SECTION 90.604. Model Contracts; Permissible Changes

(a) A licensee may consider making the following types of changes to the second lien home improvement contracts plain language model clauses:

(1) For transactions involving a security interest in the consumer's principal dwelling, the Truth in Lending Act, 15 U.S.C. §1635(a), and Regulation Z, 12 C.F.R. §1026.23(b), require the creditor to deliver to the consumer a notice of the right to rescind the transaction. Model forms for the notice of the right to rescind are available at 12 C.F.R. Part 1026, Appendix H, Model Forms H-8 and H-9. The Truth in Lending Act right of rescission form for use in a transaction involving the consumer's principal dwelling reads:

Attached Graphic

(2) If the Texas constitutional homestead requirements apply to the transaction, the licensee must add a clause regarding notice of cancellation, place of singing the contract, and the five-day waiting period. The model clause regarding the notice of cancellation, place of signing the contract, and the five-day waiting period reads:

Attached Graphic

(3) Article 16, Section 50(a)(5) of the Texas Constitution provides that a contract for improvements on a homestead must expressly provide the owner with notice of the owner's right to cancel the contract. The model notice regarding the owner's right to cancel the contract reads: "NOTICE OF RIGHT TO CANCEL. THE OWNER MAY CANCEL THE CONTRACT WITHOUT PENALTY OR CHARGE WITHIN THREE DAYS AFTER THE EXECUTION OF THE CONTRACT BY ALL PARTIES, UNLESS THE WORK AND MATERIAL ARE NECESSARY TO COMPLETE IMMEDIATE REPAIRS TO CONDITIONS ON THE HOMESTEAD PROPERTY THAT MATERIALLY AFFECT THE HEALTH OR SAFETY OF THE OWNER OR PERSON RESIDING IN THE HOMESTEAD AND THE OWNER OF THE HOMESTEAD ACKNOWLEDGES SUCH IN WRITING."

(4) Texas Business and Commerce Code, Chapter 601 requires that notice must be given to the consumer regarding the consumer's right to cancel certain types of transactions. If this chapter is applicable, the notice that must be given by the licensee must appear in immediate proximity to the consumer's signature, or on the front page of the receipt if a contract is not used. The notice must be in boldfaced type and must be the equivalent of at least 10 points in the Times typeface. The statement to which the notice must be substantially similar reads: "YOU, THE BUYER, MAY CANCEL THIS TRANSACTION AT ANY TIME PRIOR TO MIDNIGHT OF THE THIRD BUSINESS DAY AFTER THE DATE OF THIS TRANSACTION. SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION OF THIS RIGHT."

(5) Texas Business and Commerce Code, Chapter 601 also requires, if applicable, that a completed notice of cancellation form in duplicate be attached to the loan documents or receipt of the consumer transaction. This notice must be easily detachable from the contract or receipt, be in the same language as the contract or receipt, be in boldfaced type, and be the equivalent of at least 10 points in the Times typeface. The required notice of cancellation reads:

Attached Graphic

(6) The licensee may add information related to information set forth in the model clauses that is not otherwise prohibited by law.

(7) The licensee may substitute another term for "Lender" or "Borrower" that has the same meaning, or use pronouns such as "you," "we," and "us."

(8) The model clauses may be presented in any order, and may be combined or further segregated at the licensee's option.

(9) The licensee may insert descriptive headings or number provisions.

(10) The licensee may change the case of a word if otherwise permitted by the Texas Finance Code.

(11) The licensee may make other changes that do not affect the substance of the disclosures.

(12) A licensee may place its NMLS ID number, the individual residential mortgage loan originator's name, or the originator's NMLS ID on any portion of a document requiring this information, including the signature page. To the extent allowed by Regulation Z, 12 C.F.R. §1026.36(g), and the official commentary to that section, a licensee may omit:

(A) the licensee's NMLS ID number, if the licensee does not have an NMLS ID number and is not legally required to obtain one; and

(B) the individual residential mortgage loan originator's NMLS ID number, if the originator does not have an NMLS ID number and is not legally required to obtain one.

(13) A sample model contract that does not allow for withdrawals or multiple advances is presented in the following example.

Attached Graphic

(14) A sample model promissory note that does not allow for withdrawals or multiple advances is presented in the following example.

Attached Graphic

(15) A sample model contract that allows for withdrawals or multiple advances is presented in the following example.

Attached Graphic

(16) A sample model promissory note that allows for withdrawals or multiple advances is presented in the following example.

Attached Graphic

(17) A sample model deed of trust that allows for withdrawals or multiple advances is presented in the following example.

Attached Graphic

(b) A licensee has considerable flexibility to arrange the format of the model form if the revised format does not significantly adversely affect the substance, clarity, or meaningful sequence of the disclosures.

Source Note: The provisions of this §90.604 adopted to be effective August 31, 2006, 31 TexReg 6694; amended to be effective March 15, 2007, 32 TexReg 1244; amended to be effective September 6, 2007, 32 TexReg 5676; amended to be effective January 3, 2008, 32 TexReg 9952; amended to be effective September 9, 2010, 35 TexReg 8104; amended to be effective November 5, 2015, 40 TexReg 7635; amended to be effective July 9, 2020, 45 TexReg 4501