Bulletin: TX2024004

Dear Associates:

What you should know: 

We are aware of a loan product offered in the Texas market where a home equity loan is being used to assist with purchasing a property intended as homestead. In some cases, the product is marketed as a home equity line of credit. Another variation is for a vendor’s lien and the home equity loan to be entered into on the same or next day. We have concerns as to the lien validity as a result of this product and its variations under the Texas Constitution. Due to these concerns, Stewart Title Guaranty Company is not allowing its loan policies to be issued insuring “all-in-one loans” or home equity lines of credit to purchase a homestead property.

The law and the risk: 

Article 16, Section 50 a6 does not specifically authorize a home equity loan to purchase the homestead. Article 16, Section 60 (k) (4) (B) allows the proceeds of a reverse mortgage to be used “for the purchase of homestead property that the borrower will occupy as a principal residence.” Since the Legislature and the people have not made a similar provision for a5 home equity loans, we believe that there is too much risk in insuring “all in one” type home equity loans. We believe that obtaining a vendor’s lien deed and then “paying off the vendor’s lien” with an immediately entered home equity loan might be deemed a single, unpermitted lien against the homestead and therefore poses an unacceptable risk. We are unwilling to solely rely on policy and endorsement provisions excluding coverage under consumer credit laws. The potential constitutional lien issue posed by these loans could be considered more than a simple consumer credit law issue.

What you should do: 

If presented with a product called an “all in one” loan or a product which appears to be a variation of such a loan product, please contact a Stewart Title Guaranty Company underwriter to discuss. Please provide the proposed loan documents or explanation of the loan. If the underwriter believes the product falls under this bulletin, Stewart Title Guaranty Company will decline the opportunity to insure.

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