We have a customer who owns two tracts of land next to each. Each tract has 3 acres, but one tract has the customer's homestead on it. The customer would like to place the vacant 3 acres as collateral and build a shop on it. I believe this is permissible, but concerned with Texas equity laws since this tract is contiguous to the customer's homestead.

I don't the limitations of fees being a problem since that rule excludes the appraisal and title fees, but would the 12 day letter apply?

As long as there is not a TX HE loan on any of the property, they should be able to get one using only a portion of the homestead property (since it is contiguous, it will be homestead regardless of any urban or rural designation). You probably need to check with the title company to make sure they will agree. And yes to the 12 day letter.