Texas Reverse Mortgage Loan Amendment, Proposition 5 (2013)

Proposition 5
Type	Constitutional amendment
Origin	Texas State Legislature
Topic	Housing
Status	Approved a

The Texas Reverse Mortgage Loan Amendment, Proposition 5 was on the November 5, 2013 ballot in Texas as a legislatively referred constitutional amendment. It was approved.

The measure authorized the making of a reverse mortgage loan for the purchase of a home and amended certain requirements regarding a reverse mortgage loan. The measure was sponsored in the legislature by Sen. John Carona (R-16) as Senate Joint Resolution 18.

Election results

See also: 2013 ballot measure election results

Below are the official election results:

Texas Proposition 5
Result		Votes	Percentage
a Yes		683,402	62.60%
No		408,197	37.39%

These results are from the Texas Secretary of State.

Background

A reverse mortgage is a credit agreement under which a creditor provides money to a borrower in exchange for a lien on the borrower's home. The borrower is usually not required to repay the money or interest on the money until the borrower dies, sells the home or permanently moves out of the home. Reverse mortgages are available to people ages 62 and up. At the time of Prop 5's approval, Texas was the second largest market in the country for reverse mortgages. However, prior to the passage of Prop 5, it was the only state that didn't offer the "reverse mortgage for purchase," as it was not permitted to do so in the state's constitution. This form of reverse mortgage allows a person to purchase a new primary residence and obtain a reverse mortgage in a single transaction. Prop 5 included the terms of a "reverse mortgage for purpose" in the constitution so seniors could use this method to obtain a new home. It also required lenders of reverse mortgages to expand the required counseling to borrowers, ensuring that seniors know what specific actions can lead to foreclosure.

Texas Secretary of State, John Steen selected the order of the nine ballot measures for 2013 at random. The nine approved amendments were added to the Texas Constitution, the longest state constitution in the country. As of 2011, the state legislature has put 653 amendments before voters since 1876, of which 474 were passed. LWV-Texas Education Fund Chair Linda Krefting, had this to say about the nine constitutional amendments: "The issues at stake affect all Texans now and in the future, from property tax exemptions to funding the water state plan. Given the significance of the issues and relative permanence of constitutional amendments, voters need to understand each of the propositions to cast an informed vote."

Text of measure

The ballot was printed to permit voting for or against the proposition:

“

The constitutional amendment to authorize the making of a reverse mortgage loan for the purchase of homestead property and to amend lender disclosures and other requirements in connection with a reverse mortgage loan.

”

Constitutional changes

Proposition 5 amended Article XVI, Section 50(k) of the Texas Constitution.

Note: Hover over the text and scroll to see the full text.

BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF TEXAS:

Section 1. Subsection (k), Section 50, Article XVI, Texas Constitution is amended to read as follows:

(k) "Reverse mortgage" means an extension of credit:

(1) that is secured by a voluntary lien on homestead property created by a written agreement with the consent of each owner and each owner's spouse;

(2) that is made to a person who is or whose spouse is 62 years or older;

(3) that is made without recourse for personal liability against each owner and the spouse of each owner;

(4) under which advances are provided to a borrower:

(A) based on the equity in a borrower's homestead; or

(B) for the purchase of homestead property that the borrower will occupy as a principal residence;

(5) that does not permit the lender to reduce the amount or number of advances because of an adjustment in the interest rate if periodic advances are to be made;

(6) that requires no payment of principal or interest until:

(A) all borrowers have died;

(B) the homestead property securing the loan is sold or otherwise transferred;

(C) all borrowers cease occupying the homestead property for a period of longer than 12 consecutive months without prior written approval from the lender;

(C-1) if the extension of credit is used for the purchase of homestead property, the borrower fails to timely occupy the homestead property as the borrower's principal residence within a specified period after the date the extension of credit is made that is stipulated in the written agreement creating the lien on the property; or

(D) the borrower:

(i) defaults on an obligation specified in the loan documents to repair and maintain, pay taxes and assessments on, or insure the homestead property;

(ii) commits actual fraud in connection with the loan; or

(iii) fails to maintain the priority of the lender's lien on the homestead property, after the lender gives notice to the borrower, by promptly discharging any lien that has priority of may obtain priority over the lender's lien within 10 days after the date the borrower receives the notice, unless the borrower:

(a) agrees in writing to the payment of the obligation secured by the lien in a manner acceptable to the lender;

(b) contests in good faith the lien by, or defends against enforcement of the lien in, legal proceedings so as to prevent the enforcement of the lien or forfeiture of any part of the homestead property; or

(c) secures from the holder of the lien an agreement satisfactory to the lender subordinating the lien to all amounts secured by the lender's lien on the homestead property;

