Legal Ease

As of 3/8/2010

The constitutional restriction that says there may only be one home equity loan at a time follows the property, not the borrower. In other words, there may only be one home equity loan at a time secured by the same homestead property.  You can make the home equity loan secured by this homestead property because it doesn't have a home equity loan secured by it (unless the new wife closed a home equity loan on that homestead within a year of closing this one you are considering.)

Before you make this loan, make sure that you check the county records to make sure that the man really is divorced.  The fact that there are loose ends like this remaining in the divorce makes me a little wary of this second loan.  The man is still on the note, but there is no personal recourse against him. However, if the divorce lawyers didn't take care of getting the house and all debts secured by it into the wife's name, they probably didn't do their jobs properly.  As a result, the home equity loan on his ex-wife's house is going to affect his credit and should be considered in your underwriting if he's to be a signer on the new loan.  The bottom line in this one is:  be careful and consult with your legal counsel because it doesn't sound like the divorce attorneys took care of all the loose ends of the divorce.

See Texas Constitution, Article XVI, Section 50, (a)(6)(K) below…
(6)  an extension of credit that:
…snip…
 (K)  is the only debt secured by the homestead at the time the extension of credit is made unless the other debt was made for a purpose described by Subsections (a)(1)-(a)(5) or Subsection (a)(8) of this section;

Because these are considered permanent residence, yes, they are HMDA reportable.  This is from the FFIEC Web site, entitled CRA/HMDA Reporter, September 2000:

Q. Are nursing homes, dormitories, fraternity/sorority houses, assisted living and retirement homes to be reported on HMDA?

A. Nursing homes, dormitories and sorority/fraternity houses are viewed as temporary housing and are not HMDA  reportable since they were not built for permanent residency. In addition, a nursing home is more like a hospital in that it provides medical care, which is usually constant and extensive. Assisted living and retirement homes are viewed as  dwellings that individuals reside in permanently and are HMDA-reportable. In fact, in most cases the “home place” has been sold by the individuals who choose these homes as their new “permanent” dwellings.

If a person is 65 years of age or older or is disabled, they can defer their property taxes pursuant to Texas Tax Code §33.06.  However, your contract with the borrower seems to prevent the senior from opting for deferral of the taxes.  Your deed of trust requires that the borrower keep the taxes current.  That means that the borrower has voluntarily agreed to pay the taxes when due.  If the borrower defers the taxes, then the taxes aren't paid when due.  Your deed of trust most likely allows you to pay the taxes that are due and unpaid, add them to the balance of the note, and charge interest on that amount.   The borrower's failure to pay the taxes is also likely an event of default.  You could always agree in writing to allow the borrower to defer the taxes, but then there would be growing taxes and interest due on the property. Most lenders would not do that.  One thing to be aware of:  Some tax appraisal districts are not accepting payments from lenders on deferred taxes. So, call the tax appraisal office before sending them a check to pay the taxes.  Most importantly, communicate with your borrower. They weren't trying to pull anything on you; they were merely trying to save some money by deferring their taxes until they no longer own and occupy the house.  I also encourage you to contact the bank's legal counsel before taking any action on this loan.

As of 2/15/2010

It is a violation.  See 7 TAC §153.8(3).   Below is 7 TAC §153.8 in its entirety.  The IBAT Web site has a PDF version of the rules. It is the only version that I know of that is available online where you can view all of the home equity rules at once and run a word search on all the rules. The Secretary of State's office has it online, but each rule is on a separate page, which makes it difficult to find anything.
RULE §153.8 Security of the Equity Loan: Section 50(a)(6)(H)
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An equity loan must not be secured by any additional real or personal property other than the homestead. The definition of "homestead" is located at Section 51 of Article XVI, Texas Constitution, and Chapter 41 of the Texas Property Code.
(1) A lender and an owner or an owner's spouse may enter into an agreement whereby a lender may acquire an interest in items incidental to the homestead. An equity loan secured by the following items is not considered to be secured by additional real or personal property:
(A) escrow reserves for the payment of taxes and insurance;
(B) an undivided interest in a condominium unit, a planned unit development, or the right to the use and enjoyment of certain property owned by an association;
(C) insurance proceeds related to the homestead; or
(D) condemnation proceeds;
(E) fixtures; or
(F) easements necessary or beneficial to the use of the homestead, including access easements for ingress and egress.
(2) A guaranty or surety of an equity loan is not permitted. A guaranty or surety is considered additional property for purposes of Section 50(a)(6)(H). Prohibiting a guaranty or surety is consistent with the prohibition against personal liability in Section 50(a)(6)(C). An equity loan with a guaranty or surety would create indirect liability against the owner. The constitutional home equity lending provisions clearly provide that the homestead is the only allowable collateral for an equity loan. The constitutional home equity provisions prohibit the lender from contracting for recourse of any kind against the owner or owner's spouse, except for provisions providing for recourse against the owner or spouse when the extension of credit is obtained by actual fraud.
(3) A contractual right of offset in an equity loan agreement is prohibited.
(4) A contractual cross-collateralization clause in an equity loan agreement is prohibited.
(5) Any equity loan on an urban homestead that is secured by more than ten acres is secured by additional real property in violation of Section (50)(a)(H).
Source Note: The provisions of this §153.8 adopted to be effective January 8, 2004, 29 Terre 84