5.1 Section 50(a)(6) Core Requirements, 80% CLTV, & Non-Recourse Rules

5.1 Section 50(a)(6) Core Requirements, 80% CLTV, & Non-Recourse Rules

Constitutional test: A cash-out or closed-end home-equity loan on a Texas homestead is not an ordinary mortgage with extra paperwork. Article XVI, § 50(a) protects the homestead of a family or of a single adult person from forced sale except for a short list of debts. Subdivision (a)(6) is one of those exceptions, and it is valid only if the extension of credit meets every condition in (A) through (Q). Section 50(c) then supplies the enforcement principle: no mortgage, trust deed, or other homestead lien is valid unless it secures a debt described by Section 50.

Texas originators cannot treat a homestead equity loan as a generic cash-out refinance from another state. The Texas Constitution writes the product rules into the lien itself. If a condition fails and is not corrected through the constitution's own cure path, the originator has not created the homestead exception the lender thought it funded.

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Homestead owners are natural persons, and the lien must be voluntary

Section 50(a) opens by protecting the homestead of a family or of a single adult person. That is who Texas homestead law is written for. A corporation, limited liability company, partnership, or other entity does not hold a Texas homestead, so it cannot be the homestead owner on a § 50(a)(6) loan. If title is in an entity and the occupants are trying to extract cash against a "homestead," the originator is not in (a)(6) territory at all; the property is not the constitutional homestead of a family or single adult.

When the property is a homestead, § 50(a)(6)(A) requires a voluntary lien created under a written agreement with the consent of each owner and each owner's spouse. Consent is not a courtesy signature. A spouse who does not appear in the deed still must consent. An owner who will not sign cannot be papered around with a kitchen-table explanation. The constitution also pairs this rule with a severe consequence in § 50(a)(6)(Q)(xi): if the lien was not created under a written agreement with the consent of each owner and each owner's spouse, the lender or holder forfeits all principal and interest unless each owner and each owner's spouse who did not initially consent subsequently consents.

Voluntary also means the owner is not being forced into the lien as a condition of an unrelated commercial deal. The written agreement and the joinder of every owner and spouse are how the originator proves the lien is the (a)(6) exception rather than a pretended homestead mortgage that § 50(c) would refuse to recognize.

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The 80 percent combined-principal cap is measured on the credit date

Section 50(a)(6)(B) is a combined cap, not a simple loan-to-value on the new note. The equity loan's principal, when added to the aggregate outstanding principal balances of all other indebtedness secured by valid encumbrances of record against the homestead, must not exceed 80 percent of the fair market value of the homestead on the date the extension of credit is made.

Three phrases in that sentence are exam traps:

1. Principal, not payment. The test is outstanding principal of homestead-secured debt, not monthly payment ratios.
2. All other valid homestead-secured debt counts. A purchase-money first lien, a property-tax lien, an owelty lien, a refinance described by § 50(a)(4), a mechanic's lien, or a manufactured-home conversion lien under § 50(a)(8) all consume room under the 80 percent ceiling. Ignoring the first mortgage and quoting "80 percent of value as cash-out" is a fail.
3. Fair market value on the date the extension of credit is made. A stale listing price, a tax appraisal district value from last year, or an appraisal ordered for a loan that does not close is not the constitutional measuring date. The owner and the lender must also sign a written acknowledgment of that fair market value under § 50(a)(6)(Q)(ix). Section 50(h) lets a lender or assignee for value rely on that acknowledgment if the acknowledged value is the estimate in an appraisal or evaluation prepared under an applicable state or federal requirement and the lender or assignee does not have actual knowledge that the stated value was incorrect.

Finance Commission interpretation 7 TAC § 153.3 restates the same formula and gives the official worked miniature: on a homestead with a $100,000 fair market value, the maximum debt against the property is $80,000; if existing debt is $30,000, the maximum equity-loan debt is $50,000. Interpretation § 153.3 also treats the equity loan's principal as cash advanced plus charges financed at inception. Financing fee overages into the note does not hide them from the 80 percent math.

Worked combined-principal example

A Houston homestead will close a § 50(a)(6) loan on the same day the parties acknowledge fair market value of $375,000.

• 80 percent of $375,000 = $300,000 combined principal ceiling.
• Recorded purchase-money first-lien principal: $210,000.
• Recorded ad valorem tax lien principal: $6,000.
• Room for the new equity loan: $300,000 − $210,000 − $6,000 = $84,000.

If the originator funds $90,000, combined principal is $306,000, which is 81.6 percent of the acknowledged value. That loan is not within § 50(a)(6)(B), even if the underwriter's internal "cash-out LTV" looked at only the new note. If instead the originator funds $84,000 and finances no extra charges into principal, the combined figure is exactly $300,000 and the cap is met.

A second check from the same facts: an existing § 50(a)(6) already on the property would not be solved by shrinking the new request. Section 50(a)(6)(K) independently forbids a second equity loan, which is the next rule.

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Only one § 50(a)(6) at a time, and a twelve-month wait before another

Section 50(a)(6)(K) requires that the equity loan be the only debt secured by the homestead at the time the extension of credit is made, unless the other debt was made for a purpose described by § 50(a)(1)–(a)(5) or (a)(8). A home-equity line of credit is still an (a)(6) extension of credit (an open-end account is allowed only if it is a home equity line of credit under § 50(a)(6)(F) and § 50(t)). The owner may not stack a closed-end equity loan on top of a Texas HELOC, or two closed-end equity loans, even when combined principal would still be under 80 percent. Interpretation 7 TAC § 153.10 states the same limit: an owner may have only one equity loan at a time, regardless of the aggregate total outstanding debt against the homestead.

