Texas Administrative Code
Title 7 - BANKING AND SECURITIES
Part 5 - OFFICE OF CONSUMER CREDIT COMMISSIONER
Chapter 90 - CHAPTER 342, PLAIN LANGUAGE CONTRACT PROVISIONS
Subchapter D - SECOND LIEN HOME EQUITY LOANS (SUBCHAPTER G)
Section 90.403 - Model Clauses
Universal Citation: 7 TX Admin Code § 90.403
Current through Reg. 49, No. 52; December 27, 2024
(a) Generally. These model clauses are the plain language rendition of contract clauses that have typically been stated in technical legal terms. Nothing in this regulation prohibits a contract from including provisions that provide more favorable results for the borrower than those that would result from the use of a model clause.
(b) Model clauses for a Chapter 342, Subchapter G second lien home equity loan contract.
(1) Identification.
(A) The model identification clause lists the
account or contract number, the name and address of the lender, the date of the
note, and the name and address of the borrower. It also lists the following
items that must be included on the promissory note under Regulation Z, 12
C.F.R. §1026.36(g):
(i) the lender's
Nationwide Mortgage Licensing System and Registry identification number
(labeled "Creditor/Lender NMLS ID");
(ii) the name of the individual residential
mortgage loan originator with primary responsibility for the origination
(labeled "Loan Originator"); and
(iii) the originator's Nationwide Mortgage
Licensing System and Registry identification number (labeled "Loan Originator
NMLS ID").
(B) The model
clause identifying the pronouns used for the borrower and the lender reads: "A
word like "I" or "me" means each person who signs as a Borrower. A word like
"you" or "your" means the Lender or "Note Holder." The Lender is _________. The
Lender may sell or transfer this Note. The Lender or anyone who is entitled to
receive payments under this Note is called the "Note Holder." You will tell me
in writing who is to receive my payments."
(2) Promise to pay. One permissible change to
the model language for the scheduled installment earnings method would be to
allow partial prepayments of the principal during the term of the loan. This
variation on the Texas scheduled installment earnings method would allow
periodic reductions of the principal balance by partial prepayments. This
variation would allow reductions of the principal balance that were not
originally scheduled. The model clause for the borrower's promise to pay reads:
"This loan is an Extension of Credit defined by Section 50(a)(6), Article XVI
of the Texas Constitution."
(A) For contracts
using the scheduled installment earnings method: "I promise to pay the Total of
Payments to the order of you. (The "principal" or "cash advance" is $________.
This amount plus interest must be paid by _________ (maturity date).) I will
make payments to you at the address above or as you direct. I will make the
payments on the dates and in the amounts shown in the Payment
Schedule."
(B) For contracts using
the true daily earnings method: "I promise to pay the cash advance plus the
accrued interest to the order of you. (The "principal" or "cash advance" is
$________. This amount plus interest must be paid by _________ (maturity
date).) I will make payments to you at the address above or as you direct. I
will make the payments on the dates and in the amounts shown in the Payment
Schedule."
(C) The model payment
schedule reads:
(3) Late charge.
(A) Generally. The general model late charge
provision for contracts using the scheduled installments earnings method or the
true daily earnings method reads: "If I don't pay all of a payment within 10
days after it is due, you can charge me a late charge. The late charge will be
5% of the scheduled payment."
(B)
High-cost mortgage loans. The model late charge provision for high-cost
mortgage loans subject to the limitation on late charges in Regulation Z, 12
C.F.R. §1026.34(a)(8), reads: "If I don't pay all of a payment within 15
days after it is due, you can charge me a late charge. The late charge will be
4% of the amount of the payment past due."
(4) After maturity interest. The model
provision for after maturity interest for contracts using the scheduled
installment earnings method reads: "If I don't pay all I owe when the final
payment becomes due, I will pay interest on the amount that is still unpaid.
That interest will be the higher of the rate of 18% per year or the maximum
rate allowed by law. That interest will begin the day after the final payment
becomes due."
(5) Prepayment
clause. The model prepayment clause options read:
(A) For contracts using the scheduled
installment earnings method: "I can make a whole payment early. Unless you
agree otherwise in writing, I may not skip payments. If I make a payment early,
my next payment will still be due as scheduled."
(B) For contracts using the true daily
earnings method: "I can make any payment early. Unless you agree otherwise in
writing, I may not skip payments. If I make a payment early, my next payment
will still be due as scheduled."
