View
0
Download
0
Category
Preview:
Citation preview
Welcome to today’s webinar!
Home Equity Loans
Update 2018 Charles Craig
January 18, 2018
In order to obtain a CE Certificate or CLE Credit, you must listen to the webinar for a minimum of 55
minutes obtain the password (provided at the end of
the presentation) follow the instructions as given
2
ATTORNEY INFORMATION
Because of opinions expressed by the Texas Department
of Insurance (TDI) concerning rebates, legal credit is
available only to:
Attorneys who own title agencies that are Stewart Title
Guaranty Agents
Attorneys employed by a title insurance agent licensed
with Stewart Title Guaranty or Stewart entities
Fee attorneys who have an Escrow Officer license
through a Stewart Title Agent or Stewart entity
We welcome any other lawyers to listen, but cannot provide
continuing education credit to you.
3
Home Equity Loans Update 2018
Charlie Craig
Associate General Counsel & Texas Underwriter
Stewart Title Guaranty Company
Austin, Texas
(512) 236-0405 ccraig@stewart.com
Homestead: What is it?
Homestead is the home and surrounding land intended to be occupied
as a permanent residence. Homestead can be either Urban or Rural.
Urban Homestead defined by Texas Constitution, Article XVI, Section
51:
– “…the homestead in a city, town or village, shall consist of lot or
contiguous lots amounting to not more than 10 acres of land,
together with any improvements on the land;…”
– Maximum is 10 acres
– Must be contiguous parcels: adjoining, next to, touching
Urban Homestead: What is it?
Also defined by Texas Property Code, Section 41.002: – “(c) A homestead is considered to be urban if, at the time the
designation is made, the property is:
(1) located within the limits of a municipality or its extraterritorial
jurisdiction or a platted subdivision; and
(2) served by police protection, paid or volunteer fire protection,
and at least three of the following services provided by a
municipality or under contract to a municipality:
(A) electric;
(B) natural gas;
(C) sewer;
(D) storm sewer; and
(E) water.”
Rural Homestead: What is it?
Rural Homestead defined by Texas Constitution, Article
XVI, Section 51:
“The homestead, not in a town or city, shall consist of not more than two
hundred acres of land, which may be in one or more parcels, with the
improvements thereon;…”
– Maximum is 200 acres
– Can be in multiple parcels
– Nothing about how the parcels have to be contiguous or even close to
each other
.
Rural Homestead: What is it?
Also defined in Texas Property Code, Section 41.002:
“(b) If used for the purposes of a rural home, the homestead shall
consist of :
(1) for a family, not more than 200 acres, which may be in one or
more parcels, with the improvements thereon; or
(2) for a single, adult person, not otherwise entitled to a homestead,
not more than 100 acres, which may be in one or more parcels, with
the improvements thereon.”
The statute says “family”, not married couple. It is a broader definition
and may include individuals with dependent minors or adults that live with
them, even if they don’t live with them all the time.
.
Only One Homestead • “The” Homestead
• In Texas a property owner only gets to declare one homestead
Their principal residence as of January 1 each year
Not one Homestead per county
Not one Homestead per state
• Owner lives on site, rents out part of the property = Homestead
• Rents out all of the home to third parties by written lease, Owner
completely out of home, CAD removes HS designation = Non-HS
• Talk to your underwriter when you have a question on Homestead
status
.
Homestead is a Protected Asset in Texas
The Homestead is protected from forced sale.
• Texas Constitution, Article XVI, Section 50 (a):
– “HOMESTEAD; PROTECTION FROM FORCED SALE; MORTGAGES,
TRUST DEEDS, AND LIENS. (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) purchase money liens;
(2) taxes due on the property;
(3) owelty of partition liens, including those created in a divorce
decree;
(4) refinance of a lien against a homestead, including federal tax
liens, which need to be against both spouses if a married couple;
more …
Homestead Protection in Texas
• Texas Constitution, Article XVI, Section 50 (a), cont.
(5) liens for construction or improvement, contracted for in writing;
(6) home equity loans;
(7) reverse mortgages;
(8) and manufacture housing unit conversion liens, where a personal
property lien is converted into a real estate lien.
This list, excepting the MHU conversion lien, is duplicated in Section 41.001
of the Texas Property Code.
Homestead Protection in Texas
The Homestead cannot be sold or encumbered without the
joinder of the spouse, with limited exceptions
• Texas Constitution, Article XVI, Section 50(b):
– “(b) An owner or claimant of the property claimed as homestead may
not sell or abandon the homestead without the consent of each owner
and the spouse of each owner, given in such manner as may be
prescribed by law.”
