By: Solomons H.J.R. No. 70
A JOINT RESOLUTION
proposing a constitutional amendment relating to home equity loans.
BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 50(a), Article XVI, Texas Constitution,
is amended to read as follows:
(a) The homestead of a family, or of a single adult person,
shall be, and is hereby protected from forced sale, for the payment
of all debts except for:
(1) the purchase money thereof, or a part of such
purchase money;
(2) the taxes due thereon;
(3) an owelty of partition imposed against the
entirety of the property by a court order or by a written agreement
of the parties to the partition, including a debt of one spouse in
favor of the other spouse resulting from a division or an award of a
family homestead in a divorce proceeding;
(4) the refinance of a lien against a homestead,
including a federal tax lien resulting from the tax debt of both
spouses, if the homestead is a family homestead, or from the tax
debt of the owner;
(5) work and material used in constructing new
improvements thereon, if contracted for in writing, or work and
material used to repair or renovate existing improvements thereon
if:
(A) the work and material are contracted for in
writing, with the consent of both spouses, in the case of a family
homestead, given in the same manner as is required in making a sale
and conveyance of the homestead;
(B) the contract for the work and material is not
executed by the owner or the owner's spouse before the fifth day
after the owner makes written application for any extension of
credit for the work and material, unless the work and material are
necessary to complete immediate repairs to conditions on the
homestead property that materially affect the health or safety of
the owner or person residing in the homestead and the owner of the
homestead acknowledges such in writing;
(C) the contract for the work and material
expressly provides that the owner may rescind the contract without
penalty or charge within three days after the execution of the
contract by all parties, unless the work and material are necessary
to complete immediate repairs to conditions on the homestead
property that materially affect the health or safety of the owner or
person residing in the homestead and the owner of the homestead
acknowledges such in writing; and
(D) the contract for the work and material is
executed by the owner and the owner's spouse only at the office of a
third-party lender making an extension of credit for the work and
material, an attorney at law, or a title company;
(6) an extension of credit that:
(A) is secured by a voluntary lien on the
homestead created under a written agreement with the consent of
each owner and each owner's spouse;
(B) is of a principal amount that when added to
the aggregate total of the outstanding principal balances of all
other indebtedness secured by valid encumbrances of record against
the homestead does not exceed 80 percent of the fair market value of
the homestead on the date the extension of credit is made;
(C) is without recourse for personal liability
against each owner and the spouse of each owner, unless the owner or
spouse obtained the extension of credit by actual fraud;
(D) is secured by a lien that may be foreclosed
upon only by a court order;
(E) does not require the owner or the owner's
spouse to pay, in addition to any interest, fees to any person that
are necessary to originate, evaluate, maintain, record, insure, or
service the extension of credit that exceed, in the aggregate,
three percent of the original principal amount of the extension of
credit;
(F) is not a form of open-end account that may be
debited from time to time or under which credit may be extended from
time to time unless it is an open-end account under which:
(i) all fees described by Subsection
(a)(6)(E) of this section in connection with or related to the
open-end account are charged to the owner at the time of closing;
(ii) no fees are charged to the owner in
connection with any debit from the open-end account;
(iii) no debit from the open-end account
may be less than $5,000; and
(iv) no debit from the open-end account may
be made after the fifth anniversary of the date of the loan;
(G) is payable in advance without penalty or
other charge;
(H) is not secured by any additional real or
personal property other than the homestead;
(I) is not secured by homestead property
designated for agricultural use as provided by statutes governing
property tax, unless such homestead property is used primarily for
the production of milk;
(J) may not be accelerated because of a decrease
in the market value of the homestead or because of the owner's
default under other indebtedness not secured by a prior valid
encumbrance against the homestead;
(K) is the only debt secured by the homestead at
the time the extension of credit is made unless the other debt was
made for a purpose described by Subsections (a)(1)-(a)(5) of this
section;
(L) is scheduled to be repaid in substantially
equal successive [monthly] periodic installments, not less often
than monthly, beginning no later than two months from the date the
extension of credit is made, each of which equals or exceeds the
amount of accrued interest as of the date of the scheduled
installment;
(M) is closed not before:
(i) the 12th day after the later of the date
that the owner of the homestead submits an application to the lender
for the extension of credit or the date that the lender provides the
owner a copy of the notice prescribed by Subsection (g) of this
section; and
(ii) the first anniversary of the closing
date of any other extension of credit described by Subsection
(a)(6) of this section secured by the same homestead property,
