Since the enactment of the amendments to the Texas Constitution permitting the refinance of a home equity loan ("HEL") into a traditional residential loan beginning January 1, 2018, we have received questions relating to the new provisions. This bulletin supplements Bulletin 2017-108 entitled, The Texas 2017 Constitutional Changes to Home Equity Lending Laws issued by NITIC in November 2017.
AFFIDAVIT OF COMPLIANCE WITH SECTION 50(f)(2), ARTICLE XVI, TEXAS CONSTITUTION
The Texas Constitution now provides that an affidavit by a property owner or the owner's spouse conclusively establishes that a loan refinancing debt against the homestead
complies with the conditions required for such a refinance by Section 50(f)(2). [1]
NITIC requires that the owner(s) and the owner's spouse sign such an affidavit when refinancing a HEL extension of credit into a traditional residential loan that closes on or after January 1, 2018.
The affidavit should state that the following conditions are met:
A. the refinance is not being closed before the first anniversary of the last date the prior HEL extension of credit was signed;
B. the refinanced extension of credit does not include the advance of any additional funds other than:
i. funds advanced to refinance a debt described by Section 50 (a)(1) -(a)(7) (which are the only permitted liens on homesteads); and/or
ii. actual costs and reserves required by the lender to refinance the debt;
C. 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 HEL extension of credit is made; and
D. the lender has provided the owner a specific written notice in a timely manner as set forth in the new law.
A suggested affidavit form is provided here, but forms that do not differ significantly from NITIC's form are also acceptable. Alternatively, the enumerated language from our suggested affidavit may be incorporated into or combined with another affidavit already in the closing packet.
HOME EQUITY LOANS ON PROPERTY APPRAISED AS AGRICULTURAL
T-42
Paragraph 2.(b) of the T-42 endorsement is no longer needed for home equity loans. It provided coverage in the event that a lien was considered invalid or unenforceable because the property on which a home equity loan attached was designated for agricultural use, which previously was prohibited. Because the Constitution now permits home equity loans against property appraised as agricultural, this provision in paragraph 2.(b) is not needed. Upon request from a lender, you may delete subsection 2.(b)from the T-42 endorsement.
T-20D Rollback Coverage
The Texas Tax Code still has a provision that prohibits property from being appraised as agricultural if the property has a home equity lien against it. Therefore, appraisal districts might remove ag appraisal from rural homesteads after home equity loans are obtained against them. While this should change future taxation (appraising the properties at full market value rather than at their value for agricultural purposes), it should not trigger rollback taxes-those are usually triggered by a change in use of the ag property. However, careful attention should be made to the appraisal roll in those situations where the property appraisal has recently changed from ag to full market value to determine whether the chief appraiser intends to impose rollback taxes.
[1] See
Tex. Const. art. XVI,
ยง 50(f)(1).
