Sec. 889A. MORTGAGE OF RESIDENTIAL HOMESTEAD INTEREST OF A MINOR WITHOUT GUARDIANSHIP

(a) In this section:

(1) "Home equity loan" means a loan made under Section 50(a)(6), Article XVI, Texas Constitution.

(2) "Residence homestead" has the meaning assigned by Section 11.13, Tax Code.

(b) When a minor has an interest in a residence homestead and the net value of the interest does not exceed $100,000, a natural or adoptive parent, subject to Subsection (j) of this section, or the managing conservator, of a minor who is not a ward may apply to the court for an order authorizing the parent or managing conservator to receive, without being appointed guardian, an extension of credit on the minor's behalf that is secured, wholly or partly, by a lien on the homestead. Proceeds of the home equity loan attributable to the minor's interest may be used only to:

(1) make improvements to the homestead;

(2) pay for education or medical expenses of the minor; or

(3) pay the outstanding balance of the loan.

(c) The parent or managing conservator shall apply to the court under oath for the authority to encumber the residence homestead as provided by this section. Venue for the application is the same as venue for an application for the appointment of a guardian for a minor. The application must contain:

(1) the name and address of the minor;

(2) a legal description of the property constituting the homestead;

(3) a description of the minor's ownership interest in the property constituting the homestead;

(4) the name of the minor and the fair market value of the property constituting the homestead;

(5) the amount of the home equity loan;

(6) the purpose or purposes for which the home equity loan is being sought;

(7) a detailed description of the proposed expenditure of the loan proceeds to be received by the parent or managing conservator on the minor's behalf; and

(8) a statement that all loan proceeds received by the parent or managing conservator on the minor's behalf through a home equity loan authorized under this section shall be used in a manner that is for the minor's benefit.

(d) On receipt of the application, the court shall set the application for hearing at a date not earlier than the fifth day after the date the application is filed. If the court considers it necessary, the court may cause citation to be issued.

(e) Before the hearing, the parent or managing conservator shall file with the county clerk a surety bond in an amount at least equal to two times the amount of the proposed home equity loan. The bond must be:

(1) payable to and approved by the court; and

(2) conditioned on the parent or managing conservator:

(A) using the proceeds of the home equity loan attributable to the minor's interest solely for the purposes authorized by this section; and

(B) making payments on the minor's behalf toward the outstanding balance of the home equity loan.

(f) At the time of the hearing of the application filed under this section, the court, on approval of the bond required by Subsection (e) of this section, shall authorize the parent or managing conservator to receive the extension of credit sought in the application if the court is satisfied from a preponderance of the evidence that the encumbrance is for a purpose described by Subsection (b)(1) or (2) of this section and is in the minor's best interests.

(g) A parent or managing conservator executing a home equity loan on a minor's behalf under this section shall file an annual report with the court regarding the transaction. When the parent or managing conservator has expended the proceeds of a home equity loan authorized under this section, the parent or managing conservator, in addition, shall file with the county clerk a sworn report accounting for the proceeds.

(h) The court may not discharge the person's sureties from all further liability under the bond until the court:

(1) has approved the filing of the parent's or managing conservator's reports required under Subsection (g) of this section;

(2) finds that the parent or managing conservator used loan proceeds resulting from the minor's interest solely for the purposes authorized by this section; and

(3) has been presented with satisfactory evidence that the home equity loan has been repaid and is no longer considered an outstanding obligation.

(i) After the first anniversary of the date a parent or managing conservator executes a home equity loan authorized under this section, the court may, on motion of the borrower, reduce the amount of the surety bond required under this section to an amount that is not less than the outstanding balance of the loan.

(j) A parent of a minor may file an application under this section only if the parent has a homestead interest in the property that is the subject of the application.

(k) A minor may not disaffirm a home equity loan authorized by the court under this section.

Added by Acts 2005, 79th Leg., Ch. 1204 , Sec. 2, eff. September 1, 2005.