• Texas Family Code, Section 5.001:
– “SALE, CONVEYANCE, OR ENCUMBRANCE OF HOMESTEAD.
Whether the homestead is the separate property of either spouse or
community property, neither spouse may sell, convey, or encumber the
homestead without the joinder of the other spouse except as provided
in this chapter or by other rules of law.”
Homestead Protection in Texas
Survivor has rights in the Homestead
• Texas Constitution, Article XVI, Section 52:
– “DESCENT AND DISTRIBUTION OF HOMESTEAD; RESTRICTIONS
ON PARTITION.
On the death of the husband or wife, or both, the homestead shall
descend and vest in like manner as other real property of the deceased,
and shall be governed by the same laws of descent and distribution, but
it shall not be partitioned among the heirs of the deceased during
the lifetime of the surviving husband or wife, or so long as the
survivor may elect to use or occupy the same as a homestead, or
so long as the guardian of the minor children of the deceased may
be permitted, under the order of the proper court having the jurisdiction,
to use and occupy the same.”
Homestead Protection in Texas
Protection of Proceeds from Sale of the Homestead
• Texas Property Code, Section 41.001:
– “INTERESTS IN LAND EXEMPT FROM SEIZURE…
(c) The homestead claimant's proceeds of a sale of a homestead are
not subject to seizure for a creditor's claim for six months after the date
of sale.”
This is so that an owner can acquire another homestead and not have to
worry about a creditor taking away the funds needed to buy a new
homestead.
These concepts of protecting homestead rights extends to Home Equity Loans.
Home Equity Loans
Home Equity Loans (HELs) are loans for cash advances where the borrower’s
homestead secures loan based on the existing equity in the homestead, if it
meets the requirements of Constitution Article XVI, Section 50(a)(6).
Home Equity = FMV of homestead - total mortgage debt owed against it
Section 50(a)(6) Constitutional Requirements apply to HELs:
• Voluntary Lien - each owner and spouse must consent to the lien
• Mortgage limit cannot exceed 80% FMV of the homestead
• Non-recourse loan - debt satisfied by the homestead collateral only
• Requires court order to foreclose non-judicially
• Lending must be by Authorized Lenders only
• Closed end credit – no open lines of credit unless is a HELOC under
Section 50(t)
Home Equity Loans
More 50(a)(6) Constitutional Requirements…
• No prepayment penalties are allowed
• Cannot be secured by additional property other than the homestead
• Originally, no Agricultural Designation on the homestead property allowed
• Debt Acceleration NOT allowed b/c decrease in home value or default on
other debts not secured by the home
• Closing must take place in the office of lender, attorney or title company
• Owner and spouse must acknowledge fair market value of their homestead
• No other HEL or Reverse Mortgage on the homestead at same time
• Must have been at least 12 months since date of last HEL
Home Equity Loan Endorsements
Still More 50(a)(6) Constitutional Requirements…
• Cooling off periods - Closing not less than 12 days after loan app. or date
prescribed Notice given; Loan may not disburse until 4th business day
following closing and borrower must execute a “no rescission” election by
4th day following closing
• Originally, 3% Fee limit on qualified expenses payable at closing
• Borrower must receive all closing docs on day of closing
• Documents must not have any material blanks left to fill in later
• Originally, “Once a HEL Always an HEL” – could not refinance an HEL on
the homestead unless by another HEL
• Cash-out refinance can only be by another HEL
• Originally, HELOC limited to 50% of FMV of the homestead
Home Equity Loan Endorsements
T-42 and T-42.1 Endorsements only apply to HELs
• Under TDI Rules P-44, P-47
• provide coverage on compliance of many of the Constitutional requirements
for HELs
– set forth in sub-paragraphs to paragraph 2 of the T-42 and to paragraph
1 of the T-42.1
– T-42 (f)(2) optional clause can be added as per P-44.C(2) covering
closing at office of the Title Company (if closing is there)
• Home Equity Affidavit in lieu of Affidavit of debts and liens
Home Equity Loan Endorsements
P-44 and P-47 Deletions: any part of T-42 or T-42.1 coverages can be deleted
by the insurer if it does not consider the additional risk insurable.
