(12) Preservation of Claims and Defenses. In accordance with the Federal Trade Commission's Holder in Due Course Rule (16 CFR §433), it is an unfair or deceptive act or practice to take or receive a consumer credit contract in connection with the sale or lease of goods or services to consumers that does not include the following notice. The notice regarding the preservation of claims and defenses reads: "NOTICE. ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER."

(13) Owner and Contractor Responsible. Section 41.007 of the Texas Property Code specifies that a home improvement contract must contain a notice specifying that the owner and contractor are responsible for meeting the terms of the contract. This notice must appear either in this contract or in the residential construction contract. The Property Code requires that the notice must be conspicuously printed, stamped, or typed in a font size equal to at least 10-point bold type or computer equivalent and appear next to the owner's signature line on the contract. The wording of the notice is specified by the Property Code, which uses the pronouns "you" and "your" to refer to the Owner. Licensees are encouraged to explain in the contract, prior to the notice, that "you" and "your" refer to the Owner in this notice. The parties' signatures must be notarized. Licensee may use a different notary acknowledgement without having to submit the contract to the agency as a non-standard contract. The notice specifying that owner and contractor are responsible for meeting the terms of the contract, the model explanatory clause regarding the use of "you" and "your" in the notice, and the signature blanks reads:

Figure: 7 TAC §1.1246(b)(13)

(14) Assignment. The parties may use a different assignment or a separate document for the assignment without having to submit the contract to the agency as a non-standard contract. The model assignment in which contractor transfers and assigns the lien to lender reads:

Figure: 7 TAC §1.1246(b)(14)

(c) For a Chapter 342, Subchapter G second lien home improvement loan promissory note for use in a transaction that does not allow for withdrawals or multiple advances:

(1) Identification Clause. The model identification clause lists the account or contract number, the name and address of the creditor or lender, the date of the note, the name and address of the borrower, and the property address. The model clause identifying the pronouns used for the borrower and lender reads:

Figure: 7 TAC §1.1246(c)(1)

(2) A Truth-in-Lending Act (TILA) disclosure box reads:

Figure: 7 TAC §1.1246(c)(2)

(3) An Itemization of Amount Financed box. The itemization of amount financed box is not required if the licensee provides the borrower with a good faith estimate or a settlement statement as permitted by the Truth-in-Lending Act.

(A) For use when the administrative fee is financed reads:

Figure: 7 TAC §1.1246(c)(3)(A)

(B) For use when the administrative fee is paid in cash reads:

Figure: 7 TAC §1.1246(c)(3)(B)

(4) Security for Payment. The model clause relating to the security for payment reads: "Liens created in the Contract secure this Note."

(5) Definitions. The model definition section reads:

(A) "Owner" means (name of owner), whose address is (address of owner, including county). If Owner and Maker are not the same person, the word "Owner" includes Maker.

(C) "Contract" means the Texas Home Improvement Mechanic's Lien Contract for Improvement and Power of Sale dated _________________________ between Contractor and Owner.

(D) "Property" means the Property at (list address of the property), whose legal description is (list legal description of the property).

(E) "Note" means the Texas Home Improvement Mechanic's Lien Note signed by me and dated ___________________________ and includes all amounts secured by this Contract. 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 _________________."

(6) 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 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:

(A) For contracts using the Scheduled Installment Earnings Method: "I promise to pay the Total of Payments to your order. 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 your order. 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."

(7) Late Charge. Licensees using contracts using the True Daily Earnings Method are not permitted to assess a late charge. The model late charge provision for contracts using the Scheduled Installment 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."

(8) After Maturity Interest. The model clause specifies the maximum interest rate allowed by law for after maturity interest. A creditor may always choose a lower rate. The model provision for after maturity interest 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."

(9) Prepayment Clause. The model prepayment clause reads:

(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."

(10) Finance Charge and Refund Method. The model provision specifying the finance charge earnings and refund method reads:

(A) For contracts using the Scheduled Installment Earnings Method--Section 342.301 rate loans, the model language reads:

Figure: 7 TAC §1.1246(c)(10)(A)

(B) For contracts using the Scheduled Installment Earnings Method with prepayments option--Section 342.301 rate loans, the model language reads:

Figure: 7 TAC §1.1246(c)(10)(B)

Figure: 7 TAC §1.1246(c)(10)(C)

(11) Deferment. The model provision regarding deferment reads: "If I ask for more time to make any payment and you agree, I will pay more interest to extend the payment. The extra interest will be figured under the Finance Commission rules."

(12) Dishonored Check Fee. The model dishonored check fee provision reads: "I agree to pay you a fee of up to $25 for a returned check. You may add the fee to the amount I owe or collect it separately."

