The Texas Constitution and the Texas Property Code restrict liens on Texas homesteads. A valid lien may be placed on a Borrower’s homestead for only certain types of recourse loans:
•Purchase Money. A lien to secure a loan, the proceeds of which are used for the purchase price of the homestead. Purchase money includes consideration paid or to be paid for the purchase of the property. Purchase money loans are covered in Chapter 14.
•Owelty of Partition. If a piece of property is jointly owned and a court orders it partitioned or the joint owners agree to a partition, a lien may be given for a loan allowing one party to buy out the others. For example, a debt of one spouse in favor of the other spouse resulting from a division or an award of a family homestead in a divorce proceeding may be secured by the homestead.
•Home Improvement/Construction. A lien may secure a loan, the proceeds of which are used for labor or materials used in constructing a home or other improvements on the homestead. Texas home construction and improvement loans are covered in Chapter 15.
•Taxes. A lien may secure a loan, the proceeds of which are used to pay taxes on the homestead. Taxes on the property, include (i) ad valorem property taxes; (ii) a federal tax lien resulting from the tax debt of both spouses, if the homestead is a family homestead, or from the tax debt of the owner; and (iii) a refinance by a third party of ad valorem taxes or a federal tax lien.
•Refinancing. A lien securing (i) the refinancing of the previous four existing liens plus closing costs and (ii) an allowed home equity to non-home equity refinancing discussed in Chapter 16 of this Guide, are allowed as recourse loans.
As a result of amendments to the home-equity laws which went into effect on January 1, 2018, lenders may now refinance a “seasoned” home equity loan (nonrecourse) into a non-home equity loan which continues to be secured by the borrower’s homestead. See Chapter 16, “Home Equity Lending” for a more detailed discussion of the requirements.
The Texas Constitution also allows a Texas borrower to place a valid lien on his business or residential homestead to secure nonrecourse credit. The loan proceeds can be used for any purpose. The loans can be Home Equity Loans, Home Equity Lines of Credit or Reverse Mortgages. A general overview of the Texas regulatory scheme and basic documentation guidelines for these loans are discussed in detail in Chapter 16.