Texas's Constitution imposes strict limits on home equity lending that do not exist in any other state. These protections — codified in Article XVI, Section 50(a)(6) — were designed to prevent the predatory equity-stripping that devastated homeowners in other states during periods of loose lending.
The core rule — 80% LTV cap: The total of all liens on a homestead — including the existing first mortgage, any second mortgage, and the new home equity loan — cannot exceed 80% of the property's fair market value at closing.
> Worked example: Home worth $400,000. Existing mortgage: $270,000. Maximum total liens: $400,000 × 80% = $320,000. Maximum new home equity loan: $320,000 − $270,000 = $50,000. Asking for $60,000 would be denied — it would exceed the constitutional cap.
This is the "nuclear option" that gives Texas home equity protections their teeth: if a lender closes a Section 50(a)(6) loan in violation of the constitutional requirements (e.g., closing within the 12-day waiting period, or exceeding the 80% LTV cap), the lender loses the lien on the property. The borrower keeps the money and the lender is left with an unsecured debt. This extraordinary remedy has made Texas lenders scrupulously careful about compliance.
Real-world example: A lender anxious to close a home equity loan by quarter-end closes the loan on day 10 after the application — two days before the 12-day waiting period expires. The borrower realizes this and raises the constitutional violation. Under Texas Supreme Court precedent, the lender's failure to comply with Section 50(a)(6) requirements means the lender forfeits the lien. The borrower owes the money back as an unsecured debt, but the lender cannot foreclose on the home.
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Quiz Questions:
Q1. A Texas homeowner's home is worth $500,000. The existing mortgage balance is $340,000. What is the maximum amount the homeowner could borrow on a Section 50(a)(6) home equity loan?
A) $160,000 (the difference between home value and mortgage balance) B) $60,000 (80% cap of $400,000 minus the $340,000 existing balance) C) $100,000 D) $0 — the existing mortgage already exceeds 80% of value
Answer: B — Maximum total liens = 80% × $500,000 = $400,000. Remaining capacity = $400,000 − $340,000 existing mortgage = $60,000 maximum new home equity loan.
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Q2. A borrower submits a home equity loan application on Monday, April 7. Under Section 50(a)(6), what is the earliest date the loan can close?
A) April 14 (7 days later) B) April 19 (12 days later) C) April 21 (two weeks later — lenders typically round up) D) April 10 (3 business days later, like a TILA rescission)
Answer: B — The 12-day waiting period runs from the date of application submission. April 7 + 12 days = April 19 as the earliest possible closing date. Calendar days are used, not business days, for this constitutional waiting period.
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Q3. A borrower closes a Section 50(a)(6) home equity loan on Monday. The borrower decides on Wednesday that the terms are unfavorable. Can the borrower cancel the loan?
A) No, once a loan closes in Texas it is final and irrevocable B) Yes, the borrower has a 3-business-day right of rescission after closing a Section 50(a)(6) loan C) Yes, but only within 24 hours of closing D) No, because the 3-day rescission right only applies to purchase money loans, not home equity loans
Answer: B — Section 50(a)(6) grants borrowers a constitutionally protected 3-business-day right of rescission after closing a home equity loan. Wednesday is only 2 business days after Monday's closing (Tuesday is day 1, Wednesday is day 2), so the borrower is still within the rescission window.
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Q4. A Texas homeowner has a Section 50(a)(6) home equity loan with an outstanding balance of $30,000. She wants to take out a second home equity loan of $20,000 on the same property. Can she?
A) Yes, as long as the total of both loans does not exceed 80% of the property value B) No, Texas limits homestead property to one Section 50(a)(6) loan at a time C) Yes, if the lender approves both loans and the combined LTV is under 90% D) No, Texas prohibits all second mortgage loans on homestead property
Answer: B — The one-loan-at-a-time rule under Section 50(a)(6) means the borrower cannot take out a second home equity loan on the same homestead until the first is paid off. She would need to pay off or refinance the $30,000 balance before taking a new home equity loan.
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Q5. A lender closes a Section 50(a)(6) home equity loan in which the combined liens exceed 80% of the property's fair market value. The borrower later raises this constitutional violation. What remedy is available to the borrower?
A) The borrower must continue making payments; the only remedy is a complaint to TREC B) The lender loses the lien on the homestead property; the borrower keeps the loan proceeds but the lender has no secured interest to foreclose on C) The loan is rescinded and the borrower must return the proceeds D) The excess portion of the loan above 80% LTV is converted to an unsecured personal loan
Answer: B — The forfeiture remedy under Texas case law means the lender loses the lien entirely if it violated Section 50(a)(6) requirements. The borrower keeps the money; the lender is left with an unsecured (and likely uncollectible) debt. This is why Texas lenders are so careful about compliance — the downside of a violation is catastrophic for the lender.