(6) Finance charge earnings and refund
method. The model provision options specifying the finance charge earnings and
refund method read:
(A) For contracts using
the scheduled installment earnings method - Section 342.301 rate loans, the
model language reads:
(B) For contracts using the
scheduled installment earnings method with prepayments option - Section 342.301
rate loans, the model language reads:
(C) For contracts using the true
daily earnings method - Section 342.301 rate loans, the model language reads:
(7) Fee for dishonored
check clause. The model clause specifies the maximum allowable dishonored check
fee. A licensee may always choose a lesser amount. The fee for dishonored check
model clause reads: "I agree to pay you a fee of up to $30 for a returned
check. You may add the fee to the amount I owe or collect it
separately."
(8) Default clause.
The model provision specifying the conditions causing default reads:
(9) Property insurance. The model
provision regarding property insurance reads:
(10) Credit insurance. If single
premium credit insurance is allowable, a permissible change to the disclosure
can be to offer a single charge for the entire term of the loan. The term for
the single premium charge should be shown for the original term of the loan,
unless otherwise specified. The licensee has the option of including language
that reads: "The insurance will cancel on the date when the total past due
premiums equal or exceed (insert number) times the first month's premium." The
industry standard regarding the relationship between total past due premiums
and the first month's premium in this equation appears to be four times.
However, if a different time frame is more appropriate, that time frame may be
used. The model credit insurance disclosure box reads:
(11) Mailing of notices to
borrower. The model provision regarding the mailing of notices to the borrower
reads: "You or I may mail or deliver any notice to the address above. You or I
may change the notice address by giving written notice. Your duty to give me
notice will be satisfied when you mail it by first class mail."
(12) Due on sale clause, notice of intent to
accelerate, and notice of acceleration. The model provision regarding the due
on sale clause, notice of intent to accelerate, and notice of acceleration
reads: "If all or any interest in the homestead is sold or transferred without
your prior written consent, you may require immediate payment in full of all
that I owe under this Loan Agreement. You will not exercise this option if
prohibited by law. If you exercise this option, you will give me notice of
acceleration (i.e., payment of all I owe at once). This notice will give me a
period of not less than 21 days from the date of the notice within which I must
pay all that I owe under this Loan Agreement. If I fail to pay all that I owe
before the end of this period, you may use any remedy allowed by the Loan
Agreement."
(13) No waiver of
lender's rights. The model provision expressing no waiver of the lender's
rights reads: "If you don't enforce your rights every time, you can still
enforce them later."
(14)
Collection expenses clause. The model collection expenses clause reads: "If you
require me to pay all that I owe at once, you will have the right to be paid
back by me for all of your costs and expenses in enforcing this Loan Agreement
to the extent not prohibited by law, including Section 50(a)(6), Article XVI of
the Texas Constitution. These expenses include, for example, reasonable
attorneys' fees. I understand that these fees are not for maintaining or
servicing this Loan Agreement."
(15) Joint liability. The model provision
providing for joint liability reads: "I understand that you may seek payment
from only me without first looking to any other Borrower. You can enforce your
rights under this Loan Agreement solely against the homestead. This Loan
Agreement is made without personal liability against each owner of the
homestead and the spouse of each owner unless the owner or spouse obtained this
loan by actual fraud. If this loan is obtained by actual fraud, I will be
personally liable for the debt, including a judgment for any deficiency that
results from your sale of the homestead for an amount less than is owed under
this Loan Agreement."
(16) Usury
savings clause. The model usury savings clause reads: "I do not have to pay
interest or other amounts that are more than the law allows."
(17) Savings clause. The model savings clause
stating that if any part of the contract is invalid, the rest remains valid
reads: "If any part of this Loan Agreement is declared invalid, the rest of the
Loan Agreement remains valid. If any part of this Loan Agreement conflicts with
any law, that law will control. The part of the Loan Agreement that conflicts
with any law will be modified to comply with the law. The rest of the Loan
Agreement remains valid."
(18)
Contract supersedes prior agreements. For loan agreements exceeding $50,000,
this notice must be boldfaced, capitalized, underlined, or otherwise set out
from the surrounding written material to be conspicuous. The model integration
clause providing that the contract supersedes prior agreements reads: "This
written Loan Agreement is the final agreement between you and me and may not be
changed by prior, current, or future oral agreements between you and me. There
are no oral agreements between you and me relating to this Loan Agreement. Any
change to this Loan Agreement must be in writing. Both you and I have to sign
written agreements."
(19) Security
document. The model provision stating that the homestead described in the loan
agreement is subject to the lien of the security document reads: "The homestead
described above by the property address is subject to the lien of the Security
Document. I will see the separate Security Document for more information about
my rights and responsibilities."