Check with your underwriter for approval
Premium charged, practically speaking = 25% Basic Premium Rate
T-42 = Rate Rule R-28 A, premium is 10% Basic Premium Rate
T-42.1 only issued as supplemental coverage when issuing T-42;
under Rate Rule R-28 B is 15% of Basic Premium Rate
SJR 60, 85th Texas Legislature, 2017
• Passed last legislative session making important changes to matters
related to HELs made on or after 1/1/18 and existing HELs that are
refinanced on or after 1/1/18
• Ratified by Constitutional vote on November 7, 2017
• Went into effect on January 1, 2018
• Discussed in Stewart Bulletin TX2017009 - on VU
SJR 60, 85th Texas Legislature, 2017
Changes made:
• Repealed prohibition against HELS on homesteads with AG
designation
• Now Allows Non-HELs to refinance HELs, under certain conditions
• Changed Fee % limit on HEL loans, kinds of fees to be counted
against that cap
• Repealed 50% limit on loan to FMV of homestead on HELOCs
• Amended Authorized Lenders that can make HELs
SJR 60 and Agricultural Homesteads
Historically, Home Equity Loans were not available for property
claiming Agricultural Use designation, other than for dairy farms. Many
rural homesteads did not qualify for HELs unless the AG designation on
the land was first removed.
• SJR 60 repealed the prior prohibition on Home Equity Loans for
homesteads designated for Agricultural use
• Home Equity Loans are now available on rural homesteads designated
for Agricultural use
• Changes approach to the T-42 issued on the title policy insuring an HEL
SJR 60 and Agricultural Homesteads
Currently, T-42 provides insurance for many of the HEL mortgage
constitutional requirements, including:
“2(b). The land being homestead property designated for agricultural
use as provided by statutes governing property tax, as set forth in
Subsection (a) (6) (i) of Section 50, Article XVI, Texas Constitution”
P-44 (B) allows for the deletion of any part of T-42 if the title insurance
company does not consider the additional risk to be “insurable”.
• Since risk of land being designated as Agricultural is no longer a real
risk, can delete item 2(b) from the T-42 endorsement
• No longer need to determine if all or part of the land has AG
Designation in examining an HEL for title insurance
• No longer need to require the AG Designation be removed as of closing
SJR 60 and Agricultural Homesteads
However, Tax Code Section 23.42(a-1) remains on the books…
“On or after January 1, 2008, an individual is not entitled to have land
designated for agricultural use if the land secures a home equity loan
described by Section 50a(6), Article XVI, Texas Constitution.”
• Does this mean once an HEL is constitutionally done as secured
by AG Designated property, the land loses its Ag Exemption?
Maybe…
• Would P-20 Rollbacks apply? No change in use…
SJR 60 and Refinancing HELs
Historically, Section 50 (f) of Article XVI of the Texas Constitution imposed the
“Once a HEL, Always an HEL” rule – that is, once you have an HEL on the
homestead, the only way you can refinance it would be by another HEL or
reverse mortgage.
SJR 60 amended language of Section 50(f), so that Home Equity Loans may
now be refinanced through Non-Home Equity Loans with a valid lien against
the homestead IF certain conditions are met.
Can still refinance an HEL on the homestead by another qualifying HEL, but
SJR 60 also allows for Non-Home Equity loans to refinance an HEL as an
alternative IF certain conditions are met.
SJR 60 and Refinancing HELs
Under the new Section 50(f), the Non-Home Equity loan refinancing an HEL
on a homestead must meet the following conditions:
• Occur more than 1 year after the first HEL was closed
• NOT include any additional funds other than funds to refinance the types
of debt outlined in the Constitution, and actual costs and reserves
required by the lender to refinance the debt • Cash out Refi of HEL on homestead is still only by HEL
• Be of an amount, that when added to the total outstanding principal
balances of other indebtedness secured by the homestead, is not more
than 80% of the FMV of the home. • Total of mortgage debts to value
• Lender must give the borrower the Constitutionally-mandated Written
Notice within 3 business days of a loan application and at least 12 days
before the loan is closed. • Form of the Notice is set forth at Section 50(f)(D)
SJR 60 and Refinancing HELs
What does this all mean for refinancing an HEL on the Homestead?
• Refi of HEL can still be done by HEL if it meets constitutional
requirements, using T-42, T-42.1 endorsements
• Cash-out Refi of HEL must still be by HEL only, using T-42, T-42.1
endorsements
• Non-cash out Refi of HEL can now be done by§50(f) Non-HEL,
BUT no T-42,T.42.1 endorsements are issued
• If Refi is by HEL, owner and spouse must execute a Texas Home Equity
Loan Affidavit (the same one as with T-42)
• If Refi is by§50(f) Non-HEL, owner and spouse must execute Texas
Home Equity Refinance Affidavit for Non-HELs
• Give R-8 Credit where applicable
SJR 60 and Fees Charged Historically, the fees that can be charged on Home Equity Loans could not total
to be more than 3% of the principal of the loan.