(13) Default Clause. The model provision specifying the conditions causing default reads:

Figure: 7 TAC §1.1246(c)(13)

(14) Property Insurance. The model provision regarding property insurance reads:

Figure: 7 TAC §1.1246(c)(14)

(15) Credit Insurance. If single premium credit insurance is offered, 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 four times the first month premium." The industry standard regarding the relationship between total past due premiums and the first month premium in this equation appears to be four times therefore, that standard is applied here. However, if a different time frame is more appropriate, that time frame may be used. The model credit insurance disclosure box reads:

Figure: 7 TAC §1.1246(c)(15)

(16) Mailing of Notices to Borrower. The duty to give notice is satisfied when it is mailed by first class mail. 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."

(17) Statement of Truthful Information. The model provision specifying that the borrower gave truthful information reads: "I promise that all information I gave you is true."

(18) 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 Property 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 that you are demanding payment of all that I owe. 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."

(19) No Waiver of Lender's Rights. The model provision expressing no waiver of lender's rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(20) Collection Expense Clause. The model collection expense 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 applicable law. These expenses include, for example, reasonable attorneys' fees."

(21) 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."

(22) Usury Savings Clause. The model usury savings clause reads: "I do not have to pay interest or other amounts that are more than applicable law allows."

(23) Savings Clause. The model 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 the law will be modified to comply with the law. The rest of the loan agreement remains valid."

(24) Prior Agreements. The model clause stating that there are no prior agreements between the parties regarding the loan agreement reads: "This written loan agreement is the final agreement between you and me. It may not be changed by prior, current, or future oral agreements and there are none. Any change to this loan agreement must be in writing. Both you and I have to sign written agreements."

(25) 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."

(26) Complaints and Inquiries. The model complaints and inquiries notice reads: "The (name of lender or note holder) is licensed and examined under the laws of the State of Texas and by state law is subject to regulatory oversight by the Office of Consumer Credit Commissioner. Any consumer wishing to file a complaint against the (name of lender or note holder) should contact the Office of Consumer Credit Commissioner through one of the means indicated below: Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207; www.occc.state.tx.us; (512) 936-7600 - (800) 538-1579."

(27) Collateral. The model clause regarding the collateral reads: "The Property is subject to the Contract lien. I am responsible for all obligations in this Note."

(28) Preservation of Claims and Defenses. In accordance with the Federal Trade Commission's Holder in Due Course Rule (16 CFR §433), it is an unfair or deceptive act or practice to take or receive a consumer credit contract in connection with the sale or lease of goods or services to consumers that does not include the following notice. The notice regarding the preservation of claims and defenses reads: "NOTICE. ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER."

(29) Signature Blocks. Documents for a home improvement loan on a homestead must be signed at the office of the lender, an attorney at law, or a title company. If this provision applies, the model clause, "This document must be signed at the office of the Lender, an attorney at law, or a title company" should follow the model clause, "Do not sign if there are blanks left to be completed in this document" and the document should be submitted to the agency as non-standard. The licensee may also provide additional signature lines for witness signatures. The model signature block reads:

Figure: 7 TAC §1.1246(c)(29)

(d) For a Chapter 342, Subchapter G second lien home improvement loan contract for use in a transaction that allows for withdrawals or multiple advances:

(1) Identification Clause. The model identification clause lists the date and the account or contract number.

(2) Definition Section. The model definition section reads:

(A) "Owner" means (name of owner), whose address is (address of owner, including county). If Owner and Maker are not the same person, the word "Owner" includes Maker. "I" or "me" means the Owner.

(C) "Lender" means (name of lender), whose address is (address of lender, including county) and includes those to whom the Lender has assigned or transferred Lender's rights and remedies.

(D) "Trustee" means (name of Trustee), whose address is (address of Trustee, including county).

(E) "Property" means the Property at (list address of the property), whose legal description is (list legal description of the property).

(F) "Work" means the construction project as agreed to in writing between the Owner and Contractor.

(G) "Completion Date" means (date on which the work will be completed).

(H) "Contract" means this Texas Home Improvement Mechanic's Lien Contract for Improvement, Power of Sale, and Deed of Trust."

(I) "Note" means the Texas Home Improvement Mechanic's Lien Note signed by me and dated _________________________________ and includes all amounts secured by this Contract. The Note states that the amount I owe you is _______________________________________ Dollars (U.S. $___________________) plus interest.

(J) "Loan Agreement" means the Note, Contract, and any other related document under which Lender has made a loan to me.

(K) "Applicable Law" means all controlling applicable federal, state, and local law.

(L) "Tenant at Sufferance" means a person who continues to possess the Property with no current right to possess it.

(M) "Forcible Detainer" means a lawsuit to remove a person from the Property.

(N) "Periodic Payment" means the regularly scheduled amount due for principal and interest under the Note plus any amount under this Contract.

