DAN MORALES 

ATTORNEY GENERAL 

@ffice of tiy 5Zlttornep QBenerat 

&ate of Qexae 

November 6,1997 

The Honorable Kenny Marchant 

Chair, Committee on Financial Institutions 

Texas House of Representatives 

P.O. Box 2910 

Austin Texas 78768-2910 

Opinion No. DM-452 

Re: Permissible activities of lenders prior to 

effective date of home equity lending amendment 

to the Texas Constitution (RQ-993) 

Dear Representative Marchant: 

You ask whether lenders may solicit, accept, and process applications for home equity loans 

before the constitutional amendment authorizing such loans goes into effect. We conclude tJmt they 

may. You also ask whether the twelve-day wsiting period for loans required by the amendment may 

begin to run before the amendment’s effective date. We conclude that it may not. 

As you know, article XVI, section 50 of the Texas Constitution prohibits the forced sale of 

a person’s homestead for the payment of debts except in certain cases.’ Because a homestead may 

not be foreclosed upon, the constitution effectively prevents homeowners t%om using the equity in 

their homes as collateral for loans. This year, the legislature passed House Joint Resolution 3 1 

(“H.J.R. 31’3, proposing an amendment to the Texas Constitution that would allow home equity 

lending. The amendment was approved by a majority of voters in an election held on 

November 4,1997.2 The constitutional amendment becomes effective on January 1,199s. 

You ask whether lenders3 may solicit, accept, and process home equity loan applications 

prior to the amendment’s effective date of Jarmary 1,1998. Certainly, any lion created pursuant to 

a home equity loan closed before the effective date of the amendment could not constitutionally be 

enforced against a homestead. However, nothing in H.J.R. 31 prohibits home equity loan 

applications before the effective date of the amendment. Nor are we aware of any federal or Texas 

‘Article XVI, section SO permits the forced sale of a homestead to pay the owner’s debt for the home’s purchase 

money, for taxes due on the home, pursuant to an owelty of partition, for the refinance of a lien against the homestead, 

or for improvements on the home. 

‘See Tex. Const art XVII, $ 1 (requiring proposed constitutional amendments to be voted upon by qualified 

electors); H.J.R. 31,75th Leg., R.S., 5 3, 1997 Tex. Sess. Law Serv. A-2, A-9 (setting November4, 1997 as election 

date 00 proposed amendment). 

%I this opinion, “lenders” means those entities and individuals authorized by the con.stitutio&l amendment 

to make home equity loans. 
TheHonorableKemry Marchant - Page 2 @M-452) 

statute or common-law rule that expressly prohibits a lender tiom processing a loan application when 

the terms of the loan transaction cannot legally be enforced at the time the application is made. 

We caution, however, that consumer protection statutes such as the federal Truth in Lending 

Ac~,~ the Texas Deceptive Trade Practices-Consumer Protection Act,s and common-law causes of 

action such as tiaud, promissory estoppel, and breach of contract might be applied to a lender who 

misleads a potential borrower as to the effect of a home equity loan application or otherwise harms 

a borrower. Lenders should particularly advise consumers of the consequences of paying fees, 

appraisal costs, and other loan-related charges prior to the amendment’s effective date. Provided 

applications are solicited, accepted, and processed in a manner that does not mislead or deceive 

consumers, we find no legal prohibition on such practices prior to the effective date of the 

amendment. 

Your second question regards the twelve-day waiting period imposed by the constitutional 

amendment. A lien created pursuant to a home equity loan is unenforceable if the loan is closed 

before the 12th day a&r the date the home owner submits a loan application to the lender, or the 

date the lender provides the owner with a certain written notice regarding the terms of the loan, 

whichever cornea later. You ask whether the twelveday waiting period may begin to run before the 

amendment becomes effective on January 1,1998. In other words, if a borrower has submitted an 

application and the lender has provided notice twelve days before January 1,1998, may the loan be 

closed on January 1,1998, and be enforceable under the provisions of the amendment? We conclude 

that it may not. 

The amendment provides that a home equity loan may be enforced if it is closed not before 

“the 12th day after the later of the date that the owner of the homestead submits an application to the 

lender for the extension of credit or the date that the lender provides the owner a copy of the notice 

prescribed by Subsection (g) of this section.” Subsection (g) sets out the specific language of the 

notice and includes references to the requirements of the constitutional amendment. Before the 

amendment becomes effective, no notice is prescribed by Subsection (g) and the provisions of the 

amendment referred to in the notice have no legal effect. Notice given before the effective date of 

the amendment is not notice ‘prescribed by” the smendment. Therefore, the amendment’s notice 

requirement is not satisfied if notice is given before the effective date of the amendment, and thus 

the twelve-day waiting period is not triggered by such a notice. 

‘1s U.S.C. gp 1601 - 1667f. 

‘BUS. & Corn. Code ch. 17, subch. E. 

p. 2535 
The Honorable Kenny Marchant - Page 3 @M-452) 

A lender may solicit, accept, and process applications for home equity 

loans before the constitutional amendment authorizing such loans becomes 

effective. However, the notice to borrowers prescribed by the amendment is 

not effective if given before the amendment’s effkctive date. 

DAN MORALES 

Attorney General of Texas 

JORGE VEGA 

First Assistant Attorney General 

SARAH J. SHIRLEY 

Chair, Opinion Committee 

Prepared by Barbara Griti 

Assistant Attorney General 

p. 2536