79R11933 CLG-D
By: Goolsby H.B. No. 637
A BILL TO BE ENTITLED
AN ACT
relating to authorizing an extension of credit secured by a
residence homestead in which a minor or ward has an ownership
interest.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 781, Texas Probate Code, is amended by
adding Subsections (a-1) and (a-2) and amending Subsection (b) to
read as follows:
(a-1) The guardian of the estate may also receive an
extension of credit on the ward's behalf that is secured, wholly or
partly, by a lien on real property that is the homestead of the
ward, under court order, when necessary to:
(1) make improvements or repairs to the homestead; or
(2) pay for education or medical expenses of the ward.
(a-2) Proceeds of a home equity loan described by
Subsection (a-1) of this section may be used only for the purposes
authorized under Subsection (a-1) of this section and to pay the
outstanding balance of the loan.
(b) When it is necessary to borrow money for any of the
purposes authorized under Subsection (a) or (a-1) of this section,
or to create or extend a lien on property of the estate as security,
a sworn application for the authority to borrow money shall be filed
with the court, stating fully and in detail the circumstances that
the guardian of the estate believes make necessary the granting of
the authority. On the filing of an application under this
subsection, the clerk shall issue and cause to be posted a citation
to all interested persons, stating the nature of the application
and requiring the interested persons to appear and show cause why
the application should not be granted.
SECTION 2. Subpart F, Part 5, Chapter XIII, Texas Probate
Code, is amended by adding Sections 889A and 890A to read as
follows:
Sec. 889A. MORTGAGE OF RESIDENTIAL HOMESTEAD INTEREST OF A
MINOR WITHOUT GUARDIANSHIP. (a) In this section:
(1) "Home equity loan" means a loan made under Section
50(a)(6), Article XVI, Texas Constitution.
(2) "Residence homestead" has the meaning assigned by
Section 11.13, Tax Code.
(b) When a minor has an interest in a residence homestead
and the net value of the interest does not exceed $100,000, a
natural or adoptive parent, subject to Subsection (j) of this
section, or the managing conservator, of a minor who is not a ward
may apply to the court for an order authorizing the parent or
managing conservator to receive, without being appointed guardian,
an extension of credit on the minor's behalf that is secured, wholly
or partly, by a lien on the homestead. Proceeds of the home equity
loan attributable to the minor's interest may be used only to:
(1) make improvements to the homestead;
(2) pay for education or medical expenses of the
minor; or
(3) pay the outstanding balance of the loan.
(c) The parent or managing conservator shall apply to the
court under oath for the authority to encumber the residence
homestead as provided by this section. Venue for the application is
the same as venue for an application for the appointment of a
guardian for a minor. The application must contain:
(1) the name and address of the minor;
(2) a legal description of the property constituting
the homestead;
(3) a description of the minor's ownership interest in
the property constituting the homestead;
(4) the name of the minor and the fair market value of
the property constituting the homestead;
(5) the amount of the home equity loan;
(6) the purpose or purposes for which the home equity
loan is being sought;
(7) a detailed description of the proposed expenditure
of the loan proceeds to be received by the parent or managing
conservator on the minor's behalf; and
(8) a statement that all loan proceeds received by the
parent or managing conservator on the minor's behalf through a home
equity loan authorized under this section shall be used in a manner
that is for the minor's benefit.
(d) On receipt of the application, the court shall set the
application for hearing at a date not earlier than the fifth day
after the date the application is filed. If the court considers it
necessary, the court may cause citation to be issued.
(e) Before the hearing, the parent or managing conservator
shall file with the county clerk a surety bond in an amount at least
equal to two times the amount of the proposed home equity loan. The
bond must be:
(1) payable to and approved by the court; and
(2) conditioned on the parent or managing conservator:
(A) using the proceeds of the home equity loan
attributable to the minor's interest solely for the purposes
authorized by this section; and
(B) making payments on the minor's behalf toward
the outstanding balance of the home equity loan.