(O) "Successor in Interest" means any party that has taken title to the Property.

(P) "Lien" means the Mechanic's and Materialman's Lien on the Property that results from the Contract and the Work performed. The Lien includes all existing and future improvements, easements, and rights in the Property."

(4) Contract Price. The model clause establishing the contract price reads: "I agree to pay, or cause to be paid, to you, or to your order, the sum of _______________________Dollars (U.S. $___________________) when the Work is completed."

(5) Note Payable to Lender. The model clause specifying that the Note is payable to the Lender reads: "In exchange for money from the Lender to you, I have signed a Note to the Lender in the amount of $_______________________________."

(6) Lien to Secure Note. The model clause regarding security for the Note reads: "To secure the amounts Lender provides to you, and the interest payable to Lender, I give you, and you transfer to Lender, the Lien. The Note is secured by a deed of trust, which I will sign. The deed of trust will renew and extend the Lien created by this Contract."

(7) Transfer of Lien. The model clause regarding the transfer of lien reads: "You transfer to Lender all of your rights and interests in this Contract."

(8) Exceptions to Conveyance and Warranty. Any exceptions to conveyance and warranty should be specified in the Contract. The model clause introducing the exceptions to conveyance and warranty reads: "The exceptions to conveyance and warranty are:"

(9) Completion by Contractor, But Not Lender. The model clause specifying that Lender is not responsible for completing the construction reads: "You will complete the Work by the Completion Date. Lender is not responsible for completing the Work. Lender is not a guarantor of your performance. You will indemnify and hold Lender harmless against all claims related to the Work."

(10) Partial Lien. The model clause regarding a partial lien reads: "If you do not complete the Work by the Completion Date in a good and workmanlike manner, then Lender will have a valid lien for the contract price, less the amount reasonably necessary to complete the Work. As an alternative, Lender may choose to complete the Work and the lien will be valid for the contract price."

(11) Charges and Extras. The model clause regarding charges and extras reads: "All labor or material furnished outside of this Contract must be agreed upon in writing or it will be considered as performed under the original Contract and you will receive no extra money."

(12) Receipts and Releases. The model clause regarding receipts and releases reads: "If I ask, you will give me valid receipts and releases for the Work from any subcontractor, worker, and supplier."

(13) No Work Commenced. The model clause specifying that no work has commenced prior to execution of the contract reads: "This Contract is executed, acknowledged, and delivered before any labor has been performed and any material has been furnished for the Work."

(14) Owner's Promises and Rights. The model clause regarding Owner's promises and rights reads:

Figure: 7 TAC §1.1246(d)(14)

(15) Owner's Duties. The model clause regarding Owner's duties reads:

Figure: 7 TAC §1.1246(d)(15)

(16) Contractor's Duties. The model clause regarding Contractor's duties reads:

Figure: 7 TAC §1.1246(d)(16)

(17) Contractor's Rights. The model clause regarding Contractor's rights reads:

Figure: 7 TAC §1.1246(d)(17)

(18) Trustee's Duties. The model clause regarding the trustee's duties reads:

Figure: 7 TAC §1.1246(d)(18)

(19) General Provisions. The model clause regarding general contract provisions reads:

Figure: 7 TAC §1.1246(d)(19)

(20) Preservation of Claims and Defenses. In accordance with the Federal Trade Commission's Holder in Due Course Rule (16 CFR §433), it is an unfair or deceptive act or practice to take or receive a consumer credit contract in connection with the sale or lease of goods or services to consumers that does not include the following notice. The notice regarding the preservation of claims and defenses reads: "NOTICE. ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER."

(21) Owner and Contractor Responsible. Section 41.007 of the Texas Property Code specifies that a home improvement contract must contain a notice specifying that the owner and contractor are responsible for meeting the terms of the contract. The notice must appear in either this contract or the residential construction contract. The Property Code requires that the notice must be conspicuously printed, stamped, or typed in a font size equal to at least 10-point bold type or computer equivalent and appear next to the owner's signature line on the contract. The wording of the notice is specified by the Property Code, which uses the pronouns "you" and "your" to refer to the Owner. Licensees are encouraged to explain in the contract, prior to the notice, that "you" and "your" refer to the Owner in this notice. The parties' signatures must be notarized. Licensee may use a different notary acknowledgement without having to submit the contract to the agency as a non-standard contract. The notice specifying that owner and contractor are responsible for meeting the terms of the contract, the model explanatory clause regarding the use of "you" and "your" in the notice, and the signature blanks are found in:

Figure: 7 TAC §1.1246(d)(21)

(22) Assignment. The parties may use a different assignment or a separate document for the assignment without having to submit the contract to the agency as a non-standard contract. The model assignment in which contractor transfers and assigns the lien to lender reads:

Figure: 7 TAC §1.1246(d)(22)

(e) For a Chapter 342, Subchapter G second lien home improvement loan promissory note for use in a transaction that allows for withdrawals or multiple advances:

Figure: 7 TAC §1.1246(e)(1)

(2) A Truth-in-Lending Act (TILA) disclosure box reads:

Figure: 7 TAC §1.1246(e)(2)

(A) For use when the administrative fee is financed reads:

Figure: 7 TAC §1.1246(e)(3)(A)

(B) For use when the administrative fee is paid in cash reads:

Figure: 7 TAC §1.1246(e)(3)(B)

(4) Security for Payment. The model clause relating to the security for payment reads: "The Deed of Trust and the Lien created in the Contract secure this Note."