(7) that provides that if the lender fails to make loan advances as required in the loan documents and if the lender fails to cure the default as required in the loan documents after notice from the borrower, the lender forfeits all principal and interest of the reverse mortgage, provided, however, that this subdivision does not apply when a governmental agency or instrumentality takes an assignment of the loan in order to cure the default;

(8) that is not made unless the prospective borrower and the spouse of the prospective borrower attest [owner of the homestead attests] in writing that the prospective borrower and the prospective borrower's spouse [owner] received counseling regarding the advisability and availability of reverse mortgages and other financial alternatives that was completed not earlier than the 180th day nor later than the 5th day before the date the extension of credit is closed;

(9) that is not closed before the 12th day after the date the lender provides to the prospective borrower the following written notice on a separate instrument, which the lender or originator and the borrower must sign for the notice to take effect:

IMPORTANT NOTICE TO BORROWERS RELATED TO YOUR REVERSE MORTGAGE

"UNDER THE TEXAS TAX CODE, CERTAIN ELDERLY PERSONS MAY DEFER THE COLLECTION OF PROPERTY TAXES ON THEIR RESIDENCE HOMESTEAD. BY RECEIVING THIS REVERSE MORTGAGE YOU MAY BE REQUIRED TO FORGO ANY PREVIOUSLY APPROVED DEFERRAL OF PROPERTY TAX COLLECTION AND YOU MAY BE REQUIRED TO PAY PROPERTY TAXES ON AN ANNUAL BASIS ON THIS PROPERTY.

"THE LENDER MAY FORECLOSE THE REVERSE MORTGAGE AND YOU MAY LOSE YOUR HOME IF:

"(A) YOU DO NOT PAY THE TAXES OR OTHER ASSESSMENTS ON THE HOME EVEN IF YOU ARE ELIGIBLE TO DEFER PAYMENT OF PROPERTY TAXES;

"(B) YOU DO NOT MAINTAIN AND PAY FOR PROPERTY INSURANCE ON THE HOME AS REQUIRED BY THE LOAN DOCUMENTS;

"(C) YOU FAIL TO MAINTAIN THE HOME IN A STATE OF GOOD CONDITION AND REPAIR;

"(D) YOU CEASE OCCUPYING THE HOME FOR A PERIOD LONGER THAN 12 CONSECUTIVE MONTHS WITHOUT THE PRIOR WRITTEN APPROVAL FROM THE LENDER, OR IF THE EXTENSION OF CREDIT IS USED FOR THE PURCHASE OF THE HOME, YOU FAIL TO TIMELY OCCUPY THE HOME AS YOUR PRINCIPAL RESIDENCE WITHIN A PERIOD OF TIME AFTER THE EXTENSION OF CREDIT IS MADE THAT IS STIPULATED IN THE WRITTEN AGREEMENT CREATING THE LIEN ON THE HOME;

"(E) YOU SELL THE HOME OR OTHERWISE TRANSFER THE HOME WITHOUT PAYING OFF THE LOAN;

"(F) ALL BORROWERS HAVE DIED AND THE LOAN IS NOT REPAID;

"(G) YOU COMMIT ACTUAL FRAUD IN CONNECTION WITH THE LOAN;

OR

"(H) YOU FAIL TO MAINTAIN THE PRIORITY OF THE LENDER'S LIEN ON THE HOME, AFTER THE LENDER GIVES NOTICE TO YOU, BY PROMPTLY DISCHARGING ANY LIEN THAT HAS PRIORITY OR MAY OBTAIN PRIORITY OVER THE LENDER'S LIEN WITHIN 10 DAYS AFTER THE DATE YOU RECEIVE THE NOTICE, UNLESS YOU:

"(1) AGREE IN WRITING TO THE PAYMENT OF THE OBLIGATION SECURED BY THE LIEN IN A MANNER ACCEPTABLE TO THE LENDER;

"(2) CONTEST IN GOOD FAITH THE LIEN BY, OR DEFEND AGAINST ENFORCEMENT OF THE LIEN IN, LEGAL PROCEEDINGS SO AS TO PREVENT THE ENFORCEMENT OF THE LIEN OR FORFEITURE OF ANY PART OF THE HOME; OR

"(3) SECURE FROM THE HOLDER OF THE LIEN AN AGREEMENT SATISFACTORY TO THE LENDER SUBORDINATING THE LIEN TO ALL AMOUNTS SECURE BY THE LENDER'S LIEN ON THE HOME.

