Proposition 8 – Home Equity Loans Amendment

TEXAS – Proposition 8 – HJR 72

Brief background information: (provided by the Texas Legislative Council)

Prior to 1998, the use of a homestead as collateral for a loan was limited to purchase, improvement, or paying taxes on the homestead. That use was broadened to cover a loan for any purpose (with some restrictions on repayment). Currently there is some confusion as to the constitutional restrictions on homestead property designated for agricultural use, closing dates based on submission of applications, and advances on a home equity line of credit.

This amendment adds clarification and more precise language to existing provisions for home equity loans. Among the changes are a provision for a second home equity loan on the same property sooner than one year after the first home equity loan in the event of a declared state of emergency, such as a natural disaster.

The specific provisions of Proposition 8 are:

whether property is designated for agricultural use, which would make the property ineligible to secure a home equity loan, is determined as of the date of the loan closing; the application that begins the 12-day waiting period before the loan may close must be the loan application; the borrower must receive a copy of the loan application at least one business day before the loan may close; the one-year waiting period between home equity loans may be waived at the borrower’s request in the case of a declared emergency applicable to the area where the property securing the loans is located; a borrower may sign a loan document that has blanks left to be filled in if the blanks do not relate to substantive terms of the loan agreement; at the time the loan is made the borrower must receive a copy of the final loan application and all executed documents the owner signs at closing and those documents may be provided by a person other than the lender; and a borrower may not use an unsolicited preprinted check to obtain an advance on a home equity line of credit.

Pro and Con – information provided by Jacci Howard Bear of About.com

Why Vote for Prop 8 Current home equity lending practices need clarification in order to circumvent legal technicalities and mistakes that could invalidate a loan.

Homeowners living in homesteads in a declared disaster area would be able to get a second home equity loan to take care of repairs and other expenses within a one year period instead of waiting a full year.

Why Vote Against Prop 8 The amendment doesn’t address various special fees that lenders impose in excess of the 3% fee cap provided by the constitution.

The amendment doesn’t go far enough in providing protection to borrowers and monitoring of lenders.

— Edited for the web by Miguel Martinez