Bulletin: TX000040

This bulletin has been partially replaced by TX2017009.

Dear Associates:

The Home Equity Constitutional Amendment is effective January 1, 1998. According to the Attorney General, the earliest date for signups or closings of Home Equity Mortgages is January 13, 1998.

Home Equity Mortgages are mortgages made on homestead for cash advances to the borrowers based on the existing home equity.

A lender may make a Home Equity Loan on business, residential or dairy farm homestead. The Home Equity Mortgage may be a first mortgage or a junior mortgage. If a lender refinances a prior mortgage, such as a purchase money mortgage, and gives the borrower additional cash (or "equity"), then the new mortgage is a Home Equity Mortgage and must comply with the Constitutional Amendment. If a lender refinances a Home Equity Mortgage, then the new mortgage is a Home Equity Mortgage and must comply with the Constitutional Amendment.

The Constitutional Amendment makes the lender comply with about two dozen requirements to make a Home Equity Loan: they include a 3% limit on fees paid by the borrower; 12- day cooling off period; 3-day right of recission; 80% limit on ratio of mortgage debt to land value; Home Equity Disclosure; disclosure in Home Equity Mortgage that it is a Home Equity Mortgage; no Home Equity Mortgage on land assessed for tax purposes as agricultural use unless used primarily for production of milk; copy of documents to be given to landowner; closing at office of lender, attorney or title company; no blanks in documents signed by borrower; only one Home Equity Mortgage on homestead at a time; and no Home Equity Mortgage within 12 months of a prior Home Equity Mortgage.

In order to clarify the coverage of title insurance on Home Equity Mortgages, the Texas Land Title Association requested the Commissioner of Insurance to adopt:

• New Equity Loan Mortgage Endorsement (T-42) to the Mortgagee Policy (T-2).
  
  
• New Procedural Rule P-44 concerning the Equity Loan Mortgage Endorsement.

The Commissioner of Insurance has adopted these proposals, effective January 12, 1998. (See the references section at the end of this bulletin). There is no additional charge for the Equity Loan Mortgage Endorsement (T-42). You must charge the applicable rate for the Mortgage Policy, including any credit available under R-8, if the loan is made partly to refinance a prior insured mortgage. You may rely on a prior survey of any date on residences located on a platted subdivision or 5 acres or less in order to amend the area and boundary exception, if you also secure an affidavit that the survey remains accurate.

The Equity Loan Mortgage Endorsement provides insurance as to some Home Equity Mortgage requirements:

• Execution by all owners and their spouses.
  
  
• The land is not designated for agricultural use for property taxes (unless a dairy farm).
  
  
• There is no other Home Equity Mortgage on the land.
  
  
• There has been no Home Equity Mortgage granted on the land within 12 months.
  
  
• The mortgage discloses that it is a Home Equity Mortgage.
  
  
• [Optional Clause if closing at Title Company] The closing occurred at the title company.

We will furnish you two sets of these endorsements: one with the Optional Clause and one without the Optional Clause.

CHECKLIST FOR EQUITY LOAN MORTGAGE ENDORSEMENT (T-42). (Please call the National Legal Department in Houston to receive A Detailed Overview on a Home Equity Mortgage)

___Determine that the land is not subject to "ag" or open space special tax valuation.

___If the land is subject to "ag" or open space valuation, determine that the land is a dairy farm.

___Determine that there is no other Home Equity Mortgage or Reverse Mortgage or involuntary lien on the land, unless that Mortgage or lien will be paid off and released when the new Home Equity Mortgage closes. There must be no prior lien that remains on the property and is not paid off in the current Home Equity Mortgage transaction, unless the prior lien was for purchase money, ad valorem taxes, mechanic's lien contract, owelty or a refinance of such liens.

___Attach the Equity Loan Mortgage Endorsement (T-42), if you issue the Mortgagee Policy.

___Require the joinder of all owners and their spouses in the Home Equity Mortgage.

___Determine that there has been no prior Home Equity Mortgage on the land recorded within one year before the execution of the new Home Equity Mortgage. You may not simply require a release of that mortgage; you must not issue unless one year passes before the new Home Equity Mortgage is executed.

___The Home Equity Mortgage must conspicuously say that it is an extension of credit made pursuant to Subsection (a)(6) of Section 50, Article XVI, Texas Constitution.

___The Home Equity Note and Home Equity Mortgage must be signed in your office and the Home Equity Mortgage must be acknowledged in your office in order for you to add optional paragraph 2(f) to the Equity Loan Mortgage Endorsement (T-42).

___Require the owners and spouse to execute the Home Equity Affidavit (in lieu of any Affidavit of Debts and Liens). (See the references section at the end of this bulletin.)

___If the borrowers are unable to sign the Home Equity Affidavit as prepared because they own a business homestead, call underwriting personnel to issue a Home Equity Mortgage on the home. [The Affidavit states that the Affiants do not have a business homestead.]

___If the land is a dairy farm, require the owners and spouses to execute the Dairy Production Affidavit (in lieu of any Affidavit of Debts and Liens) and you must inspect the land. (See the references section at the end of this bulletin.)

___If the land is business homestead, call underwriting personnel to issue.

___The Commitment for Title Insurance covering a proposed Home Equity Mortgage should include the following requirement:

"The policy to be issued will have attached and be subject to the terms of the Equity Loan Mortgage Endorsement (T-42). Issuance of our policy and of the Coverages provided by paragraph 2 of the T-42 Endorsement is subject to compliance with our requirements, including (1) execution of our Home Equity Affidavit (or Dairy Production Home Equity Affidavit, if applicable); (2) joinder of the owners of the land, and spouses, if any; (3) satisfactory evidence that the land is not designated for agricultural use as provided by statutes governing property tax (unless we have satisfactory evidence relating to dairy production); (4) releases of all mortgages and liens for which a release is required in this commitment; (5) satisfactory conspicuous written disclosure in the proposed mortgage that ?the extension of credit is the type of credit defined by Section 50 (a)(6), Article XVI, Texas Constitution' (or similar words); and (6) execution of the insured mortgage and of the promissory secured by the mortgage at the office of this Company or of its title insurance agent which issued this Commitment."