5.2 12-Day Notice, 2% Fee Cap, & 3-Day Right of Rescission

5.2 12-Day Notice, 2% Fee Cap, & 3-Day Right of Rescission

Separate notice, then wait: Article XVI, § 50(g) says a § 50(a)(6) extension of credit may be secured by a valid homestead lien if it is not closed before the 12th day after the lender provides the owner the constitutional written notice on a separate instrument. Section 50(a)(6)(M)(i) then uses the later of two dates: the day the owner submits a loan application to the lender, or the day the lender provides a copy of that § 50(g) notice. Closing before that 12th day is not a valid (a)(6) closing, no matter how eager the owner is to fund.

The notice is not a paragraph buried in a loan estimate, a text message, or a stack of generic federal disclosures. Section 50(g) requires the notice on a separate instrument and then prints the words the constitution itself uses. If discussions with the borrower are conducted primarily in a language other than English, the lender must, before closing, provide an additional copy translated into that written language. Interpretation 7 TAC § 153.51 allows a Spanish closed-end translation published for Finance Code § 341.502 to be used when discussions are primarily in Spanish, and it allows delivery to an attorney-in-fact only when that power of attorney itself met the § 153.15 location rules.

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How the twelve-day clock actually runs

Interpretation 7 TAC § 153.12 converts the constitutional phrase into a counting rule originators can calendar:

• An equity loan may not close before the 12th calendar day after the later of application or delivery of the required consumer disclosure.
• The next succeeding calendar day after that later date is the first day of the 12-day waiting period.
• The loan may close at any time on or after that 12th calendar day.
• Submission to an agent acting for the lender is submission to the lender. An application may be oral or electronic if other law on electronic signatures and delivery is met. One copy of the disclosure may be provided to married owners.

Worked dates. The owner applies on Monday, March 2, and the lender delivers the separate § 50(g) notice the same day. March 3 is day one. The 12th calendar day is March 14. Closing on March 13 is early. Closing on March 14 or later satisfies (M)(i), provided every other condition is also met.

If the owner applies on March 2 but the separate notice is not delivered until Thursday, March 5, the later date is March 5. March 6 is day one. The 12th calendar day is March 17. Federal Loan Estimate timing does not shorten this Texas clock.

Section 50(a)(6)(M)(ii) adds a second, shorter gate: the loan is not closed before one business day after the owner receives a copy of the loan application if not previously provided and a final itemized disclosure of the actual fees, points, interest, costs, and charges that will be charged at closing. If a bona fide emergency or other good cause exists and the lender obtains the owner's written consent, the lender may provide or modify that documentation on the date of closing. Do not confuse this one-business-day itemized disclosure with the twelve-day § 50(g) wait. Both can be open on the same file.

Section 50(a)(6)(M)(iii) is the twelve-month seasoning rule taught in Section 5.1. It is a third closing-date restriction, not a substitute for the 12-day notice wait.

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The two percent fee cap: what the constitution includes and excludes

Section 50(a)(6)(E) is easy to misquote from lender blogs. The live sentence is that the loan may not require the owner or the owner's spouse to pay, in addition to any interest or any bona fide discount points used to buy down the interest rate, any fees to any person that are necessary to originate, evaluate, maintain, record, insure, or service the extension of credit that exceed, in the aggregate, two percent of the original principal amount, excluding fees for:

1. an appraisal performed by a third-party appraiser;
2. a property survey performed by a state registered or licensed surveyor;
3. a state base premium for a mortgagee policy of title insurance with endorsements established in accordance with state law; or
4. a title examination report if its cost is less than the state base premium for a mortgagee policy of title insurance without endorsements.

The dividing line is not "all lender fees in, all third-party fees out." Fees to any person that are necessary to originate, evaluate, maintain, record, insure, or service count toward the two percent unless they are interest, bona fide discount points used to buy down the rate, or one of the four listed exclusions.