"IF A GROUND FOR FORECLOSURE EXISTS, THE LENDER MAY NOT COMMENCE FORECLOSURE UNTIL THE LENDER GIVES YOU WRITTEN NOTICE BY MAIL THAT A GROUND FOR FORECLOSURE EXISTS AND GIVES YOU AN OPPORTUNITY TO REMEDY THE CONDITION CREATING THE GROUND FOR FORECLOSURE OR TO PAY THE REVERSE MORTGAGE DEBT WITHIN THE TIME PERMITTED BY SECTION 50(k)(10), ARTICLE XVI OF THE TEXAS CONSTITUTION. THE LENDER MUST OBTAIN A COURT ORDER FOR FORECLOSURE EXCEPT THAT A COURT ORDER IS NOT REQUIRED IF THE FORECLOSURE OCCURS BECAUSE:

"(1) ALL BORROWERS HAVE DIED; OR

"(2) THE HOMESTEAD PROPERTY SECURING THE LOAN IS SOLD OR OTHERWISE TRANSFERRED."

"YOU SHOULD CONSULT WITH YOUR HOME COUNSELOR OR AN ATTORNEY IF YOU HAVE ANY CONCERNS ABOUT THESE OBLIGATIONS BEFORE YOU CLOSE YOUR REVERSE MORTGAGE LOAN. TO LOCATE AN ATTORNEY IN YOUR AREA, YOU MAY WISH TO CONTACT THE STATE BAR OF TEXAS."

"THIS NOTICE IS ONLY A SUMMARY OF YOUR RIGHTS UNDER THE TEXAS CONSTITUTION. YOUR RIGHTS ARE GOVERNED IN PARTY BY SECTION 50, ARTICLE XVI, OF THE TEXAS CONSTITUTION, AND NOT BY THIS NOTICE." [that requires the lender, at the time the loan is made, to disclose to the borrower by written notice the specific provisions contained in Subdivision (6) of this subsection under which the borrower is required to repay the loan];

(10) that does not permit the lender to commence foreclosure until the lender gives notice to the borrower, in the manner provided for a notice by mail related to the foreclosure of liens under Subsection (a)(6) of this section, that a ground for foreclosure exists and gives the borrower at least 30 days, or at least 20 days in the event of a default under Subdivision (6)(D)(iii) of this subsection to:

(A) remedy the condition creating the ground for foreclosure;

(B) pay the debt secured by the homestead property from proceeds of the sale of the homestead property by the borrower or from any other sources; or

(C) convey the homestead property to the lender by a deed in lieu of foreclosure; and

(11) that is secured by a lien that may be foreclosed upon only by a court order, if the foreclosure is for a ground other than a ground stated by Subdivision (6)(A) or (B) of this subsection.

Fiscal impact statement

According to the fiscal impact statement for SJR 18, which was released on February 13, 2013, "No fiscal implication to the State is anticipated, other than the cost of publication. The cost to the state for publication of the resolution is $108,921. No fiscal implication to units of local government is anticipated."

Support

The measure was sponsored by Sens. John Carona and Mike Villarreal (D-123).

Texans for Prop 5 led the campaign in favor of Proposition 5.

Supporters

• Houston Association of REALTORS®
• MetroTex Association of REALTORS®
• Texas Association of REALTORS®

Arguments

The arguments presented in favor of Prop 5 in the state's official voter guide were constructed by the Texas Legislative Council. The arguments featured were based on comments made about the amendment during the legislative process and generally summarized the main arguments supporting the amendment. They read as follows:

• It is not uncommon for older homeowners to find themselves in the market for a new home, whether for purposes of downsizing to a more suitable residence, relocating to be closer to their grown children or to medical care, or simply lowering the cost of homeownership. To do so, Texas seniors must sell one home and purchase another, either by paying in cash or by taking out a new mortgage, in two separate transactions, with separate closing costs on each transaction. The proposed amendment would add a reverse mortgage for purchase option to the original reverse mortgage available to older homeowners, allowing Texas homeowners age 62 and older, who may be house-rich and income-poor, to sell one property and purchase another in a single transaction using the equity in an existing house to make a cash down payment on a less expensive residence. By combining the selling and buying of the two properties into one transaction and eliminating a set of fees, a homeowner could save several thousand dollars in closing fees.

• The proposed amendment would also provide important safeguards for potential reverse mortgage borrowers by requiring detailed disclosures to be made at least 12 days before the closing, providing prospective borrowers with the time and relevant information needed to make informed decisions. In addition to describing a borrower's obligations, the required disclosures would include information regarding the consequences, including a possible foreclosure, of the borrower's failure to meet certain contractual obligations, such as payment of property taxes on the home. The disclosure regarding property taxes would be an important consideration for seniors who are eligible to defer unpaid property taxes in Texas in order to remain in their homes but may lose that opportunity when using a reverse mortgage.

