By: West S.J.R. No. 52
SENATE JOINT RESOLUTION
proposing a constitutional amendment limiting fees charged to home
equity loan borrowers and prohibiting certain predatory practices.
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 the contract rate of [any] interest on
the original principal amount of the extension of credit, fees,
points, or other charges to any person that are necessary to
originate, evaluate, maintain, record, insure, or service the
extension of credit that exceed, in the aggregate, five and a half
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;
(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 installments 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:
(a) the notice prescribed by
Subsection (g) of this section; [and]
(b) a separate good faith estimate of
all fees, points, interest, costs, and charges that are necessary
to originate, evaluate, maintain, record, insure, or service the
extension of credit;
(c) a separate statement identifying
whether the new loan payments include amounts that will be
deposited into an escrow account to be used to pay hazard insurance
and property taxes on the property, and a good faith estimate of the
additional funds the borrower will need to set aside if the loan
payments do not include insurance and taxes; and
(d) if the extension of credit pays
off a prior home loan with interest at a lower annual percentage
rate, computed according to 15 U.S.C. Section 1606, the regulations
adopted under that section by the Board of Governors of the Federal
Reserve System, and the Official Staff Commentary on Regulation Z
published by the Board of Governors of the Federal Reserve System,
as amended, a separate good faith estimate of the additional
interest the borrower will be charged on the remaining principal
balance;
(ii) the third day after the date that the
owner of the homestead receives a final itemized disclosure of the
actual fees, points, interest, costs, and charges that will be
charged at closing; and
(iii) [(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;
(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
within a reasonable time after the lender or holder is notified by
the borrower of the lender's failure to comply;
(R) does not finance, directly or indirectly, any
premiums for credit life, credit disability, credit unemployment,
or credit property insurance, or any other life or health
insurance, or any payments for any debt cancellation or suspension
agreement or contract, except that insurance premiums or debt
cancellation or suspension payments computed and paid on a monthly
basis are not considered financed;
(S) does not assess a late charge greater than
four percent of the amount of the payment past due;
(T) is designed to produce a reasonable, tangible
net benefit to the borrower considering all the circumstances,
including the terms and cost of the loan, the terms of any
refinanced loan, and the borrower's circumstances; and
(U) is, if the loan has an annual percentage
rate, computed according to 15 U.S.C. Section 1606, the regulations
adopted under that section by the Board of Governors of the Federal
Reserve System, and the Official Staff Commentary on Regulation Z
published by the Board of Governors of the Federal Reserve System,
as amended, that exceeds six percentage points over the weekly
average yield on five-year United States Treasury securities made
with regard to the owner's ability to repay, based on a
consideration of the owner's current and expected income, current
obligations, employment status, and other financial resources,
other than the owner's equity in the collateral that secures
repayment of the loan;
(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(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, INCLUDING
POINTS, MAY NOT EXCEED 5.5 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;
"(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
PAYMENTS THAT EQUAL OR EXCEED THE AMOUNT OF ACCRUED INTEREST FOR
EACH PAYMENT PERIOD;
"(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; THE LOAN MAY
NOT CLOSE UNTIL YOU HAVE RECEIVED A FINAL STATEMENT OF THE FEES,
POINTS, INTEREST, COSTS, AND CHARGES YOU WILL ACTUALLY BE CHARGED
AT CLOSING; 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;
"(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 THAT IS NOT SECURED BY YOUR HOME OR 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;
"(R) THE LOAN MAY NOT FINANCE CREDIT INSURANCE OR
DEBT CANCELLATION AGREEMENTS;
"(S) YOUR LATE FEE CANNOT EXCEED 4 PERCENT OF THE
AMOUNT OF THE PAYMENT PAST DUE."
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 3. 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 limiting fees charged
to home equity loan borrowers and prohibiting certain predatory
practices."