Interpretation 7 TAC § 153.5 fills in the operational detail without replacing those constitutional categories:

• Bona fide discount points are treated as interest and are outside the two percent only if they truly correspond to a reduced interest rate and are not just another origination charge. A lender may document a rate without points and a lower contract rate with points.
• Charges to evaluate that are not interest are inside the cap. The interpretation's examples include a credit report, flood-zone determination, tax certificate, inspection, and appraisal-management-services fees.
• The excludable appraisal fee is the amount paid to a third-party appraiser who is not the lender's employee. An appraisal-management-services fee described by Occupations Code § 1104.158(a)(2) is not part of that exclusion; it stays in the two percent.
• Property-insurance premiums the owner must pay for homeowner's coverage (fire and extended coverage, flood insurance) are not fees subject to the two percent limitation.
• Subsequent-event costs triggered after closing by the owner's failure to perform (for example, contractually permitted force-placed insurance, returned-check fees, or collection costs) are not fees measured at origination under the two percent cap.

Recording charges sit in the constitutional verb record. They are not in the four exclusions. Treat them as inside the two percent basket unless a current 7 TAC § 153.5 provision you have actually opened says otherwise. Do not rely on a marketing one-pager that calls every third-party charge "outside the cap."

Worked two percent example

Original principal of the § 50(a)(6) loan: $185,000. Two percent = $3,700.

The same file fails the cap if origination is raised to $2,400. Then origination $2,400 + processing $850 + credit $55 + flood $15 + AMC $495 + recording $124 = $3,939, which exceeds $3,700. Moving the extra $239 into "discount points" does not save the loan unless those points truly buy down the rate. Paying the appraiser $650 does not create extra room inside the cap, because that $650 was never in the cap.

Section 50(a)(6)(G) is the companion consumer-cost rule: the loan is payable in advance without penalty or other charge. A prepayment penalty, lockout, or "recapture of origination" for early payoff is not a Texas homestead equity term. If an owner is overcharged relative to (E), (G), or (O), § 50(a)(6)(Q)(x)(a) is the 60-day overcharge-refund cure; it is not permission to keep the illegal fee.

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Three-day rescission: constitutional, and TILA when TILA applies

Section 50(a)(6)(Q)(viii) is independent Texas text: the owner of the homestead and any spouse of the owner may, within three days after the extension of credit is made, rescind the extension of credit without penalty or charge. The 50(g) notice repeats that the owner may, within three days after closing, rescind without penalty or charge.

Interpretation 7 TAC § 153.25 does three precise things:

1. It confirms that a spouse who may not be in record title or have community-property ownership still has the constitutional right to rescind.
2. It counts three calendar days. If the third calendar day falls on a Sunday or federal legal public holiday, the right extends to the next calendar day that is not a Sunday or federal legal public holiday.
3. It requires the lender to comply with the Truth in Lending Act's three-business-day rescission in applicable transactions. Compliance with TILA and Regulation Z satisfies § 153.25 only if those TILA notices are given to each owner and to each owner's spouse.

Be exact on the overlay. TILA's right of rescission (15 U.S.C. § 1635; Regulation Z § 1026.23) applies to non-purchase-money credit secured by a consumer's principal dwelling. A Texas homestead equity loan is typically that kind of transaction, so TILA's business-day clock usually runs as well. The constitution does not repeal TILA. TILA procedures do not erase the extra Texas coverage for a non-titled spouse unless that spouse actually receives the notices. When both regimes apply, the originator must honor the constitutional three-day right—including the spouse—and the TILA business-day right. Do not tell an owner that "Texas replaces TILA" or that "TILA is the only clock."

Rescission is after closing, not a substitute for the twelve-day pre-closing wait. The owner cannot waive the twelve-day (M)(i) wait by promising not to rescind. After funding, the three-day (Q)(viii) window is a separate walk-away right without penalty.

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Putting the clocks on one file

A complete Texas equity closing therefore has a sequence, not a single cooling-off slogan:

1. Owner submits a loan application (oral, paper, or electronic).
2. Lender delivers the § 50(g) notice on a separate instrument (and a translation if discussions were primarily in another language).
3. Wait until the 12th calendar day after the later of those two events.
4. Deliver the (M)(ii) application copy (if not already given) and the final itemized fee disclosure, then wait one business day unless the written emergency/good-cause exception applies.
5. Close only at the office of the lender, an attorney at law, or a title company.
6. After the extension of credit is made, honor the constitutional three-day rescission for each owner and any spouse, and honor TILA's three-business-day rescission when TILA applies.

Skip a step and you do not have a clean (a)(6) lien merely because the federal forms were in the stack.