Texas Approves Revisions to Home Equity Loans
Texas approved a proposed constitutional amendment that includes, but is not limited to, establishing a lower amount for expenses to borrowers and removing certain financing expense limitations for a Home Equity Loan (HEL), authorizing certain lenders to make HELs; changing certain options for the refinancing of HELs; amending the threshold for advances on an HEL; and expanding HELs to loans on agricultural homestead properties. These changes in Senate Joint Resolution 60 are effective on January 1, 2018.
The amendment provides that the homestead of a family, or of a single adult person, shall be, and is protected from forced sale, for the payment of all debts except for an extension of credit that does not require the owner or the owner’s spouse to pay, in addition to any interest or any bona fide discount points used to buy down the interest rate, any fees to any person that are necessary to originate, evaluate, maintain, record, insure, or service the extension of credit that exceed, in the aggregate, two percent of the original principal amount of the extension of credit, excluding fees for:
- an appraisal performed by a third party appraiser;
- a property survey performed by a state registered or licensed surveyor;
- a state base premium for a mortgagee policy of title insurance with endorsements established in accordance with state law; or a title examination report if its cost is less than the state base premium for a mortgagee policy of title insurance without endorsements established in accordance with state law;
The amendment also provides that a refinance of debt secured by the homestead, any portion of which is an extension of credit may not be secured by a valid lien against the homestead unless all of the following conditions are met:
- the refinance is not closed before the first anniversary of the date the extension of credit was closed;
- the refinanced extension of credit does not include the advance of any additional funds;
- the refinance of the extension of credit 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 refinance of the extension of credit is made; and
- the lender provides the owner the following written notice on a separate document not later than the third business day after the date the owner submits the loan application to the lender and at least 12 days before the date the refinance of the extension of credit is closed:
“YOUR EXISTING LOAN THAT YOU DESIRE TO REFINANCE IS A HOME EQUITY LOAN. YOU MAY HAVE THE OPTION TO REFINANCE YOUR HOME EQUITY LOAN AS EITHER A HOME EQUITY LOAN OR AS A NON-HOME EQUITY LOAN, IF OFFERED BY YOUR LENDER.
“HOME EQUITY LOANS HAVE IMPORTANT CONSUMER PROTECTIONS. A LENDER MAY ONLY FORECLOSE A HOME EQUITY LOAN BASED ON A COURT ORDER. A HOME EQUITY LOAN MUST BE WITHOUT RECOURSE FOR PERSONAL LIABILITY AGAINST YOU AND YOUR SPOUSE.
“IF YOU HAVE APPLIED TO REFINANCE YOUR EXISTING HOME EQUITY LOAN AS A NON-HOME EQUITY LOAN, YOU WILL LOSE CERTAIN CONSUMER PROTECTIONS. A NON-HOME EQUITY REFINANCED LOAN:
“(1) WILL PERMIT THE LENDER TO FORECLOSE WITHOUT A COURT ORDER;
“(2) WILL BE WITH RECOURSE FOR PERSONAL LIABILITY AGAINST YOU AND YOUR SPOUSE;
“(3) MAY ALSO CONTAIN OTHER TERMS OR CONDITIONS THAT MAY NOT BE PERMITTED IN A TRADITIONAL HOME EQUITY LOAN.
“BEFORE YOU REFINANCE YOUR EXISTING HOME EQUITY LOAN TO MAKE IT A NON-HOME EQUITY LOAN, YOU SHOULD MAKE SURE YOU UNDERSTAND THAT YOU ARE WAIVING IMPORTANT PROTECTIONS THAT HOME EQUITY LOANS PROVIDE UNDER THE LAW AND SHOULD CONSIDER CONSULTING WITH AN ATTORNEY OF YOUR CHOOSING REGARDING THESE PROTECTIONS.
“YOU MAY WISH TO ASK YOUR LENDER TO REFINANCE YOUR LOAN AS A HOME EQUITY LOAN. HOWEVER, A HOME EQUITY LOAN MAY HAVE A HIGHER INTEREST RATE AND CLOSING COSTS THAN A NON-HOME EQUITY LOAN.”
Subsection (f-1) was added and provides that a lien securing a refinance of debt under Section 1 (f) (2) is deemed to be a lien described by Section 1 (a) (4). An affidavit executed by the owner or the owner’s spouse acknowledging that the requirements of Section 1 (f) (2) have been met conclusively establishes that the requirements of Section 1 (a) (4) have been met.
Furthermore, part E of the written notice required where an extension of credit under Section 1 (a) (6) may be secured by a valid lien against homestead property if the extension of credit is not closed before the 12th day is amended to read as
“FEES AND CHARGES TO MAKE THE LOAN MAY NOT EXCEED 2 PERCENT OF THE LOAN AMOUNT, EXCEPT FOR A FEE OR CHARGE FOR AN APPRAISAL PERFORMED BY A THIRD PARTY APPRAISER, A PROPERTY SURVEY PERFORMED BY A STATE REGISTERED OR LICENSED SURVEYOR, A STATE BASE PREMIUM FOR A MORTGAGEE POLICY OF TITLE INSURANCE WITH ENDORSEMENTS, OR A TITLE EXAMINATION REPORT.