Seasoning is a separate clock. Section 50(a)(6)(M)(iii) forbids closing until the first anniversary of the closing date of any other (a)(6) extension of credit secured by the same homestead, except a refinance described by § 50(a)(6)(Q)(x)(f), unless the owner on oath requests an earlier closing because a state of emergency declared by the President or the Governor applies to the area where the homestead is located. Interpretation 7 TAC § 153.14 adds the practical reading originators miss: paying off the prior equity loan does not restart the right to a new one before the anniversary, and a modification that does not satisfy and replace the note is not a new (a)(6) closing—but a modification also may not advance additional funds or add terms that would have been forbidden at the original closing.

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Strict non-recourse, court-order foreclosure, and no extra collateral

Section 50(a)(6)(C) requires the loan to be without recourse for personal liability against each owner and the spouse of each owner, unless that owner or spouse obtained the extension of credit by actual fraud. Interpretation 7 TAC § 153.4 forbids a deficiency except for actual fraud, and it distinguishes actual fraud (dishonesty of purpose or an intentional breach of duty designed to injure or to gain an unconscientious advantage) from constructive fraud. Cosigning or consenting does not create personal liability.

The companion remedy rule is § 50(a)(6)(D): the lien may be foreclosed upon only by a court order. A Texas purchase-money deed of trust may use Property Code Chapter 51 power of sale. A § 50(a)(6) loan may not be treated as that product. The Supreme Court of Texas is directed by § 50(r) to promulgate expedited foreclosure rules for (a)(6) liens; those procedures are still judicial. Originators who tell owners "we just post it on the courthouse door like a regular Texas mortgage" are describing the wrong lien.

Other structural bans that travel with the same loan:

• No additional collateral. Section 50(a)(6)(H) forbids security in any additional real or personal property other than the homestead. A car title, a CD, or a vacant lot cannot be piled on to "strengthen" an equity loan.
• No prohibited acceleration. Section 50(a)(6)(J) bars acceleration because the homestead's market value declined or because the owner defaulted on other indebtedness that is not secured by a prior valid homestead encumbrance.
• Closed-end repayment shape. Section 50(a)(6)(L)(i) requires substantially equal successive periodic installments, not more often than every 14 days and not less often than monthly, beginning no later than two months from the credit date, each at least covering accrued interest. A balloon-heavy closed-end equity loan is not this product. HELOC repayment uses § 50(t)(8) instead.
• Agricultural-use ban repealed. Former § 50(a)(6)(I) is repealed. Outlines that still say equity loans cannot touch agricultural homesteads are describing pre-2018 text.

Closing location is also a validity condition, not a courtesy. Section 50(a)(6)(N) requires closing only at the office of the lender, an attorney at law, or a title company. Interpretation 7 TAC § 153.15 reads that as the permanent physical address of the office or branch office of the lender, attorney, or title company, so the closing occurs at an authorized physical location other than the homestead. A kitchen-table signing, a mobile notary in the living room, or a restaurant closing is not one of the three constitutional offices. A power of attorney used at closing must itself be signed at one of those same permanent physical addresses. Section 5.3 returns to this rule in the HELOC and refinance-conversion setting; do not teach in-home closings as lawful here either.

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Forfeiture and cure as the constitution actually writes them

Section 50(a)(6)(Q)(x) is the constitution's cure engine. The lender or any holder shall forfeit all principal and interest if it fails to comply with its obligations under the extension of credit and fails to correct that failure not later than the 60th day after the borrower notifies the lender or holder of the failure. The constitution then lists the permitted corrections. It does not give originators a free-form "we can always fix it" doctrine, and it does not make every defect automatically void without a cure path. Teach the text:

Kitchen-table and mobile-homestead closings are not in the (Q)(xi) automatic-forfeiture sentence. They fail § 50(a)(6)(N). If the owner notifies the holder, the 60-day (Q)(x) process applies, and a location defect that does not fit (a)–(e) is the (f) $1,000-plus-refinance path—not a homemade "void forever" or "always harmless" rule. Originators should still refuse those closings. The constitution never lists the homestead kitchen as an authorized office, and interpretation § 153.15 expressly requires a permanent physical address other than the homestead.

Authorized lenders themselves are listed in § 50(a)(6)(P), including Texas or federal banks, savings banks, savings and loan associations, and credit unions (and certain subsidiaries), federally chartered instrumentalities and persons approved as mortgagees to make federally insured loans, persons licensed to make regulated loans, the seller who financed the purchase, certain relatives, and persons regulated by this state as a mortgage banker or mortgage company. An originator who is none of those people is in the (Q)(xi) forfeiture sentence, not the 60-day menu.

The exam move is to apply every (a)(6) condition to the file in front of you: natural-person homestead, voluntary joinder, 80 percent combined principal on the credit date, one equity loan, twelve-month seasoning, non-recourse, court order, no extra collateral, and an authorized closing office. If any one of those is missing, you do not have a completed § 50(a)(6) homestead lien merely because the note says "Texas home equity" on the cover.