Home Equity Loans Update 2018 - Home Equity Loans Update 2018 Charles Craig ... refinance of a lien

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  • 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

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  • 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.

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  • 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