**Please note that the information in this announcement concerning the 12-Day Notice timing requirements for Texas 50(f)(2) loans has been superseded by this announcement as of 3/13/2018.**
Recently passed amendments to Texas’ Constitution requires the following for a Texas 50(f)(2) loan:
“[T]he lender provides the owners the following written notice on a separate document not later than the third business day after the date the owner submits the loan application to the lender and at least 12 days before the date the refinance of the extension of credit is closed . . .” (Tex. Const. art. 16, § 50[f][D])
The Texas Finance Commission and Texas Credit Union Commission (collectively referred to as “the Commissions”) have proposed interpretations for these amendments in the Texas Register (42 Tex. Reg. 6580 – 6587, November 24, 2017), under the authority granted to them pursuant to Supra § 50(u). These interpretations include the following (cited in relevant part):
“Refinance Disclosure. To meet the condition in Section 50(f)(2)(D), the lender must provide the refinance disclosure described in Section 50(f)(2)(D) to the owner on a separate document not later than the third business day after the date the owner submits the loan application to the lender and at least 12 days before the date the refinance of the extension of credit is closed . . .
(C) If a lender mails the refinance disclosure to the owner, the lender must allow a reasonable period of time for delivery. A period of three calendar days, not including Sundays and federal legal public holidays, constitutes a rebuttable presumption for sufficient mailing and delivery.” (proposed 7 Tex. Admin. Code § 153.45; emphasis added)
This would indicate that the Texas 50(f)(2), 12-Day Notice must be mailed in sufficient time for the owner to have received it no later than three business days after application, with a rebuttable presumption that the owner has received this notice three business days after it is placed in the mail. This indication is confirmed by the Commissions in their analysis to this proposed rule.[i] The Commissions interpret the word “provides” to mean when the notice is “made available” to the owner, rather than when it is placed in the mail.[ii]
Therefore, if the 12-Day Notice is mailed to the owner, it must be placed into the mail the same day the application is submitted to the lender, in order to ensure that the owner receives it within three business days of application. The Commissions do observe that there are alternatives to this, such as delivering by overnight mail or electronic delivery.[iii]
We therefore suggest to our clients who utilize our Fulfillment Center for mailing document packages that, on the day they receive an application for a Texas 50(f)(2) loan, that they submit to Fulfillment an Initial Disclosure for such loan which at least contains a copy of the Texas 50(f)(2), 12-Day Notice (Cx3653 and Cx4549 are our generic copies of this Notice), to ensure timely delivery of such Notice.
Because these interpretations of the Commissions are only proposed and may change when finalized, we will not be making any software changes at this time. We are, however, planning on ways to enhance our software to ensure timely delivery of these Notices, if the proposed rule is finalized as written.
[i] “Subparagraphs (A) – (C) in proposed § 153.45(4) provide guidance to lenders in calculating the three-day and 12-day periods under Section 50(f)(2)(D). These requirements are based on interpretations relating to the closing date and the required 12-day consumer disclosure for home equity loans in current § 153.12 and § 153.51. In particular, proposed § 153.45(4)(C) states that if a lender mails the refinance disclosure to the owner, the lender must allow a reasonable period of time for delivery, and that a period of three calendar days, not including Sundays and federal legal public holidays, constitutions a rebuttable presumption for sufficient mailing and delivery. This subparagraph is nearly identical to current § 153.51(1), which provides the same requirement and rebuttable presumption for the 12-day consumer disclosure under [Texas Constitution] Section 50(g). The Texas Supreme Court upheld § 153.51(1) in Finance Commission of Texas v. Norwood, 418 S.W.3d 566, 589 (Tex. 2013). . . . Proposed § 153.45(4)(C) helps ensure that the borrower receives the important information in the refinance disclosure promptly after filing a loan application . . .” (42 Tex. Reg. 6582, November 24, 2017; emphasis added)
[ii] “. . . the requirement to allow a reasonable period for delivery is consistent with the plain meaning of the word ‘provide.’ See, e.g., Webster’s New Collegiate Dictionary (11th ed. 2003) (defining ‘provide’ as ‘to supply or make available’). A mailed disclosure is supplied or made available to the borrower (i.e., provided) when it is delivered to the borrower. In Norwood, the Texas Supreme Court assumed that the 12-day disclosure is provided when the borrower receives it. See Norwood, 418 S.W.3d at 589 (‘In giving meaning to ‘provides’, the Commissions have determined there is a rebuttable presumption that notice is received three days after it is mailed.’) By contrast, the stakeholder’ recommended changes would suggest that the disclosure is provided when it is placed in the mailbox. A disclosure is not supplied or made available to the borrower when the lender places it in a mailbox. This is why § 153.45(4)(C) appropriately requires the lender to allow a reasonable period for delivery.” (Ibid.)
[iii] “. . . the commissions believe that adequate alternatives are available to lenders if they cannot mail the refinance disclosure on the same day they receive a loan application. Proposed § 153.45 does not prohibit other methods of providing the refinance disclosure. For example, lenders may provide the disclosure electronically by e-mail or on a website in compliance with the E-Sign Act, 15 U.S.C. §§ 7001-7006, or they may deliver the disclosure in person. In addition, overnight U.S. mail or two-day commercial mailing might rebut the normal three-day presumption for delivery. Any of these alternatives could help the lender ensure that the refinance disclosure is provided to the owner ‘not later than the third business day after the date the owner submits the loan application to the lender,’ is required by Section 50(f)(2)(D).” (Ibid.)