Rooms with a View
case.
The undefined phrase "physically attach" is used in Chapter 152 as a plain
language substitute for the legal term "affix." "Physically attach," when
used in Chapter 152, means to attach, add to, or fasten on permanently.
Section 152.3 explains that the only requirement in Section 50(a)(5) for
establishing a constitutional lien on a homestead for a debt incurred for
"work and materials used in constructing of new improvements" is that the
"work and materials used in constructing new improvements" be "contracted
for in writing." In Texas, there may be both a constitutional and a statutory
lien. The requirements to establish a statutory lien are in Property Code §§53.001
et seq.; however, this interpretation only addresses the requirements for
a constitutional lien. As stated above, this interpretation is supported by
the Texas Supreme Court in its decision in
Spradlin
, 34 S.W.3d at 580.
Section 152.3(b) provides that a homestead is not protected from forced
sale by Section 50 once a constitutional lien is established for debt incurred
for work and materials used in constructing new improvements.
Section 152.5(a) explains that Section 50(a)(5)(A) - (D) apply only to
work and materials used to repair or renovate existing improvements. This
interpretation is also supported by the Texas Supreme Court in
Spradlin
.
Section 152.5(b) provides that to establish a constitutional lien for a
debt incurred for work and materials used to repair and renovate existing
improvements, there must be compliance with Section 50(a)(5)(A) - (D).
The Commissions recognize that parties may reach an agreement to construct
new improvements and repair or renovate existing improvements in the same
contract. The Commissions, in §152.5(c), provide that a single contract
pertaining to both must comply with Section 50(a)(5)(A) - (D) to establish
a constitutional lien on the homestead.
Section 152.7 interprets the consent requirement in Section 50(a)(5)(A)
as meaning the joinder requirement in Texas Property Code, §5.001 (Section
5.001). In the case of a family homestead, Section 50(a)(5)(A) requires the
"consent of both spouses" to the contract for work and materials, "given in
the same manner as is required in making a sale and conveyance of the homestead."
The Commissions could not find a "consent" requirement with respect to the
sale and conveyance of a homestead; however, Section 5.001, provides that:
"Whether the homestead is the separate property of either spouse or community
property, neither spouse may sell, convey, or encumber the homestead without
the joinder of the other spouse except as provided in this chapter or by other
rules of law." The Commissions believe that although Section 5.001 uses the
term "joinder" rather than "consent," the joinder in Section 5.001 is what
the drafters were most likely referring to when they required "consent of
both spouses. . . in the same manner as is required in making a sale and conveyance
of the homestead."
In keeping with
Spradlin
, §152.15(a)
limits the requirements of Section 50(a)(5)(D) to repairs or renovations of
existing improvements. Section 152.15(b) makes it clear that the requirements
of Section 50(a)(5)(D) are not fulfilled by executing contracts at a mobile
office of the lender, an attorney at law, or a title company, unless the mobile
office is located at the permanent address of the lender, an attorney at law,
or a title company.
Finally, the Commissions emphasize that the Code Construction Act (Texas
Government Code, Chapter 311) applies to 7 TAC, Chapter 152. For example,
words used in the singular include the plural and the plural includes the
singular, the heading of a title, subtitle, chapter, subchapter, or section
does not limit or expand the meaning of an interpretation, and the use of
the word "include" means "including but not limited to." A reference in 7
TAC, Chapter 152 to "Section 50" refers to the Texas Constitution, Article
XVI, §50, unless otherwise noted.
Harold Feeney, Credit Union Commissioner, on behalf of the Texas Credit
Union Commission and Leslie L. Pettijohn, Consumer Credit Commissioner, on
behalf of the Finance Commission of Texas have determined that for the first
five-year period the interpretations are in effect there will be no fiscal
implications for state or local government as a result of administering the
interpretations.
Commissioner Feeney and Commissioner Pettijohn also have determined that
for each year of the first five years the interpretations as proposed are
in effect, the public benefit anticipated as a result of the proposed interpretations
will be to support the stability of the credit markets and ensure that loans
to construct new improvements and loans to repair or renovate existing improvements
are as widely available to Texas homeowners as possible, through the creation
of reliable standards and guidelines.
There is no anticipated cost to persons who are required to comply with
the interpretations as proposed. There will be no adverse economic effect
on small or micro businesses.
Written comments on the proposed interpretations may be submitted in to
Kerri T. Galvin, General Counsel, Credit Union Department, 914 East Anderson
Lane, Austin, Texas 78752-1699, or to Sealy Hutchings, General Counsel, Office
of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas
78705-4207 or by email to kerri.galvin@tcud.state.tx.us or sealy.hutchings@occc.state.tx.us.
To be considered, a written comment must be received on or before the 31st
day after the date the proposed sections (interpretations) are published in
the
Texas Register
. At the conclusion of the
31st day after the proposed interpretations are published in the
Texas Register
, no further written comments will be considered or accepted
by the Commissions.
The Credit Union Commissioner and the Consumer Credit Commissioner have
been delegated the authority to conduct a public meeting on behalf of the
Commissions for the purpose of receiving oral comments, views, and/or testimony
concerning the proposed interpretations. A public meeting will be held in
Austin on March 24, 2005, at 1:00 p.m. in the State Finance Commission Building,
William F. Aldridge Hearing Room, located at 2601 North Lamar Boulevard. To
be considered, an oral comment must be received at this public meeting; at
the conclusion of the meeting, no further oral comments will be considered
or accepted by the Commissions.