SJR 60 reduced the cap on fees to 2% of the principal of the loan
BUT also reduced the types of fees that count toward that cap. The following
expenses are now excluded from the calculation of the fee cap:
• Appraisals that are done by third – party providers;
• Property surveys by state registered or licensed surveyors;
• State “base” (basic) premiums for Title Insurance with endorsements; and
• Title examinations report if its cost is less than the state base/basic
premium for title insurance without endorsements Article XVI of the Texas Constitution, Section 50 (a)(6)(E)(i-iv)
SJR 60 and Home Equity Lines of Credit
Historically, Home Equity Lines of Credit were restricted, prohibiting additional
advances on a loan from being made if the principal amount outstanding
exceeded 50% of the FMV of the homestead.
• SJR 60 repealed that 50% limit language, thus increasing the limit from 50%
to the overall limit of 80% of the FMV of the homestead
• See T-42, item 3 addressing the HELOC priority for future advances; no
change in coverage anticipated by the increase in the limit
Article XVI of the Texas Constitution, Sections 50(a)(B), 50(t)
SJR 60 and Approved Lenders
Section 50(a)(6)(P) requires that HELS be done only by approved lenders. SJR
60 expanded current list of approved lender entities at Section 50 (a) (6) (P) to
include :
• Subsidiaries of banks, saving & loan associations, savings banks and credit
unions as long as they meet the other requirements listed in the Constitution
to make home equity loans; and
• Mortgage bankers and Mortgage companies
• Note: Mortgage “brokers” were removed from the list of approved lenders.
Article XVI of the Texas Constitution, Sections 50(a)(6)(P)
Durable Powers of Attorney for Home Equity Loans
HB 1974 amended Estates Code relating to the use of DPOAs
executed after Sept.1, 2017 in Home Equity Loan transactions:
• Estates Code §751.151 – added Home Equity Loans and Reverse
Mortgages to the list of applicable transactions requiring the DPOA
to be recorded within 30 days of closing.
• Statutory DPOA Form at Estates Code §752.051: Introductory
notice paragraph on the Form now advises principal that if he or she
wants the agent to have the authority to sign Home Equity Loan
documents, then the DPOA must be executed at the office of the
lender, an attorney, or title company.
Durable Powers of Attorney for Home Equity Loans
HB 1974: for DPOAs executed after Sept.1, 2017:
• Estates Code §752.102, powers given to the Agent under a DPOA
amended at (b) to now include the powers to execute Home Equity Loan
documents and to consent to create the lien against property owned
by the principal’s spouse in which the principal has a homestead interest.
• Certification of DPOA by Agent at Estates Code §751.023(b) - if the
DPOA is to be used in a Home Equity Loan, Certification must certify DPOA
was executed at the office of the lender, an attorney, or title company.
• Check with your underwriter on requirements
See STGC Bulletins TX2013004, TX2017007
Be Careful Out There
Charlie Craig
Associate General Counsel
Texas Underwriter
Stewart Title Guaranty Company
Austin, Texas
(512) 236-0405 ccraig@stewart.com
Per the TDI and the State Bar, in order to obtain a CE Certificate or CLE Credit you must:
– listen to the webinar for a minimum of 55 minutes
–obtain the password (provided at the end of the presentation)
– follow the instructions as given
34
To Receive CE Credit Each individual seeking credit hours must send their own certificate request to:
CEcertificate@stewart.com
Please include the following information: • Provide only this Presentation Name in the Subject Line of your e-mail – “Home
Equity Loans Update” In the body of your e-mail: • Name of Participant (as it appears on your Escrow Officer License); • Presentation PASSWORD given at the end of the webinar; • License Number Only (located on left side of Escrow Officer Certificate of License –
for example: License Number: 1234567-890123)
For Attorney CLE Credit also include: • Texas State Bar Number • Affiliation with Stewart
– Employed by Stewart Title Guaranty Company; – an affiliate; or – a Stewart agent
For more details, see the CE and CLE FAQs at:
http://www.stewart.com/en/stg/texas/education/texas-tips/ce-cle-faqs.html
35
Recordings
www.stewart.com/texas
Under “Texas TIPS” tab
• Posted online 10 days after live presentation
• Other current courses available
Certificates
• Processing can take up to 10 business days.
• Contact us if you haven’t received your
certificate after the allotted processing time.
CEcertificate@stewart.com
36
Join us for the next Texas TIPS webinar!
February 15, 2018
HOA and COA Foreclosures Zoiliss Rios
For Questions/Comments Email
john.rothermel@stewart.com
or
heidi.junge@stewart.com
37
Recommended