(5) Definitions. The model definition section reads:

(A) "Owner" means (name of owner), whose address is (address of owner, including county). If Owner and Maker are not the same person, the word "Owner" includes Maker. "I" or "me" means the Owner.

(C) "Lender" means (name of lender), whose address is (address of lender, including county) and includes those to whom the Lender has assigned or transferred Lender's rights and remedies.

(D) "Trustee" means (name of Trustee), whose address is (address of Trustee, including county).

(E) "Property" means the Property at (list address of the property), whose legal description is (list legal description of the property).

(F) "Work" means the construction project as agreed in writing between the Owner and Contractor.

(G) "Completion Date" means (date on which the work will be completed).

(H) "Contract" means this Texas Home Improvement Mechanic's Lien Contract for Improvement, Power of Sale, and Deed of Trust.

(I) "Note" means the Texas Home Improvement Mechanic's Lien Note signed by me and dated ____________________ and includes all amounts secured by this Contract. The Note states that the amount I owe you is _____________________ Dollars (U.S. $________________) plus interest.

(J) "Loan Agreement" means the Note, Contract, and any other related document under which Lender has made a loan to me.

(K) "Applicable Law" means all controlling applicable federal, state, and local law.

(L) "Tenant at Sufferance" means a person who continues to possess the Property with no current right to possess it.

(M) "Forcible Detainer" means a lawsuit to remove a person from the Property.

(N) "Periodic Payment" means the regularly scheduled amount due for principal and interest under the Note plus any amount under this Contract.

(O) "Successor in Interest" means any party that has taken title to the Property.

(P) "Lien" means the Mechanic's and Materialman's lien on the Property that results from the Contract and the Work performed. The Lien includes all existing and future improvements, easements, and rights in the Property."

(9) Prepayment Clause. The model prepayment clause reads:

(10) Finance Charge and Refund Method. The model provision specifying the finance charge earnings and refund method reads:

(A) For contracts using the Scheduled Installment Earnings Method--Section 342.301 rate loans, the model language reads:

Figure: 7 TAC §1.1246(e)(10)(A)

(B) For contracts using the Scheduled Installment Earnings Method with prepayments option--Section 342.301 rate loans, the model language reads:

Figure: 7 TAC §1.1246(e)(10)(B)

Figure: 7 TAC §1.1246(e)(10)(C)

(13) Default Clause. The model provision specifying the conditions causing default reads:

Figure: 7 TAC §1.1246(e)(13)

(14) Property Insurance. The model provision regarding property insurance reads:

Figure: 7 TAC §1.1246(e)(14)

Figure: 7 TAC §1.1246(e)(15)

(17) Statement of Truthful Information. The model provision specifying that the borrower gave truthful information reads: "I promise that all information I gave you is true."

(18) 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 Property 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 that you are demanding payment of all that I owe. 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."

(19) No Waiver of Lender's Rights. The model provision expressing no waiver of lender's rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(20) Collection Expense Clause. The model collection expense 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 Applicable Law. These expenses include, for example, reasonable attorneys' fees."

(21) 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."

(22) Usury Savings Clause. The model usury savings clause reads: "I do not have to pay interest or other amounts that are more than Applicable Law allows."

(23) Savings Clause. The model 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 the law will be modified to comply with the law. The rest of the Loan Agreement remains valid."

(24) Prior Agreements. The model clause stating that there are no prior agreements between the parties regarding the loan agreement reads: "This written Loan Agreement is the final agreement between you and me. It may not be changed by prior, current, or future oral agreements and there are none. Any change to this Loan Agreement must be in writing. Both you and I have to sign written agreements."

(25) Note Secured by Deed of Trust. The model clause stating that the Note is secured by a deed of trust reads: "In addition to this Note, the Deed of Trust protects the Note holder from losses that might result if I do not keep the promises that I make in this Note. The Deed of Trust describes how and under what conditions I may have to make immediate payment of all that I owe under this Note."

(26) 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."