Persons with disabilities who are planning to attend the meeting and have
special communication or other accommodation needs should contact Joann McAnally
at the Office of Consumer Credit Commissioner at (512) 936-7640. Requests
should be made as far in advance of the meeting as possible.
The interpretations are proposed pursuant to Texas Finance Code, §11.308
and §15.413 (as added by Acts 2003, 78th Legislature, Chapter 1207, §2),
which separately and independently authorize each Commission to issue interpretations
of the Texas Constitution, Article XVI, §50(a)(5) - (7), (e) - (p), (t),
and (u), subject to Texas Government Code, Chapter 2001.
The Texas Constitution, Article XVI, §50(a)(5) is affected by the
proposed interpretations.
§152.1.Definitions.
Any reference to Section 50 in this interpretation refers to Article
XVI, Texas Constitution, Section 50. Words and terms have these meanings when
used in this chapter, unless the context indicates otherwise:
(1)
Application--A request for an extension of credit that
is made in accordance with the usual procedures used by a creditor for applying
for an extension of credit for constructing new improvements or repair or
renovation of existing improvements. The term "application" does not include
the use of an account or line of credit to obtain an amount of credit that
is within a previously established credit limit.
(2)
Constitutional lien--A lien created and made enforceable
against a homestead by the lienholder's compliance with the appropriate section
of the Texas Constitution.
(3)
Contract--A contract for work and materials used to:
(A)
construct new improvements;
(B)
repair or renovate existing improvements; or
(C)
both subparagraph (A) and (B) of this paragraph.
(4)
Existing improvements--A pre-existing addition to a homestead
that is physically attached to the homestead.
(5)
New improvements--An addition to a homestead:
(A)
that does not exist on the homestead prior to the commencement
of the use of work and materials to construct the new improvements under Section
50(a)(5); and
(B)
the construction of which will not involve:
(i)
work on existing improvements
(ii)
the use of materials on existing improvements; or
(iii)
physical attachment of materials to existing improvements.
(6)
Materials--Materials used in constructing new improvements
or repairing or renovating existing improvements. Materials alone are not
improvements. Materials used to construct new improvements become a part of
the new improvements once physically attached to the new improvements. Likewise,
materials used to repair or renovate existing improvements become a part of
the existing improvements once physically attached to the existing improvements.
(7)
Owner--A person who has the right to possess, use, and
convey, individually or with the joinder of another person, all or part of
the homestead.
(8)
Repair or Renovate--Work and materials used to:
(A)
replace materials physically attached to existing improvements
whether or not the new materials are similar to or the same as the materials
being replaced (examples include replacing flooring, roofing, built-in appliances,
siding, windows, or other materials that are attached to existing improvements);
(B)
physically attach materials to existing improvements where
there are no previously attached materials being replaced that are the same
as or similar to the materials being attached (examples include attaching
to existing improvements a new room, a built-in cabinet, or a second story);
and
(C)
mend, remedy or upgrade all or a portion of existing improvements
without adding or replacing materials to the existing improvements (examples
include restoring wood flooring or woodwork of an existing improvement where
the work does not include physically attaching materials to the existing improvements,
and removing flooring to expose flooring underneath).
(9)
Title company--A title insurance company or an agent of
a title insurance company.
§152.3.Requirements for Construction of New Improvements: Section 50(a)(5).
(a)
Except as provided in §152.5(c) of this chapter, Section
50(a)(5)(A) - (D) does not apply to the construction of new improvements on
a homestead.
(b)
A valid constitutional lien, under Section 50(a)(5), may
be created on a homestead if the debt for the work and materials used for
new improvements is contracted for in writing. This constitutional lien is
not protected from forced sale for the payment of the debt by Section 50.
§152.5.Requirements for Work and Materials Used to Repair or Renovate: Section 50(a)(5)(A) - (D).
(a)
Section 50(a)(5)(A) - (D) applies only to contracts and
applications for work and material used to repair or renovate existing improvements.
(b)
If debt is incurred for work and material used to repair
or renovate existing improvements and the requirements of Section 50(a)(5)(A)
- (D) have been met, a constitutional lien is established on the homestead
of a family, or of a single adult person, and it is not protected by Section
50 from forced sale for the payment of the debt.
(c)
If the application and contract are for both work and materials
used to repair or renovate existing improvements and for work and materials
used in constructing new improvements, the entire transaction is considered
a contract to repair and renovate existing improvements and compliance with
the constitutional requirements of Section 50(a)(5)(A) - (D) is required to
establish a constitutional lien on the homestead.
§152.7.Consent of Spouses in the Case of Family Homestead: Section 50(a)(5)(A).
(a)
In the case of a family homestead, both spouses must consent
in writing to the contract for repair or renovation of existing improvements,
regardless of whether the spouse has a community property interest or other
ownership interest in the homestead.
(b)
In addition to the consent of both spouses of a family
homestead, the lender or contractor, at its option, may also require all other
owners and their spouses to consent to the contract.
§152.15.Place for Execution of Contract for Work and Materials: Section 50(a)(5)(D).
(a)
The owner and, if married, the owner's spouse must execute
the contract to repair or renovate existing improvements at the permanent
physical address of:
(1)
the office or branch office of the lender making the extension
of credit;
(2)
an attorney at law; or
(3)
a title company.
(b)
Execution of the contract may not occur at a mobile office
located at:
(1)
the homestead; or
(2)
any other place not permitted by subsection (a) of this
section.
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 February 11, 2005.
TRD-200500640
Leslie L. Pettijohn
Commissioner
Joint Financial Regulatory Agencies
Earliest possible date of adoption: March 27, 2005
For further information, please call: (512) 936-7640