(20) Application of law. The model clause
specifying that federal law and Texas law apply to the contract reads: "Federal
law and Texas law apply to this Loan Agreement. The Texas Constitution will be
applied to resolve any conflict between the Texas Constitution and any other
law."
(21) OCCC notice. Under
§
RSA 90.105 of this
title (relating to OCCC Notice), the following required notice must be given by
licensees to let consumers know how to file complaints: "For questions or
complaints about this loan, contact (insert name of lender) at (insert lender's
phone number and, at lender's option, one or more of the following: mailing
address, fax number, website, e-mail address). The lender is licensed and
examined under Texas law by the Office of Consumer Credit Commissioner (OCCC),
a state agency. If a complaint or question cannot be resolved by contacting the
lender, consumers can contact the OCCC to file a complaint or ask a general
credit-related question. OCCC address: 2601 N. Lamar Blvd., Austin, Texas
78705. Phone: (800) 538-1579. Fax: (512) 936-7610. Website: occc.texas.gov.
E-mail: consumer.complaints@occc.texas.gov."
(22) Clause describing collateral. The model
provision describing the collateral reads: "The homestead described above by
the property address is subject to the lien of the Security
Document."
(23) Signature blocks.
The licensee may also provide additional signature lines for witness
signatures. The model provision regarding signature blocks reads:
(c) Model clauses for the security document for a Chapter 342, Subchapter G second lien home equity loan contract.
(1) The model definitions
section reads:
(A) "Loan Agreement" means the
Note, Security Document, deed of trust, any other related document, or any
combination of those documents, under which you have extended credit to
me.
(B) "Security Document" means
this document, which is dated ________, together with all Riders to this
document.
(C) "I" or "me" means
_________________________________________, the grantor under this Security
Document and the person who signed the Note ("Borrower").
(D) "You" means
__________________________________________, the Lender and any holder entitled
to receive payments under the Note. Your address is
_________________________________________. Your NMLS ID is __________. You are
the beneficiary under this Security Document. The loan originator's name is
_________________________________________. The loan originator's NMLS ID is
__________.
(E) "Trustee" is
______________________________. Trustee's address is
___________________________________.
(F) "Note" means the promissory Note signed
by me and dated ______________. The Note states that the amount I owe you is
_________________ dollars (U.S. $_______) plus interest. I have promised to pay
this debt in regular Periodic Payments and to pay the debt in full not later
than ______________________________ (maturity date).
(G) "My Homestead" means the property that is
described below under the heading "Transfer of Rights in the
Property."
(H) "Extension of
Credit" means the debt evidenced by the Note, as defined by Section 50(a)(6),
Article XVI of the Texas Constitution and all the documents executed in
connection with the debt.
(I)
"Riders" means all Riders to this Security Document that I execute.
(J)
"Applicable Law" means all controlling applicable federal, Texas and local
constitutions, statutes, regulations, administrative rules, local ordinances,
judicial and administrative orders (that have the effect of law) as well as all
applicable final, non-appealable judicial opinions.
(K) "Community Association Dues, Fees, and
Assessments" means all dues, fees, assessments and other charges that are
imposed on me or My Homestead by a condominium association, homeowners
association, or similar organization.
(L) "Electronic Funds Transfer" means any
transfer of funds, other than a transaction originated by check, draft, or
similar paper instrument, which is initiated through an electronic terminal,
telephonic instrument, computer, or magnetic tape so as to order, instruct, or
authorize a financial institution to debit or credit an account. The term
includes point-of-sale transfers, automated teller machine transactions,
transfers initiated by telephone, wire transfers, and automated clearinghouse
transfers.
(M) "Escrow Items" means
those items that are described in Section ___ of this Security
Document.
(N) "Miscellaneous
Proceeds" means any compensation, settlement, award of damages, or proceeds
paid by any third party (other than proceeds paid under my insurance) for:
damage or destruction of My Homestead; condemnation or other taking of all or
any part of My Homestead; conveyance instead of condemnation; or
misrepresentations or omissions related to the value or condition of My
Homestead.
(O) "Periodic Payment"
means the regularly scheduled amount due for principal and interest under the
Note plus any amounts under this Security Document.
(P) "RESPA" means the Real Estate Settlement
Procedures Act (12 U.S.C. §§2601-2617) and Regulation X (12 C.F.R.