(27) Complaints and Inquiries. The model complaints and inquiries notice reads: "The (name of lender or note holder) is licensed and examined under the laws of the State of Texas and by state law is subject to regulatory oversight by the Office of Consumer Credit Commissioner. Any consumer wishing to file a complaint against the (name of lender or note holder) should contact the Office of Consumer Credit Commissioner through one of the means indicated below: Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207; www.occc.state.tx.us; (512) 936-7600 - (800) 538-1579."

(28) Collateral. The model clause regarding the collateral reads: "The Property is subject to the Contract lien. I am responsible for all obligations in this Note."

(29) Preservation of Claims and Defenses. The notice regarding the preservation of claims and defenses reads: "NOTICE. ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER."

(30) Signature Blocks. Documents for a home improvement loan on a homestead must be signed at the office of the lender, an attorney at law, or a title company. If this provision applies, the model clause, "This document must be signed at the office of the Lender, an attorney at law, or a title company" should follow the model clause, "Do not sign if there are blanks left to be completed in this document" and the document should be submitted to the agency as non-standard. The licensee may also provide additional signature lines for witness signatures. The model signature block reads:

Figure: 7 TAC §1.1246(e)(30)

(f) For a Chapter 342, Subchapter G second lien home improvement loan deed of trust for use in a transaction that allows for withdrawals or multiple advances:

(1) Definitions. The model definition section reads:

(A) "Borrower" is _____________________________________. Borrower's address is _____________________________________________________.

(B) "Contractor" is _______________________________. Contractor's address is ________________________________________.

(D) "Trustee" is _______________________________. Trustee's address is _____________________________________________.

(E) "I" or "me" means __________________________________, the grantor under this Deed of Trust and the person who signed the Note ("Borrower").

(F) "Loan Agreement" means the Contract, Note, Security Document, Deed of Trust, any other related document, or any combination of those documents, under which Lender has made a loan to me.

(G) "Deed of Trust" means this document, which is dated ________, together with all riders to this document.

(H) "Note" means the Texas Home Improvement Mechanic's Lien Note signed by me and dated ______________ and includes all amounts secured by this Contract. The Note states that the amount I owe Lender is _________________ Dollars (U.S. $_________) plus interest.

(I) "Property" means the property at (list address of the property), whose legal description is (list legal description of the property).

(J) "Applicable Law" means all controlling applicable federal, state, and local law.

(K) "Community Association Dues, Fees, and Assessments" means all dues, fees, assessments and other charges that are imposed on me or the Property 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 Deed of Trust.

(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:

(i) damage or destruction of the Property;

(ii) condemnation or other taking of all or any part of the Property;

(iii) conveyance instead of condemnation; or

(iv) misrepresentations or omissions related to the value or condition of the Property.

(O) "Periodic Payment" means the regularly scheduled amount due for

(i) principal and interest under the Note plus

(ii) any amounts under this Deed of Trust.

(P) "RESPA" means the Real Estate Settlement Procedures Act (12 U.S.C. §2601 et seq.) and Regulation X (24 C.F.R. Part 3500), as they might be amended from time to time, or any additional or successor legislation or regulation that governs the same subject matter. As used in this Deed of Trust, "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" means any party that has taken title to the Property.

(R) "Ground Rents" means amounts I owe if I rented the real property under the buildings covered by this Deed of Trust. One of the arrangements usually takes the form of a long-term "ground lease."

(S) "Contract" means the Texas Home Improvement Mechanic's Lien Contract for Improvement, Power of Sale, and Deed of Trust.

(T) "Lien" means the Mechanic's and Materialman's lien on the Property that results from the Contract and the Work performed. The Lien includes all existing and future improvements, easements, and rights in the Property."

(2) Transfer of Rights in the Property. The model provision regarding a transfer of rights in the property reads:

Figure: 7 TAC §1.1246(f)(2)

(3) Payment of Late Charges and Prepayment. The model provision regarding the payment of late charges and prepayment of principal and interest reads:

Figure: 7 TAC §1.1246(f)(3)

(4) Funds for Escrow Items. The model provision regarding the funds for Escrow Items reads:

Figure: 7 TAC §1.1246(f)(4)

(5) Charges and Liens. The model provision regarding charges and liens reads:

Figure: 7 TAC §1.1246(f)(5)

(6) Property Insurance. The model provision regarding property insurance reads:

Figure: 7 TAC §1.1246(f)(6)

(7) Preservation, Maintenance, Protection, and Inspection of the Property. The model provision regarding preservation, maintenance, protection, and inspection of the property reads: "I will not destroy, damage, or impair the Property, allow it to deteriorate, or commit waste. Whether or not I live in the Property, 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 the Property to avoid further deterioration or damage unless Lender and I agree in writing that it is economically unreasonable. I will be responsible for repairing or restoring the Property only if Lender releases the insurance or condemnation proceeds for the damage to or the taking of the Property. Lender 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 the Property even if there are not enough proceeds to complete the Work. If this Deed of Trust secures a unit in a condominium or planned unit development, I will perform all of my obligations under the declaration or covenants creating or governing the condominium or planned unit development, and any other relevant document. Lender or Lender's agent may inspect the Property. Lender may inspect the interior of the Property with reasonable cause. Lender will give me notice stating reasonable cause when or before the interior inspection occurs."

