Bulletin: TX000052

Date:
December 27, 1999
To:
All Issuing Offices in Texas
RE:
1999 Constitutional Amendments: Homestead; Reverse Mortgages; and Conversion of Separate Property

Dear Associates:

Texans approved three important constitutional amendments relating to real estate on November 2, 1999.

HOMESTEAD

10 Acre Urban Homestead and End of Business Homestead Unless Adjacent to Home (SB 496 and SJR 22; Section 41.002, Property Code, and Section 51, Article XVI, Texas Constitution) Effective 1/1/2000.

The constitutional amendment (SJR 22, Proposition 6) did three things:

  1. It ended the separate urban business homestead. If the business is not "contiguous" to the home, then the owner may not claim a business homestead.

    Company Policy: You may insure a mortgage made on a business on or after January 1, 2000 as a non-homestead mortgage, if the business is not on a tract of land adjacent to the home of the owner or across the street from the home of the owner.

  2. It increased the urban homestead to ten acres consisting of one tract or multiple contiguous tracts. This reduces the concern that a home equity mortgage on urban property covers non-homestead land. The T-42.1 Endorsement insures that the Home Equity Mortgage does not cover non-homestead land.

    Company Policy: You may issue the T-42.1 Endorsement if you comply with our prior Bulletin TX000049 and secure the revised Affidavit for Home Equity Transactions (available through the references section at the end of this bulletin). Commencing January 1, 2000, you may issue this endorsement if the urban homestead does not exceed 10 acres.

  3. It allows overburdening of the homestead. Overburdening of homestead occurs if a mortgage on homestead is refinanced against a smaller part of the homestead without a proportionate reduction in principal. The overburdening of the remaining part of homestead subject to the refinance may result in a partially invalid lien.

    Company Policy: You may immediately insure refinances of valid liens on homestead, where the new mortgage covers only a part of the homestead previously mortgaged.

Urban Homestead vs. Rural Homestead (Enabling Legislation: SB 496; Section 41.002, Property Code) Effective 9/1/99
Prior law said that homestead would be considered rural if not served by municipal utilities and fire and police protection. The new law provides that land is considered urban if located in a municipality, the extraterritorial jurisdiction or platted subdivision and is served by police protection, and three utility services provided by the city or under contract with the city.

Company Policy: You may rely upon an affidavit claiming that the land is urban homestead if the land is located in a municipality or the extraterritorial jurisdiction of a municipality or is in a platted subdivision and receives city services, the borrowers sign the affidavit (TX Affidavit of Urban Homestead and Designation of Homestead 1, available through the references section at the end of this bulletin) and you do not know that the land is rural in character. If the affiants indicate that any of the statements in the affidavit are untrue, please call our underwriting personnel.

Spreading of Homestead Lien (Enabling Legislation: SB 496; Section 5.042, Property Code) Effective 9/1/99
Prior law did not allow a refinance on homestead to include land not previously encumbered. The new law allows an existing valid homestead lien to be refinanced by a new mortgage that covers additional homestead property.

Company Policy: You may insure refinances of valid liens on homestead where the new mortgage covers additional homestead land, so long as one of the prior liens covered the home. Please call our underwriters if any of the land covered by a prior lien or new lien appears to include non-homestead. Please also call our underwriters if you are asked to insure other transactions.

Refinance of Manufactured Home Lien (HB 1086; Sections 62.001, et seq., Property Code) Effective 9/1/99
If a manufactured home is "converted" to real property, the law now provides that the purchase money lien on the home is converted to a purchase money lien on the land. This is similar to the bill allowing "spreading" of liens on homestead.

Company Policy: You may insure refinances of purchase money liens for manufactured homes, even though the purchase money lien is not secured by a mechanic's lien contract. You must process the cancellation of the certificate or document of title and record the certificate of attachment after closing. You must secure a copy of the purchase money contract and pay off the balance owed on that contract for the manufactured housing unit. We prefer that the new deed of trust say that it is refinancing the purchase money loan on the manufactured housing unit. For example, the new deed of trust could say "The note renews and extends the balance that Grantor owes on a loan or credit advance document for the purchase of a manufactured home. Grantor expressly acknowledges that the lien on the manufactured home has been converted to a lien on the real property described in this instrument pursuant to Chapter 62, Texas Property Code, and that the lien is hereby renewed and extended in full force on the real property described in this instrument to secure the payment of the note."

REVERSE MORTGAGES

Reverse Mortgages (SJR 12; Article 16, Section 50, Texas Constitution)
This amendment to the constitution changes the requirements for a reverse mortgage on the homestead residence. It allows foreclosure on death or sale by the mortgagors. It requires that the mortgagor or spouse be at least 62 years of age. It requires new disclosures at the time of closing and requires a court order to foreclose in most cases.

The Supreme Court has not yet adopted new rules governing the foreclosure of reverse mortgages.

Fannie Mae will require modification of the existing Reverse Mortgage Endorsement (T-43) for coverage of its Homekeeper Mortgages on reverse mortgage loans. The current endorsement does not except to additional requirements for reverse mortgages adopted by the constitutional amendment.

Company Policy: Do not insure a reverse mortgage prior to modification of the Reverse Mortgage Endorsement without specific underwriter approval.

MARITAL RIGHTS

Reimbursement of Separate and Community Property (Enabling Legislation: HB 734; Sections 3.006, 3.401, et seq., Family Code) Effective 9/1/99
If separate property is enhanced in value because of financial contribution by community property or if community property is enhanced in value because of the financial contribution of separate property, the contributing estate has an equitable right of reimbursement upon dissolution of the marriage. The right of reimbursement does not create an ownership interest.

Company Policy: You do not need to except to rights of reimbursement unless a court proceeding or recorded claim reflects a current claim. You should continue to require joinder of a spouse where otherwise appropriate, such as where the spouse may have homestead rights. Do not inure that property is "separate" or "community".

Conversion of Separate Property to Community Property (HB 734; Sections 4.201, et seq., Family Code; HJR 36) Vote 11/2/99 - Effective 1/1/2000

This constitutional amendment allows spouses to agree that separate property is converted to community property. The agreement is presumed to provide fair and reasonable disclosure if such a disclosure is in a form similar to the statutory form.

Company Policy: Do not insure that property is "separate" or "community," even if the parties have executed the agreement

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.