Part 1024), as amended, or any additional or successor legislation or
regulation that governs the same subject matter. As used in this Security
Document, "RESPA" refers to all requirements and restrictions that are imposed
in regard to a "federally related mortgage loan" even if the Loan Agreement
does not qualify as a "federally related mortgage loan" under RESPA.
(Q) "Successor in Interest of me" means any
party that has taken title to My Homestead, whether or not that party has
assumed my obligations under the Loan Agreement.
(R) "Ground Rents" means amounts I owe if I
rented the real property under the buildings covered by this Security Document.
Such an arrangement usually takes the form of a long-term "ground
lease."
(2) Secured
agreement. The model provision regarding the secured nature of the agreement
reads: "To secure this loan, I give you a security interest in My Homestead
including existing and future improvements, easements, fixtures, attachments,
replacements and additions to the property, insurance refunds, and proceeds.
This security interest is intended to be limited to the homestead property and
not other collateral, as required under the Texas Constitution."
(3) Transfer of rights in property. The model
provision regarding a transfer of rights in the property reads:
(4)
Borrower and Lender's promise. The model provision regarding the borrower and
lender's promise to comply with the terms of the security document reads: "YOU
AND I PROMISE:".
(5) Late charges
and prepayment. The model provision regarding late charges and prepayment of
principal and interest reads:
(6)
Funds for escrow items. The model provision regarding the funds for escrow
items reads:
(7)
Charges and liens. The model provision regarding charges and liens reads:
(8)
Property insurance. The model provision regarding property insurance reads:
(9)
Homestead. The model provision stating that the borrower occupies the property
as the borrower's homestead reads: "I now occupy and use the property secured
by this Security Document as my Texas homestead."
(10) Preservation, maintenance, protection,
and inspection of property. The model provision regarding preservation,
maintenance, protection, and inspection of the property reads: "I will not
destroy, damage or impair My Homestead, allow it to deteriorate, or commit
waste. Whether or not I live in My Homestead, I will maintain it in order to
prevent it from deteriorating or decreasing in value due to its condition. I
will promptly repair the damage to My Homestead to avoid further deterioration
or damage unless you and I agree in writing that it is economically
unreasonable. I will be responsible for repairing or restoring My Homestead
only if you release the insurance or condemnation proceeds for the damage to or
the taking of My Homestead. You may release proceeds for the repairs and
restoration in a single payment or in a series of payments as the work is
completed. I still am obligated to complete repairs or restoration of My
Homestead even if there are not enough proceeds to complete the work. You or
your agent may inspect My Homestead. You may inspect the interior of My
Homestead with reasonable cause. You will give me notice stating reasonable
cause when or before the interior inspection occurs."
(11) Conditions causing actual fraud. The
model provision specifying the conditions causing actual fraud reads:
(12)
Protection of lender's interest in property and rights under security document.
The model provision regarding the protection of the lender's interest in the
property and rights under the security document reads:
(13)
Assignment of miscellaneous proceeds and forfeiture. The model provision
regarding the assignment of miscellaneous proceeds and forfeiture reads:
(14)
Forbearance not a waiver. The model provision specifying that the borrower is
not released from liability if the licensee modifies the payment schedule
reads: "My successors and I will not be released from liability if you extend
the time for payment or modify the payment schedule. If I pay late, you will
not have to sue me or my successor to require timely future payments. You may
refuse to extend time for payment or modify this Loan Agreement even if I
request it. If you do not enforce your rights every time, you may enforce them
later."
(15) Joint and several
liability, security document execution, successors obligated. The model
provision regarding joint and several liability and specifying that the person
who signs the contract grants ownership in the homestead and binds the person's
successors and assigns reads:
(16)
Extension of credit charges. The model provision regarding the extension of
credit charges reads:
(17)
Delivery of notices. The model provision regarding the delivery of notices
reads: "Under the Loan Agreement, you and I will give notices to each other in
writing. Any notice under the Loan Agreement will be considered given to me
when it is mailed by first class mail or when actually delivered to me at my
address if given by another means. You will give notice to My Homestead address
unless I provide you a different address. I will notify you promptly of any
change of address. I will comply with any reasonable procedure for giving a
change of address that you provide. There will only be one address for notice
under the Loan Agreement. Notice to me will be considered notice to all persons
who are obligated under the Loan Agreement unless Applicable Law requires a
separate notice. I may give you notice by delivering or mailing it by first
class mail to the address provided by you, unless you require a different
procedure. You, however, will not receive notice under the Loan Agreement until
you actually receive it. Legal requirements governing notices subject to the
Loan Agreement will prevail over conditions in the Loan Agreement."
