- March 05, 2014
- All Texas Issuing Offices
- UNDERWRITING - Reverse Mortgages used to acquire a homestead
We have been asked to provide guidelines for the underwriting of reverse mortgages used to acquire a Texas homestead, after the passage by the voters of SJR 18 in November 2013. This bulletin sets out our guidelines.
All references in this bulletin to section numbers are to Art. 16, Section 50 (k) of the Texas Constitution.
- A reverse mortgage is authorized when the advances are made “(B) for the purchase of homestead property that the borrower will occupy as a principal residence;”
What you should do: Obtain a copy of the real estate purchase agreement as well as a statement that the borrower will occupy the property as their principal residence.
- The borrower must timely occupy the homestead property as the borrower's principal residence within a specified period after the date the extension of credit is made that is stipulated in the written agreement creating the lien on the property.
What you should do: Determine that the deed of trust provides a date certain on when the borrower is to occupy the property.
- The lender is require to obtain proof in writing that the borrower and the spouse of the borrower received counseling regarding the advisability and availability of reverse mortgages and the financial alternatives with a set number of days.
What you should do: The promulgated T-43 does not address this issue directly but does not provide coverage for consumer protection issues. Accordingly, you may rely on the lender’s instructions to close for compliance with this counseling requirement and the time limit.
- The closing may not take place until 12 days after the date the lender provides to the borrower a written notice on a separate written instrument providing notices about deferring the collection of property taxes on their residence homestead. The statutory language of this notice is set out on Exhibit A of this Bulletin, below.
What you should do: The T-43 bulletin provides title insurance against “(iv) the failure of the Company or its Title Insurance Agent to furnish the owner with a copy of the written notice purporting to be made pursuant to Subsection (k)(9) of Section 50, Article XVI, Texas Constitution on the date that the owner executed the insured mortgage and the promissory note secured thereby, provided that the Company does not insure that the written document complies with Subsection (k)(9) of Section 50, Article XVI, Texas Constitution.”
Accordingly, you should require a copy of the notice and either provide the notice to the borrower or obtain receipted proof from the lender that such notice was given. You do not have to confirm that the notice is in exactly the same words as the notice set out on Exhibit A of this bulletin.
To comply with the 12-day requirement for closing after the notice is provided to the borrower:
- Do not close until the closing date provided by the lender in its closing instructions or
- If you provide the notice, do not close until the date contained in the lender’s closing instruction.
Compliance with the standards contained in this bulletin will allow issuance of a loan policy of title insurance insuring a reverse mortgage for the acquisition of a homestead without further exception or amendment of the T-43. You must attach the 2014 revised T-43 Reverse Mortgage Endorsement to the loan policy.
If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.
For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.
Exhibit A to Bulletin TX-___
Important notice to borrowers related to your reverse mortgage.
Under the Texas tax code, certain elderly persons may defer the collection of property taxes on their residence homestead. By receiving this reverse mortgage, you may be required to forgo any previously approved deferral of property tax collection and you may be required to pay property taxes on an annual basis on this property.
The lender may foreclose the reverse mortgage and you may lose your home if:
(a) you do not pay the taxes or other assessments on the home even if you are eligible to defer payment of property taxes;
(b) you do not maintain and pay for property insurance on the home as required by the loan documents;
(c) you fail to maintain the home in a state of good condition and repair;
(d) you cease occupying the home for a period longer than 12 consecutive months without the prior written approval from the lender or, if the extension of credit is used for the purchase of the home, you fail to timely occupy the home as your principal residence within a period of time after the extension of credit is made that is stipulated in the written agreement creating the lien on the home;
(e) you sell the home or otherwise transfer the home without paying off the loan;
(f) all borrowers have died and the loan is not repaid;
(g) you commit actual fraud in connection with the loan; or
(h) you fail to maintain the priority of the lender's lien on the home, after the lender gives notice to you, by promptly discharging any lien that has priority or may obtain priority over the lender's lien within 10 days after the date you receive the notice, unless you:
(1) agree in writing to the payment of the obligation secured by the lien in a manner acceptable to the lender;
(2) contest in good faith the lien by, or defend against enforcement of the lien in, legal proceedings so as to prevent the enforcement of the lien or forfeiture of any part of the home; or
(3) secure from the holder of the lien an agreement satisfactory to the lender subordinating the lien to all amounts secured by the lender's lien on the home.
If a ground for foreclosure exists, the lender may not commence foreclosure until the lender gives you written notice by mail that a ground for foreclosure exists and gives you an opportunity to remedy the condition creating the ground for foreclosure or to pay the reverse mortgage debt within the time permitted by section 50(k)(10), article xvi, of the Texas constitution. The lender must obtain a court order for foreclosure except that a court order is not required if the foreclosure occurs because:
(1) all borrowers have died; or
(2) the homestead property securing the loan is sold or otherwise transferred.
You should consult with your home counselor or an attorney if you have any concerns about these obligations before you close your reverse mortgage loan. To locate an attorney in your area, you may wish to contact the state bar of Texas.
This notice is only a summary of your rights under the Texas constitution. Your rights are governed in part by section 50, article xvi, of the Texas constitution, and not by this notice.
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.