unless the new extension of credit is made for the sole purpose of
refinancing only the existing indebtedness secured by the homestead
property and no fees as described under Subsection (a)(6)(E) of
this section are charged to the owner of the homestead;
(N) is closed only at the office of the lender, an
attorney at law, or a title company;
(O) permits a lender to contract for and receive
any fixed or variable rate of interest authorized under statute;
(P) is made by one of the following that has not
been found by a federal regulatory agency to have engaged in the
practice of refusing to make loans because the applicants for the
loans reside or the property proposed to secure the loans is located
in a certain area:
(i) a bank, savings and loan association,
savings bank, or credit union doing business under the laws of this
state or the United States;
(ii) a federally chartered lending
instrumentality or a person approved as a mortgagee by the United
States government to make federally insured loans;
(iii) a person licensed to make regulated
loans, as provided by statute of this state;
(iv) a person who sold the homestead
property to the current owner and who provided all or part of the
financing for the purchase; or
(v) a person who is related to the homestead
property owner within the second degree of affinity or
consanguinity; and
(Q) is made on the condition that:
(i) the owner of the homestead is not
required to apply the proceeds of the extension of credit to repay
another debt except debt secured by the homestead or debt to another
lender;
(ii) the owner of the homestead not assign
wages as security for the extension of credit;
(iii) the owner of the homestead not sign
any instrument in which blanks are left to be filled in;
(iv) the owner of the homestead not sign a
confession of judgment or power of attorney to the lender or to a
third person to confess judgment or to appear for the owner in a
judicial proceeding;
(v) the lender, at the time the extension of
credit is made, provide the owner of the homestead a copy of all
documents signed by the owner related to the extension of credit;
(vi) the security instruments securing the
extension of credit contain a disclosure that the extension of
credit is the type of credit defined by Section 50(a)(6), Article
XVI, Texas Constitution;
(vii) within a reasonable time after
termination and full payment of the extension of credit, the lender
cancel and return the promissory note to the owner of the homestead
and give the owner, in recordable form, a release of the lien
securing the extension of credit or a copy of an endorsement and
assignment of the lien to a lender that is refinancing the extension
of credit;
(viii) the owner of the homestead and any
spouse of the owner may, within three days after the extension of
credit is made, rescind the extension of credit without penalty or
charge;
(ix) the owner of the homestead and the
lender sign a written acknowledgment as to the fair market value of
the homestead property on the date the extension of credit is made;
and
(x) the lender or any holder of the note for
the extension of credit shall forfeit all principal and interest of
the extension of credit if the lender or holder fails to comply with
the lender's or holder's obligations under the extension of credit
and fails to correct the failure to comply not later than the 60th
day after the lender or holder knows or receives notice of the
failure to comply by:
(a) paying to the owner an amount
equal to the greater of:
(1) one hundred fifty percent of
any overcharge imposed on the owner under or related to the
extension of credit; or
(2) $1,000; or
(b) offering the owner, if the failure
to comply is not an overcharge, the right to elect to:
(1) refinance the extension of
credit with the lender or holder at no cost to the owner on the same
terms, including interest, as the original extension of credit with
any modifications necessary to comply with this section or on terms
on which the owner and the lender or holder otherwise agree; or
(2) receive $1,000 from the
lender or holder; [within a reasonable time after the lender or
holder is notified by the borrower of the lender's failure to
comply;]
(7) a reverse mortgage; or
(8) the conversion and refinance of a personal
property lien secured by a manufactured home to a lien on real
property, including the refinance of the purchase price of the
manufactured home, the cost of installing the manufactured home on
the real property, and the refinance of the purchase price of the
real property.
SECTION 2. Section 50(f), Article XVI, Texas Constitution,
is amended to read as follows:
(f) A refinance of debt secured by the homestead, any
portion of which is an extension of credit described by Subsection
(a)(6) of this section, may not be secured by a valid lien against
the homestead unless:
(1) the refinance of the debt is an extension of credit
described by Subsection (a)(6) or (a)(7) of this section; or
(2) the refinance of the debt meets all of the
following conditions:
(A) property securing the refinanced debt is not
subject to one or more valid and enforceable prior contractual
liens or security interests;
(B) the refinance is not closed before one year
after the date that the extension of credit describe by Subsection
(a)(6) of this section was closed;
(C) the lender also offered the borrower a
refinance of debt under Subsection (f)(1) of this section;
(D) the borrower twice consented in writing to a
waiver of the borrower's rights applicable to an extension of
credit described by Subsection (a)(6) of this section; and
(E) the extension of credit does not include the
advance of any additional funds except for actual costs and
reserves required by the lender to refinance such debt.