(8) Protection of Lender's Interest in the Property and Rights under the Deed of Trust. The model provision regarding protection of the lender's interest in the property and rights under the deed of trust reads:

Figure: 7 TAC §1.1246(f)(8)

(9) Assignment of Miscellaneous Proceeds and Forfeiture. The model provision regarding the assignment of miscellaneous proceeds and forfeiture reads:

Figure: 7 TAC §1.1246(f)(9)

(10) Forbearance Not a Waiver. The model provision specifying that the borrower is not released from liability if lender modifies the payment schedule reads: "If Lender doesn't enforce Lender's rights every time, Lender can still enforce them later."

(11) Joint and Several Liability, Deed of Trust Execution, Successors Obligated. The model provision regarding joint and several liability and specifying that the person who signs the contract grants their ownership in the property and binds their successors and assigns reads:

Figure: 7 TAC §1.1246(f)(11)

(12) Usury Savings Clause. The model usury savings clause reads: "I do not have to pay interest or other amounts that are more than Applicable Law allows."

(13) Mailing of Notices to Borrower. The duty to give notice is satisfied when it is mailed by first class mail. The model provision regarding the mailing of notices to the borrower reads: "Lender or I may mail or deliver any notice to the address above. Lender or I may change the notice address by giving written notice. Lender's duty to give me notice will be satisfied when Lender mails it."

(14) 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."

(15) Rules of Construction. The mode provision regarding rules of clause construction reads:

Figure: 7 TAC §1.1246(f)(15)

(16) Loan Agreement Copies. The model provision specifying that the lender will give borrower a copy of all signed documents at the time the loan agreement is made reads: "At the time the Loan Agreement is made, Lender will give me copies of all documents I sign."

(17) 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 Property is sold or transferred without Lender's prior written consent, Lender may require immediate payment in full of all that I owe under this Loan Agreement. Lender will not exercise this option if Applicable Law prohibits. If Lender exercises this option, Lender will give me notice that Lender is demanding payment of all that I owe. This notice will give me a period of not less than twenty-one 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, Lender may use any remedy allowed by the Loan Agreement."

(18) Lender, Contractor, and Borrower's Promises and Agreements. The model provision regarding lender, contractor, and borrower's promises and agreements reads: "LENDER, CONTRACTOR, AND I PROMISE AND AGREE:"

(19) Acceleration and Remedies. The model provision regarding acceleration and remedies reads:

Figure: 7 TAC §1.1246(f)(19)

(20) Power of Sale. The model provision regarding power of sale reads:

Figure: 7 TAC §1.1246(f)(20)

(21) Borrower's Right to Reinstate After Acceleration. The model provision regarding borrower's right to reinstate after acceleration reads:

Figure: 7 TAC §1.1246(f)(21)

(22) Assignment of Rents, Appointment of Receiver, Lender in Possession. The model provision regarding assignment of rents, appointment of receiver, and lender in possession reads: "As additional security, I assign to you the rents of the Property, provided that you have the right, prior to acceleration or abandonment of the Property, to collect and retain the rents as they become due. Upon acceleration or abandonment, you, by agent or by court-appointed receiver, will be entitled to enter, take possession, manage the Property, and collect due and past due rents. All rents you or the court-appointed receiver collect will be applied first to payment of the cost of management of the Property and collection of rents, including receiver's fees, premiums on receiver's bonds, and reasonable attorneys' fees, and then to the sums secured by this Deed of Trust. You and the receiver will be liable to account only for rents received."

(23) Release. The model provision regarding the release of the lien securing the loan agreement reads: "Lender 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."

(24) Trustees and Trustee Liability. The model provision regarding trustees and trustee liability reads:

Figure: 7 TAC §1.1246(f)(24)

(25) Assignment of Contractor's Lien, Commencement of Work. The model provision regarding the assignment of contractor's lien and specifying that no work was commenced before the contract was executed reads: "Contractor and I have entered into the Contract for improvements to be made to the Property. I will perform my duties under the Contract. Under the Contract, I gave Contractor a lien on the Property. Contractor permanently transfers the Lien and any other interest Contractor has in the Property to Lender. As additional security, Contractor also agrees that the Lien created by this Deed of Trust has priority over the Lien. The purpose of the Note is to pay in whole or in part the improvements to be made to the property by the Contractor. Contractor and I agree that the Lien is for Lender's sole benefit. Any other interest Contractor has in the Property will be merged with the Lien, and may be enforced by Lender according to the terms of this Deed of Trust. Contractor and I further agree that no Work was performed or materials delivered before the Contract was executed."