According to the League of Women Voters of Texas, which offered both support and opposition arguments for the measure, arguments in support of the measure included:

• This proposition saves costs for seniors by allowing a reverse mortgage loan to be set up as part of a purchase rather than after a purchase to eliminate duplicative processes.

• Using a "reverse mortgage for purchase," the homeowner can occupy a new residence without making a single mortgage payment. This helps seniors relocate to other geographical areas or downsize to homes that better meet their needs.

• Reverse mortgage loans are typically easier to qualify for than traditional loans, which have income and credit score requirements to support the borrower;s ability to meet repayment commitments.

Other arguments included:

• Empower Texans supported Proposition 5. They said, "[Prop 5] Provides additional ways for homeowners to leverage the value of their property."

Opposition

Texas Constitution
Preamble
Articles
1 • 2 3 (1-43) • 3 (44-49) • 3 (50-67) 4 • 5 • 6 • 7 • 8 • 9 • 10 • 11 • 12 • 13 • 14 • 15 • 16 • 17 • Appendix

According to the Texas Legislative Council's Official Voter Guide, which was compiled by the Texas Legislative Council:

• No comments opposing the proposed amendment were made during the house and senate committee hearings or during debate on the amendment in the house and senate chambers. A review of other sources also did not reveal any apparent opposition to the amendment.

According to the League of Women Voters of Texas, which offered both support and opposition arguments for the measure, arguments opposing the measure included:

• All reverse mortgages are complex financial products. Surveys have found that consumers struggle to understand and make good decisions even after required counseling.

• Homewoners can lose a lifetime of home equity as a result of fraud, scams, misleading advertising, aggressive sales tactics and discriminatory practices sometimes associated with reverse mortgages. This risk increases significantly when state regulation and enforcement are weak.

• As baby boomers consider the reverse mortgage market, their choices may put them at considerable risk at a time in their lives when making a financial recovery is unlikely.

Media editorial positions

See also: Endorsements of Texas ballot measures, 2013

Support

• The Austin Chronicle said, "This would add a homestead purchase option (via existing home equity) to existing reverse mortgage law; would make it easier for elderly to sell/buy a homestead in a single transaction."
• The Dallas Morning News said, "Texas, which is the only state to prohibit reverse mortgages for home purchase, should make this commonsense change. Older Texans, especially those who are house-rich and cash-poor, deserve the greater financial flexibility and choice that this change in the constitution would provide... Voters should pass Proposition 5 and extend greater choice to older homebuyers."
• Houston Chronicle said, "The current law only allows traditional mortgages, which lets homeowners borrow against the equity of their homes. The proposal would save costs on mortgage loans and make it easier for older Texans to relocate or downsize to homes that better meet their needs."
• San Antonio Express-News said, "This amendment, if passed, would ultimately provide greater financial flexibility for borrowers. It would allow them to avoid paying double closing costs when they choose to move or downsize. It also offers the potential to keep assets invested elsewhere. Vote yes on Proposition 5, allowing the purchase of a primary residence through a reverse mortgage."
• The Burnt Orange Report endorsed Prop 5, saying, "These reverse mortgage loans are optional, and overseen and regulated by HUD. Anyone who takes the loan is required to complete counseling before it is issued, and a full notice of the terms of the loan is sent 12 days before it starts so a borrower can be super-duper sure it's on the up and up. This process actually has more protections in place than regular reverse mortgages, and is regulated by HUD, aka the Federal Government. The name makes it sound bad, but the instrument is a pretty good option for a lot of seniors and there are a lot of safeguards in place -- including the additional Texas-specific safeguards that the amendment would provide. We still have concerns that this may inadvertently open the door to bad actors in the housing market who try to prey on senior citizens. However, additional safeguards appear to be in place to prevent that. On the balance, this seems acceptable. We narrowly endorse a vote FOR Proposition 5 in the November 2013 constitutional amendment elections."

Path to the ballot

See also: Amending the Texas Constitution

A 2/3rds vote in both chambers of the Texas State Legislature is required to refer an amendment to the ballot. Texas is one of sixteen states that requires this. Since the bill is a joint resolution, it does not require the governor's signature before being placed on the ballot.

The Texas House of Representatives passed the amendment on May 16, 2013, with a vote of 139 to 1. The Texas State Senate previously passed the amendment on March 12, 2013, with a vote of 31 to 0.

Texas Reverse Mortgage Loan Amendment, SJR 18 House Vote
Result		Votes	Percentage
a Yes		139	99%
No		1	0%

Texas Reverse Mortgage Loan Amendment, SJR 18 Senate Vote
Result		Votes	Percentage
a Yes		31	100%
No		0	0%

See also

Suggest a link

• 2013 ballot measures
• Texas 2013 ballot measures

External links

• SJR 18
• Bill Analysis -- Enrolled Version
• Texans for Prop 5