LOAN WITHOUT PENALTY OR CHARGE;]
13-14 ["(9) PROVIDE THAT YOU AND THE LENDER
13-15 ACKNOWLEDGE THE FAIR MARKET VALUE OF YOUR HOME ON THE DATE THE LOAN
13-16 CLOSES;] AND
13-17 "(3) [(10)] PROVIDE THAT THE LENDER WILL FORFEIT
13-18 ALL PRINCIPAL AND INTEREST IF THE LENDER FAILS TO COMPLY WITH THE
13-19 LENDER'S OBLIGATIONS UNLESS THE FAILURE TO COMPLY IS NOT A BAD
13-20 FAITH FAILURE TO COMPLY AND NOT LATER THAN 60 DAYS AFTER THE LENDER
13-21 ACTUALLY DISCOVERS THE NON-COMPLIANCE THE LENDER EITHER CORRECTS
13-22 THE NON-COMPLIANCE OR, IF IT IS NOT CAPABLE OF CORRECTION, THE
13-23 LENDER OFFERS YOU THE CHOICE TO:
13-24 "(I) REFINANCE THE LOAN AT NO COST TO YOU
13-25 AND ON THE SAME TERMS AS THE ORIGINAL LOAN OR ON TERMS OTHERWISE
13-26 ACCEPTABLE TO YOU AND THE LENDER; OR
14-1 "(II) RECEIVE FROM THE LENDER A PAYMENT
14-2 EQUAL TO THE GREATER OF $500 OR YOU ACTUAL DAMAGES CAUSED BY THE
14-3 NON-COMPLIANCE; AND
14-4 "(T) YOU MAY, WITHIN 3 DAYS AFTER CLOSING, RESCIND THE
14-5 LOAN WITHOUT PENALTY OR CHARGE."
14-6 If the discussions with the borrower are conducted primarily
14-7 in a language other than English, the lender shall, before closing,
14-8 provide an additional copy of the notice translated into the
14-9 written language in which the discussions were conducted.
14-10 SECTION 3. Article XVI, Texas Constitution, is amended by
14-11 adding new Subsection (t) to read as follows:
14-12 (t) If a lender makes an extension of credit that is
14-13 ostensibly an extension of credit under Subsection (a)(6) of this
14-14 section and the lender discovers that the extension of credit does
14-15 not fully comply with the description under Subsection (a)(6) of
14-16 this section, the lien securing the extension of credit is not
14-17 invalid if the lender did not in bad faith cause the failure to
14-18 comply and the lender, not later than 60 days after the lender
14-19 discovers the failure to comply, either corrects the failure to
14-20 comply or, if the failure to comply is not capable of correction,
14-21 offers the owner of the homestead the right to elect one of the
14-22 following within 90 days from the date the owner of the homestead
14-23 receives the offer:
14-24 (1) a right to refinance the outstanding principal
14-25 balance of the extension of credit with the lender or holder at no
14-26 cost to the owner of the homestead on the same terms, including the
15-1 interest rate, as the original extension of credit with any
15-2 modifications necessary to comply with this section or on terms
15-3 otherwise acceptable to the owner of the homestead and the lender
15-4 or holder; or
15-5 (2) payment from the lender or holder in an amount
15-6 equal to the greater of $500 or the owner's actual damages caused
15-7 by the failure to comply.
15-8 SECTION 4. This proposed constitutional amendment shall be
15-9 submitted to the voters at an election to be held November 6, 2001.
15-10 The ballot shall be printed to permit voting for or against the
15-11 proposition: "The amendment to the Texas Constitution correcting
15-12 technical errors in home equity lien provisions of the Texas
15-13 Constitution and clarifying a lender's ability to cure certain
15-14 violations of the home equity lien provisions."