Texas Supreme Court clarifies Home Equity Law

On June 21, 2013, the Texas Supreme Court issued its opinion in the case involving certain parts of the Texas Home Equity Law (Finance Commission of Texas et al v. Norwood, et al, No. 10-0121).   The opinion was further clarified in a supplemental opionion issued on January 24, 2014.  This decision is the culmination of a lawsuit filed in 2004 by six homeowners against the Texas Finance Commission and Credit Union Commission.

The decision covers three issues involving Texas Home Equity law:

1.      Discount Points and Per Diem Interest (Clarified in supplemental opinion)

True Discount points, where a borrower pays a premium to lower the interest rate is not  included in the 3% cap on fees.  Discount points are interest, not fees subject to the 3% calculation.  Similarly, pre-paid or per diem interest are not included in the 3% cap on fees.

2.      Powers of Attorney

Powers of Attorney to be used in a Home Equity loan must be signed by the maker in the office of the lender, attorney or title company.   Unless the lender has verification that the POA was executed in the proper location (office of the lender, title company or attorney), they should not use that POA to close the Home Equity loan.

Question: Will the Texas Supreme Court’s ruling affect a Military Power of Attorney prepared when the military spouse is overseas or otherwise unable to attend the closing?   In my opinion, if the  Military POA was signed in the office of a military attorney (JAG Officer), and the Military POA sets out the terms under federal statute, 10 U.S.C. Section 1044(a), the POA will satisfy the requirements set out by the Texas Supreme Court for Home Equity loans.

3.      12-Day Home Equity Notice

Under current Home Equity regulations, when the 12-day Home Equity Notice is mailed to the applicant, there is a rebuttable presumption that the applicant received it 3 days after it was mailed.  The Texas Supreme Court upheld that presumption; Lenders may continue to assume that the applicant has received the 12-day Home Equity Notice 3 days after it was mailed.



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