(26) Subrogation. The model provision regarding subrogation reads: "If I ask, Lender will use proceeds from the Loan Agreement to pay off all valid outstanding liens against the Property. Lender will then own all rights, superior titles, liens, and interests owned or claimed by any owner or holder of an outstanding lien or debt. Lender owns these things whether the lien or debt is transferred to Lender or whether it is released by the holder upon payment."

(27) Partial Invalidity. The model provision regarding what happens if the sum secured and other charges violate applicable law reads: "If any portion of the sums secured by this Deed of Trust cannot be lawfully secured, payments minus those sums will be applied first to the portions not secured. If any charge provided for in this Loan Agreement, separately or together with other charges that are considered part of this Loan Agreement, violates Applicable Law, the charge is reduced to the extent necessary to eliminate the violation. At Lender's option, Lender will refund the amount of interest or other charges paid to Lender in excess of the amount permitted by Applicable Law to reduce the principal of the debt or apply it to reduce the principal of the debt."

(28) Renewal and Extension. The model provision regarding the renewal and extension of the note secured by the deed of trust reads: "The Note secured by this Deed of Trust is renewed and extended, but not in extinguishment of the debt under the Contract identified in the paragraph entitled "Assignment of Contractor's Lien, Commencement of Work" and the Note."

(29) Sale of Note, Change of Loan Servicer, Notice of Grievance, Lender's Right to Comply. The model provision regarding the sale of the loan, change of loan servicer, notice of grievance, and lender's right to comply reads: "A full or partial interest in the Loan Agreement can be sold one or more times without prior notice to me. The sale may result in a change of the company servicing or handling the Loan Agreement. The company servicing or handling the Loan Agreement will collect my monthly payment and will comply with other servicing conditions required by the Loan Agreement or Applicable Law. In some cases, the company servicing or handling the Loan Agreement may change even if the Loan Agreement is not sold. If the company servicing or handling the Loan Agreement is changed, I will be given written notice of the change. The notice will state the name and address of the new company, the address to which my payments should be made, and any other information required by RESPA. Any notice of acceleration and opportunity to cure under the Loan Agreement will satisfy the notice and opportunity to address the alleged violation provisions of this Section. No agreement between Lender and me or any third party will limit Lender's ability to comply with Lender's duties under the Loan Agreement and the Applicable Law. Lender and I are limiting all agreements so that all current or future interest or fees in connection with this Loan Agreement will not be greater than the highest amount allowed by Applicable Law. Lender and I intend to conform the Loan Agreement to the provisions of Applicable Law. If any part of the Loan Agreement is in conflict with the Applicable Law, then that part will be corrected or removed. This correction will be automatic and will not require any amendment or new document. Lender's right to cure any violation will survive my paying off the Loan Agreement. My right to cure will override any conflicting provision of the Loan Agreement. Lender's right-to-comply as provided in this Section will survive the payoff of the Loan Agreement. The provisions of this section will supersede any inconsistent provision of the Loan Agreement."

(30) Hazardous Substances. The model provision regarding hazardous substances reads:

Figure: 7 TAC §1.1246(f)(30)

(31) Lender's Rights and Borrower's Responsibilities. The model provisions regarding lender's rights and borrower's responsibilities reads:

Figure: 7 TAC §1.1246(f)(31)

(32) Default. The model provision regarding borrower's default reads: "Any default of my agreements with Lender will be a default of this Deed of Trust."

(33) Request for Notice of Default and Foreclosure under Superior Mortgages or Deeds of Trust. The model provision regarding lender and borrower's request for notice of default and foreclosure under superior mortgages or deeds of trust reads:

Figure: 7 TAC §1.1246(f)(33)

(34) Signature Blocks. The parties' signatures must be notarized. Licensee may use a different notary acknowledgement without having to submit the deed of trust to the agency as non-standard. Documents for a home improvement loan on a homestead must be signed at the office of the lender, an attorney at law, or a title company. If this provision applies, the model clause, "This document must be signed at the office of the Lender, an attorney at law, or a title company" should follow the model clause, "Do not sign if there are blanks left to be completed in this document" and the document should be submitted to the agency as non-standard. The model provision regarding signature blocks reads:

Figure: 7 TAC §1.1246(f)(34)

§1.1247.Permissible Changes.