SECTION 3. Section 50(g), Article XVI, Texas Constitution,
is amended to read as follows:
(g) An extension of credit described by Subsection (a)(6) of
this section may be secured by a valid lien against homestead
property if the extension of credit is not closed before the 12th
day after the lender provides the owner with the following written
notice on a separate instrument:
"NOTICE CONCERNING EXTENSIONS OF CREDIT DEFINED BY SECTION
50(a)(6), ARTICLE XVI, TEXAS CONSTITUTION:
"SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS CONSTITUTION ALLOWS
CERTAIN LOANS TO BE SECURED AGAINST THE EQUITY IN YOUR HOME. SUCH
LOANS ARE COMMONLY KNOWN AS EQUITY LOANS. IF YOU DO NOT REPAY THE
LOAN OR IF YOU FAIL TO MEET THE TERMS OF THE LOAN, THE LENDER MAY
FORECLOSE AND SELL YOUR HOME. THE CONSTITUTION PROVIDES THAT:
"(A) THE LOAN MUST BE VOLUNTARILY CREATED WITH THE CONSENT
OF EACH OWNER OF YOUR HOME AND EACH OWNER'S SPOUSE;
"(B) THE PRINCIPAL LOAN AMOUNT AT THE TIME THE LOAN IS MADE
MUST NOT EXCEED AN AMOUNT THAT, WHEN ADDED TO THE PRINCIPAL BALANCES
OF ALL OTHER LIENS AGAINST YOUR HOME, IS MORE THAN 80 PERCENT OF THE
FAIR MARKET VALUE OF YOUR HOME;
"(C) THE LOAN MUST BE WITHOUT RECOURSE FOR PERSONAL
LIABILITY AGAINST YOU AND YOUR SPOUSE UNLESS YOU OR YOUR SPOUSE
OBTAINED THIS EXTENSION OF CREDIT BY ACTUAL FRAUD;
"(D) THE LIEN SECURING THE LOAN MAY BE FORECLOSED UPON ONLY
WITH A COURT ORDER;
"(E) FEES AND CHARGES TO MAKE THE LOAN MAY NOT EXCEED 3
PERCENT OF THE LOAN AMOUNT;
"(F) THE LOAN MAY NOT BE AN OPEN-END ACCOUNT THAT MAY BE
DEBITED FROM TIME TO TIME OR UNDER WHICH CREDIT MAY BE EXTENDED FROM
TIME TO TIME UNLESS IT IS AN OPEN-END ACCOUNT UNDER WHICH ALL FEES
ARE PAID AT CLOSING, NO SINGLE DEBIT IS LESS THAN $5,000, AND NO
ADDITIONAL FEES MAY BE CHARGED TO ACCESS THE OPEN-END ACCOUNT;
"(G) YOU MAY PREPAY THE LOAN WITHOUT PENALTY OR CHARGE;
"(H) NO ADDITIONAL COLLATERAL MAY BE SECURITY FOR THE LOAN;
"(I) THE LOAN MAY NOT BE SECURED BY AGRICULTURAL HOMESTEAD
PROPERTY, UNLESS THE AGRICULTURAL HOMESTEAD PROPERTY IS USED
PRIMARILY FOR THE PRODUCTION OF MILK;
"(J) YOU ARE NOT REQUIRED TO REPAY THE LOAN EARLIER THAN
AGREED SOLELY BECAUSE THE FAIR MARKET VALUE OF YOUR HOME DECREASES
OR BECAUSE YOU DEFAULT ON ANOTHER LOAN THAT IS NOT SECURED BY YOUR
HOME;
"(K) ONLY ONE LOAN DESCRIBED BY SECTION 50(a)(6), ARTICLE
XVI, OF THE TEXAS CONSTITUTION MAY BE SECURED WITH YOUR HOME AT ANY
GIVEN TIME;
"(L) THE LOAN MUST BE SCHEDULED TO BE REPAID IN
SUBSTANTIALLY EQUAL SUCCESSIVE PERIODIC PAYMENTS THAT EQUAL OR
EXCEED THE AMOUNT OF ACCRUED INTEREST FOR EACH PAYMENT PERIOD, AND
YOU MAY CHOOSE A PAYMENT PERIOD THAT IS LESS THAN ONE MONTH;
"(M) THE LOAN MAY NOT CLOSE BEFORE 12 DAYS AFTER YOU SUBMIT A
WRITTEN APPLICATION TO THE LENDER OR BEFORE 12 DAYS AFTER YOU
RECEIVE THIS NOTICE, WHICHEVER DATE IS LATER; AND IF YOUR HOME WAS
SECURITY FOR THE SAME TYPE OF LOAN WITHIN THE PAST YEAR, A NEW LOAN
SECURED BY THE SAME PROPERTY MAY NOT CLOSE BEFORE ONE YEAR HAS
PASSED FROM THE CLOSING DATE OF THE OTHER LOAN UNLESS THE NEW LOAN
IS A REFINANCE ONLY OF EXISTING DEBT SECURED BY THE PROPERTY AND THE
LENDER DOES NOT CHARGE YOU ANY FEES FOR THE NEW LOAN;
