Opinion ID: 666003
Heading Depth: 3
Heading Rank: 2

Heading: Reverse Annuity Mortgages

Text: 13 In their complaint, the banks sought a declaration that 14 [federal statutes] preempt those portions of the Texas homestead law that prevent federally-chartered savings and loan associations from creating enforceable liens on Texas homesteads otherwise permitted by federal law and regulations. 15 The banks also sought a declaration that federal law gives housing creditors in Texas other than federal savings associations the same right to make, purchase and enforce alternative mortgage transactions as possessed by federal associations. The banks expressly denied that they were seeking a declaration that Texas homestead law had been preempted in its entirety, and they admitted that Texas homestead law would continue to apply in such contexts as fixed-rate, fixed-term home loan transactions, federal bankruptcies [in which state exemptions are claimed], and judgment creditor claims against individual debtors. 16 We note at the outset that the term used by the parties and the court below, alternative mortgage transaction (AMT), is a broad catch-all term for all manner of mortgage instruments that do not conform to the traditional fully-amortized, fixed-interest-rate mortgage loan. These AMTs include such instruments as the adjustable interest rate mortgage and the graduated payment mortgage. See generally GRANT S. NELSON & DALE A. WHITMAN, REAL ESTATE TRANSFER, FINANCE, AND DEVELOPMENT 1000-13 (4th ed. 1992). Through their motions for summary judgment and on this appeal, the parties have made clear that their dispute does not concern these now-familiar alternative mortgage instruments but rather focuses on AMTs that are directly foreclosed by the impact of the Texas homestead law, namely the reverse annuity mortgage (RAM) and the line of credit conversion mortgage, which is a variant of the RAM. 17 We shall therefore limit our preemption analysis and our decision to the two types of alternative mortgage instruments specifically enumerated by the banks, the RAM and the line of credit conversion mortgage. Black's Law Dictionary defines a RAM as 18 [a] mortgage format under which the mortgage loan proceeds are disbursed periodically over a long time period to provide regular income for the borrower-mortgagor. The loan will usually be repaid in a lump sum when the mortgagor dies or the property is sold. 19 BLACK'S LAW DICTIONARY 1011 (6th ed. 1990). Although the regulations adopted by the OTS do not mention the RAM by name, they do describe that mortgage instrument in terms consistent with the above definition: The loan contract may provide for the deferral and capitalization of all interest on loans to natural persons secured by borrower-occupied property and on which periodic advances are being made. 12 C.F.R. Sec. 545.33(a) (1993). We conclude that a RAM is a mortgage instrument that provides for periodic payments from the mortgagee to the mortgagor, with the loan being secured by the mortgagor's equity in real property. The line of credit conversion mortgage is a variant of the RAM in which the mortgagor is provided with a line of credit so that he may receive payments on demand rather than regularly-scheduled payments. 20 The parties agree that a lien taken on a homestead in a RAM or line of credit conversion mortgage is not enforceable under Texas homestead law.