How Mexican Law Shields Texas Homeowners from Foreclosure

Stephen F. Austin wasn't thinking about home equity loans or credit cards Stephen F. Austin wasn't thinking about home equity loans or credit cards when he petitioned the Mexican government to protect Texas home owners. He just wanted Texans to be protected from predatory lenders. Remnants of this Mexican law are still protecting Texans today.

Austin was concerned that settlers who came to Texas hoping for a fresh start would be followed by creditors who would seize the homeowner's property for prior debts. Austin lobbied the Legislature of Coahuila, the Mexican state that included Texas, to protect land purchasers from having their homes seized to pay off other debts they had incurred.
 

Provisions of this Mexican law were adopted into the Constitution of The Republic of Texas and have been included in every Texas State Constitution since. (Article 16 Section 50)
 

While bankers today want these protections removed, financial analysts like Floyd Norris chief financial correspondent for The New York Times, believe this remnant of Mexican law helped protect homeowners in Texas and should be enacted in every state.
 

"There are many people in Texas who might have lost their homes had there been no such limit, and many in other states who might have kept theirs had a similar law been in effect across the country," Norris wrote in his column in May 2012.
 

Until 1997 home equity loans were not legal at all in Texas. Remnants of the Mexican law Austin asked for have been passed down through generations of Texas homeowners are still shielding Texans today.

The law prohibited Texas homeowners from taking out all their equity when credit was easy and prices high. As a result, people who bought their homes before prices peaked are less likely to owe more than the home is now worth, and less likely to be forced to sell.

Designed to protect homeowners from predatory lenders, the lending laws also prevented Texans from taking loans against the equity in their home unless the proceeds paid for repairs or improvement on the property.  This didn't set well with bankers during the housing boom so they set their lobbyists to work.

The banks succeeded in having the law changed but didn't get all they wanted. The changes require any homeowner seeking to refinance a mortgage or take out a home equity loan to have at least 20 percent equity after taking out the new loan. Moreover, no one can refinance a home mortgage more often than once a year.

Under the law it was not possible for Texas homeowners to take out all their equity when credit was easy and prices high. As a result, people who bought their homes before prices peaked are less likely to owe more than the home is now worth, and less likely to be forced to sell.

Banks are preparing to push to amend the 1997 law, John Fleming, the general counsel of the Texas Mortgage Bankers Association said in an interview. They say that some homeowners with home equity loans have been unable to refinance high-interest-rate loans because a current appraisal shows their equity is now less than 20 percent.

 

For more on this please read the New York Times article:

A Law Shielded Many Texans When the Housing Bubble Burst

 
 
 
 
 
 
 
 
 
 

 

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