Real Estate Finance
The instruments
Texas is a deed-of-trust state. The deed of trust carries a power of sale, allowing non-judicial foreclosure under Property Code Chapter 51: notice of default precedes notice of sale, which is posted and filed at least 21 days before the sale, and the sale occurs on the first Tuesday of the month. Deficiency suits are restricted when the loan is a purchase-money or home-equity loan.
Texas home equity - Section 50(a)(6)
This is constitutional, not statutory: the loan plus all other liens may not exceed 80% of fair market value; the borrower gets a 12-day cooling-off period after receiving the required notice; only one home equity loan at a time; any prior home equity loan must be paid off; no prepayment penalty; limited fees. Converting a 50(a)(6) loan into a non-home-equity refinance requires the statutory notice and waiting period.
Compliance
RESPA/TRID: Loan Estimate within three business days of application; Closing Disclosure at least three business days before consummation. Mortgage loan originators are licensed under the SAFE Act through NMLS, not by TREC. PMI: borrower may request cancellation at 80% LTV, automatic termination at 78%.
Traps
- Quoting 90% or 100% LTV for a Texas home equity loan.
- Forgetting the 12-day cooling-off and treating it as a disclosure formality.
- Blending TREC licensing with MLO licensing.
Rule of thumb
80 / 12 / one / paid. Worked example - FMV $400,000 and a $200,000 first mortgage: 80% of $400,000 is $320,000, so the maximum new home equity loan is $120,000 before allowable closing costs.