"(N) THE LOAN MAY CLOSE ONLY AT THE OFFICE OF THE LENDER,
TITLE COMPANY, OR AN ATTORNEY AT LAW;
"(O) THE LENDER MAY CHARGE ANY FIXED OR VARIABLE RATE OF
INTEREST AUTHORIZED BY STATUTE;
"(P) ONLY A LAWFULLY AUTHORIZED LENDER MAY MAKE LOANS
DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS
CONSTITUTION; AND
"(Q) LOANS DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF
THE TEXAS CONSTITUTION MUST:
"(1) NOT REQUIRE YOU TO APPLY THE PROCEEDS TO ANOTHER
DEBT, EXCEPT A DEBT THAT IS [NOT] SECURED BY YOUR HOME OR OWED TO
ANOTHER [DEBT TO THE SAME] LENDER;
"(2) NOT REQUIRE THAT YOU ASSIGN WAGES AS SECURITY;
"(3) NOT REQUIRE THAT YOU EXECUTE INSTRUMENTS WHICH
HAVE BLANKS LEFT TO BE FILLED IN;
"(4) NOT REQUIRE THAT YOU SIGN A CONFESSION OF
JUDGMENT OR POWER OF ATTORNEY TO ANOTHER PERSON TO CONFESS JUDGMENT
OR APPEAR IN A LEGAL PROCEEDING ON YOUR BEHALF;
"(5) PROVIDE THAT YOU RECEIVE A COPY OF ALL DOCUMENTS
YOU SIGN AT CLOSING;
"(6) PROVIDE THAT THE SECURITY INSTRUMENTS CONTAIN A
DISCLOSURE THAT THIS LOAN IS A LOAN DEFINED BY SECTION 50(a)(6),
ARTICLE XVI, OF THE TEXAS CONSTITUTION;
"(7) PROVIDE THAT WHEN THE LOAN IS PAID IN FULL, THE
LENDER WILL SIGN AND GIVE YOU A RELEASE OF LIEN OR AN ASSIGNMENT OF
THE LIEN, WHICHEVER IS APPROPRIATE;
"(8) PROVIDE THAT YOU MAY, WITHIN 3 DAYS AFTER
CLOSING, RESCIND THE LOAN WITHOUT PENALTY OR CHARGE;
"(9) PROVIDE THAT YOU AND THE LENDER ACKNOWLEDGE THE
FAIR MARKET VALUE OF YOUR HOME ON THE DATE THE LOAN CLOSES; AND
"(10) PROVIDE THAT THE LENDER WILL FORFEIT ALL
PRINCIPAL AND INTEREST IF THE LENDER FAILS TO COMPLY WITH THE
LENDER'S OBLIGATIONS UNLESS THE LENDER CORRECTS THE FAILURE TO
COMPLY AS PROVIDED BY SECTION 50(a)(6)(Q)(x), ARTICLE XVI, TEXAS
CONSTITUTION." If the discussions with the borrower are conducted
primarily in a language other than English, the lender shall,
before closing, provide an additional copy of the notice translated
into the written language in which the discussions were conducted.
SECTION 4. Section 50, Article XVI, Texas Constitution, is
amended by adding Subsections (t) and (u) to read as follows:
(t) A refinance of debt under Subsection (f)(2) of this
section is considered to be a refinance of a lien against a
homestead described by Subsection (a)(4) of this section.
(u) The legislature may be general law authorize the Finance
Commission of Texas and the Texas Real Estate Commission to issue
interpretations of Subsections (a)(5)-(7), (e)-(p), and (t) of this
section. An act or omission does not violate a provision included
in those subsections if the act or omission conforms to an
interpretation of the provision that is:
(1) in effect at the time of the act or omission; and
(2) issued by:
(A) the Finance Commission of Texas and the Texas
Real Estate Commission; or
(B) an appellate court of this state or the
United States.
SECTION 5. This proposed constitutional amendment shall be
submitted to the voters at an election to be held November 4, 2003.
The ballot shall be printed to permit voting for or against the
proposition: "The constitutional amendment expanding the
permissible uses, types, and refinancing options of home equity
loans."