A Dallas-based realty company says it has found a way around Texas' ban on home equity loans.
LandRush Realty Corp. is rolling out a new product that it calls the Texa$ Home Equity Refund Mechanism.
Here's how it works: LandRush buys the house from the owner at the current appraised market value. The difference between the current value and the homeowner's mortgage balance is the owner's equity.
At the same time, the owner enters into a lease agreement with the realty company. The agreement gives the resident 90 days to repurchase the house with a new mortgage.
Billy D. Hawkins, president of LandRush, said the realty company plans to resell these homes for the current value plus 8.25%.
LandRush was formed to market this product and is seeking partnerships with several large commercial bank companies, including NationsBank Corp., Banc One Corp., and BankAmerica Corp.'s Bank of America.
The idea is that the banks would supply short-term funds to the realty company to buy the house, then a long-term mortgage for the erstwhile owner to repurchase it.
Mr. Hawkins thinks this will be a hot product, based on an estimate that Texas homeowners have more than $125 billion of equity in their homes.
The Texas Homestead Act has prevented the development of a home equity market in the state. Under the law, lenders are prohibited from foreclosing on a home if the homeowner defaults on a second mortgage secured by it.