(f) At the time of the hearing of the application filed
under this section, the court, on approval of the bond required by
Subsection (e) of this section, shall authorize the parent or
managing conservator to receive the extension of credit sought in
the application if the court is satisfied from a preponderance of
the evidence that the encumbrance is for a purpose described by
Subsection (b)(1) or (2) of this section and is in the minor's best
interests.
(g) A parent or managing conservator executing a home equity
loan on a minor's behalf under this section shall file an annual
report with the court regarding the transaction. When the parent or
managing conservator has expended the proceeds of a home equity
loan authorized under this section, the parent or managing
conservator, in addition, shall file with the county clerk a sworn
report accounting for the proceeds.
(h) The court may not discharge the person's sureties from
all further liability under the bond until the court:
(1) has approved the filing of the parent's or managing
conservator's reports required under Subsection (g) of this
section;
(2) finds that the parent or managing conservator used
loan proceeds resulting from the minor's interest solely for the
purposes authorized by this section; and
(3) has been presented with satisfactory evidence that
the home equity loan has been repaid and is no longer considered an
outstanding obligation.
(i) After the first anniversary of the date a parent or
managing conservator executes a home equity loan authorized under
this section, the court may, on motion of the borrower, reduce the
amount of the surety bond required under this section to an amount
that is not less than the outstanding balance of the loan.
(j) A parent of a minor may file an application under this
section only if the parent has a homestead interest in the property
that is the subject of the application.
(k) A minor may not disaffirm a home equity loan authorized
by the court under this section.
Sec. 890A. MORTGAGE OF RESIDENTIAL HOMESTEAD INTEREST OF A
MINOR WARD. (a) In this section:
(1) "Home equity loan" means a loan made under Section
50(a)(6), Article XVI, Texas Constitution.
(2) "Residence homestead" has the meaning assigned by
Section 11.13, Tax Code.
(b) This section applies only to a minor ward who has a
guardian of the person but does not have a guardian of the estate.
(c) When a minor ward has an interest in a residence
homestead and the net value of the interest does not exceed
$100,000, the guardian of the person of the ward may apply to the
court for an order authorizing the guardian to receive an extension
of credit on the ward's behalf that is secured, wholly or partly, by
a lien on the homestead. Proceeds of the home equity loan
attributable to the minor's interest may be used only to:
(1) make improvements to the homestead;
(2) pay for the education or maintenance expenses of
the ward; or
(3) pay the outstanding balance of the loan.
(d) Venue for the application is the same as venue for an
application for the appointment of a guardian for a ward. The
application must contain the same information required by Section
889A of this code.
(e) On receipt of the application, the court shall set the
application for hearing at a date not earlier than the fifth day
after the date the application is filed. If the court considers it
necessary, the court may cause citation to be issued.
(f) The guardian of the person, before the hearing, shall
file a surety bond with the county clerk to the same extent and in
the same manner as a parent or managing conservator of a minor is
required to provide a surety bond under Section 889A of this code.
(g) The procedures and evidentiary requirements for a
hearing of an application filed under this section are the same as
the procedures and evidentiary requirements for a hearing of an
application filed under Section 889A of this code.
(h) At the time of the hearing of the application filed
under this section, the court, on approval of a bond required by
Subsection (f) of this section, shall authorize the guardian to
receive the extension of credit sought in the application if the
court is satisfied from a preponderance of the evidence that the
encumbrance is for a purpose described by Subsection (c)(1) or (2)
of this section and is in the ward's best interests.
(i) A guardian of the person executing a home equity loan on
a ward's behalf must account for the transaction, including the
expenditure of the loan proceeds, in the annual accounting required
by Section 741 of this code.
(j) The court may not discharge a guardian's sureties from
all further liability under a bond required by this section or
another provision of this code until the court:
(1) finds that the guardian used loan proceeds
resulting from the ward's interest solely for the purposes
authorized by this section; and
(2) has been presented with satisfactory evidence that
the home equity loan has been repaid and is no longer considered an
outstanding obligation.
(k) A minor ward may not disaffirm a home equity loan
authorized by the court under this section.
SECTION 3. This Act takes effect September 1, 2005.