(a) A licensee may consider making the following types of changes to the model clauses:

(1) Regulation Z of the Truth-in-Lending Act provides a right of rescission form that must be provided to consumers in a transaction involving the consumer's principal dwelling. The TILA right of rescission form for use in a transaction involving the consumer's principal dwelling reads:

Figure: 7 TAC §1.1247(a)(1)

(2) If the Texas constitutional homestead requirements apply to the transaction, the licensee must add a clause regarding notice of cancellation, place of singing the contract, and five-day waiting period. The model clause regarding the notice of cancellation, place of signing the contract, and five-day waiting period reads:

Figure: 7 TAC §1.1247(a)(2)

(3) Article 16, section 50(a)(5) of the Texas Constitution provides that a contract for improvements on a homestead must expressly provide the owner with notice of the owner's right to cancel the contract. The model notice regarding owner's right to cancel the contract reads: "NOTICE OF RIGHT TO CANCEL. THE OWNER MAY CANCEL THE CONTRACT WITHOUT PENALTY OR CHARGE WITHIN THREE DAYS AFTER THE EXECUTION OF THE CONTRACT BY ALL PARTIES, UNLESS THE WORK AND MATERIAL ARE NECESSARY TO COMPLETE IMMEDIATE REPAIRS TO CONDITIONS ON THE HOMESTEAD PROPERTY THAT MATERIALLY AFFECT THE HEALTH OR SAFETY OF THE OWNER OR PERSON RESIDING IN THE HOMESTEAD AND THE OWNER OF THE HOMESTEAD ACKNOWLEDGES SUCH IN WRITING."

(4) Chapter 39 of the Texas Business and Commerce Code requires that notice must be given to the consumer regarding the consumer's right to cancel certain types of transactions. If this chapter is applicable, the notice that must be given to licensee must appear in immediate proximity to the consumer's signature, or on the front page of the receipt if a contract is not used. The notice must be in bold-faced type and must be the equivalent of at least 10 points in the Times typeface. The statement of which the notice must be substantially similar to reads: "YOU, THE BUYER, MAY CANCEL THIS TRANSACTION AT ANY TIME PRIOR TO MIDNIGHT OF THE THIRD BUSINESS DAY AFTER THE DATE OF THIS TRANSACTION. SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION OF THIS RIGHT."

(5) Chapter 39 of the Texas Business and Commerce Code also requires, if applicable, that a completed notice of cancellation form in duplicate be attached to the loan documents or receipt of the consumer transaction. This notice must be easily detachable from the contract or receipt, be in the same language as the contract or receipt, be in bold-faced type, and be the equivalent of at least 10 points in the Times typeface. The required notice of cancellation reads:

Figure: 7 TAC §1.1247(a)(5)

(6) The addition of information related to information set forth in the model clauses that is not otherwise prohibited by law.

(7) Substituting another term for "Lender" or "Borrower" that has the same meaning, or use of pronouns such as "you," "we," and "us."

(8) The model clauses may be presented in any order, and may be combined or further segregated at the licensee's option.

(9) Inserting descriptive headings or number provisions.

(10) Changing the case of a word if otherwise permitted by the Texas Finance Code.

(11) Other changes that do not affect the substance of the disclosures.

(12) A sample model contract that does not allow for withdrawals or multiple advances reads:

Figure: 7 TAC §1.1247(a)(12) (.pdf format)

(13) A sample model promissory note that does not allow for withdrawals or multiple advances reads:

Figure: 7 TAC §1.1247(a)(13) (.pdf format)

(14) A sample model contract that allows for withdrawals or multiple advances reads:

Figure: 7 TAC §1.1247(a)(14) (.pdf format)

(15) A sample model promissory note that allows for withdrawals or multiple advances reads:

Figure: 7 TAC §1.1247(a)(15) (.pdf format)

(16) A sample model deed of trust that allows for withdrawals or multiple advances reads:

Figure: 7 TAC §1.1247(a)(16) (.pdf format)

(b) A licensee has considerable flexibility to arrange the format of the model form if the revised format does not significantly adversely affect the substance, clarity, or meaningful sequence of the disclosures.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on April 11, 2003.

TRD-200302375

Leslie L. Pettijohn

Commissioner

Finance Commission of Texas

Earliest possible date of adoption: May 25, 2003

For further information, please call: (512) 936-7640

Part 2. TEXAS DEPARTMENT OF BANKING

Chapter 12. LOANS AND INVESTMENTS

The Finance Commission of Texas (commission) proposes to adopt new §12.62, concerning a definition of equity capital for limited purposes. The commission also proposes to amend §12.2, concerning general definitions; §12.3, concerning loans and extensions of credit; §12.6, concerning loans not subject to lending limits; §12.31, concerning loans secured by affiliate-issued securities, and §12.91, concerning other real estate owned.

The commission completed its rule review of Chapter 12 as required by Government Code, §2001.039, which is adopted in this issue of the Texas Register . In connection with the rule review, the commission determined that a new §12.62 should be adopted and that amendments should be made to §§12.2, 12.3, 12.6, 12.31, and 12.91.