(18) Governing law and severability. The
model provision regarding the law governing the contract, stating that if any
part of the contract is invalid, the rest of the contract remains valid reads:
"The Loan Agreement will be governed by Texas law and federal law. If any
provision in the Loan Agreement conflicts with any legal requirement, all
non-conflicting provisions will remain effective."
(19) Rules of construction. The model
provision regarding rules of clause construction reads:
(20) Loan
agreement copies. The model provision specifying that the lender will give the
borrower a copy of all signed documents at the time the loan agreement is made
reads: "At the time the Loan Agreement is made, you will give me copies of all
documents I sign."
(21) Transfer of
interest in property. The model provision regarding a transfer of interest in
the property reads: ""Interest in My Homestead" means any legal or beneficial
interest. This term includes those beneficial interests transferred in a bond
for deed, contract for deed, installment sales contract or escrow agreement
(the intent of which is the transfer of title by me at a future date to a
purchaser). If any part of My Homestead is sold or transferred without your
prior written permission, you may require immediate payment of all I owe. You
will not exercise this option if disallowed by Applicable Law. If you
accelerate, you will give me notice. The notice of acceleration will allow me
at least 21 days from the date the notice is given to pay all I owe. If I fail
to timely pay all I owe, you may pursue any remedy allowed by the Loan
Agreement without further notice or demand."
(22) Borrower's right to reinstate after
acceleration. The model provision regarding the borrower's right to reinstate
after acceleration reads:
(23) Sale
of note, change of loan servicer, notice of grievance, and lender's right to
comply. The model provision regarding the sale of the loan, change of loan
servicer, notice of grievance, and the lender's right to comply reads:
(24)
Hazardous substances. The model provision regarding hazardous substances reads:
(25)
Acceleration and remedies. The model provision regarding acceleration and
remedies reads:
(26)
Power of sale. The model provision regarding the power of sale reads:
(27)
Release. The model provision regarding the release of the lien securing the
loan agreement reads: "You will cancel and return the Note to me and give me,
in recordable form, a release of lien securing the Loan Agreement or a copy of
any endorsement of the Note and assignment of the lien to a lender that is
refinancing the Loan Agreement. I will pay only the cost of recording the
release of lien. My acceptance of the release or endorsement and assignment
will end all of your duties under Section 50(a)(6), Article XVI of the Texas
Constitution."
(28) Non-recourse
liability. The model provision specifying that the loan agreement is given
without personal liability against each owner of the homestead and the spouse
of each owner reads:
(29)
Proceeds. The model provision specifying that the borrower has not been
required to repay another debt with the proceeds of the loan reads: "I am not
required to apply the proceeds of the Loan Agreement to repay another debt
except a debt secured by My Homestead or a debt to another lender."
(30) No assignment of wages. The model
provision specifying that the borrower has not assigned wages as security for
the loan agreement reads: "I have not assigned wages as security for the Loan
Agreement."
(31) Acknowledgment of
fair market value. The model provision specifying that the licensee and the
borrower have agreed in writing to the fair market value of the homestead
reads: "You and I agreed in writing to the fair market value of My Homestead on
the date of the Loan Agreement."
(32) Trustees and trustee liability. The
model provision regarding trustees and trustee liability reads:
(33)
Waiver of additional collateral. The model provision regarding the licensee's
waiving additional collateral reads:
(34)
Default. The model default provision reads: "Any default of my agreements with
you will be a default of this Security Document."
(35) Signature blocks. The model provision
regarding signature blocks reads:
(36)
Non-purchase disclosure. The model provision indicating that the security
document does not finance a purchase transaction should appear at the beginning
of the document, below the heading and prior to the definitions section. The
model non-purchase disclosure provision reads: "This Security Document is not
intended to finance Borrower's acquisition of the Property."
(37) Notice of confidentiality rights
disclosure. The security document must incorporate a "Notice of Confidentiality
Rights" disclosure. The disclosure or notice must:
(A) appear on the top of the first page of
the security document;
(B) be in at
least 12-point boldfaced type or 12-point uppercase lettering; and
(C) be substantially similar to the required
notice or disclosure under Texas Property Code, §
RSA
11.008(b). The model notice
of confidentiality rights reads: "NOTICE OF CONFIDENTIALITY RIGHTS: I MAY
REMOVE OR STRIKE MY SOCIAL SECURITY NUMBER OR MY DRIVER'S LICENSE NUMBER FROM
THIS DOCUMENT BEFORE IT IS FILED IN THE PUBLIC RECORDS."
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