HBA-ATS C.S.H.B. 2605 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 2605 By: Solomons Business & Industry 4/16/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Products frequently misrepresented by door-to-door salespeople include home improvements such as siding and storm windows. Texas law (Chapter 39 (Cancellation of Certain Consumer Transactions), Business & Commerce Code) protects consumers from unscrupulous salespeople by giving a purchaser of a door-to-door sale three days to cancel the transaction. However, only certain home solicitation transactions are encompassed by the law. For example, only a transaction involving goods or services with a value of $25 or more or real estate worth $100 or more may be rescinded. In addition, a consumer who is represented by a licensed attorney or who uses a licensed real estate broker to negotiate the transaction cannot rescind the purchase. The protection afforded by Chapter 39 is important because when a consumer signs a contract for home improvements on the consumer's homestead, the contractor can legally fix a lien on the homestead. The passage of the "home equity" constitutional amendment created some ambiguities in the law relating to a lien on a homestead for home improvements. The wording of the amendment appears to distinguish between new improvements and the repair and renovation of existing improvements. Moreover, the law does not specify whether the three-day right of rescission under Chapter 39, Business & Commerce Code, applies to all improvements or only to repairs and renovations. H.J.R. 73 has been introduced to eliminate these ambiguities. The joint resolution authorizes a lien for work and material used in constructing improvements to be fixed on a homestead if the work and material are contracted for in writing, with the consent of both spouses, and the contract provides that the owner may rescind the contract, if the contract is a contract for work and material used to repair or renovate existing homestead improvements and the contract is executed at the homestead property. C.S.H.B. 2605 takes effect if the voters approve H.J.R. 73. This bill establishes a new section in Chapter 53, Property Code, that authorizes the owner of a residential homestead, or either spouse in the case of a family homestead, to rescind a residential construction contract for the repair or renovation of homestead property if the contract is executed at the homestead property. Under this bill, an owner of a residential homestead or both spouses, in the case of a family homestead, who are represented by a licensed attorney or who use a licensed real estate broker to negotiate the contract cannot rescind the contract. In addition, a purchaser, lender, or assignee for value without actual knowledge is authorized to conclusively rely on a statement in a contract initialed by the owner or, in the case of a family homestead, both spouses acknowledging that the contract was not executed at the homestead property. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Subchapter K, Chapter 53, Property Code, by adding Section 53.2541, as follows: Sec. 53.2541. RIGHT OF RESCISSION. (a) Sets forth that this section applies only to a residential construction contract (contract) for the repair or renovation of homestead property (property) if the contract is executed at the property by the owner or by either spouse in the case of a family homestead. (b) Specifies that this section does not apply if the owner or, in the case of a family homestead, both spouses are represented by a licensed attorney, or the contract is negotiated by a licensed real estate broker. (c) Authorizes the owner, or either spouse in the case of a family homestead, to rescind a contract as provided by Chapter 39 (Cancellation of Certain Consumer Transactions), Business & Commerce Code. (d) Authorizes a purchaser, lender, or assignee for value without actual knowledge to conclusively rely on a statement in a contract initialed by the owner or, in the case of a family homestead, both spouses acknowledging that the contract was not executed at the homestead property. SECTION 2. Amends Subchapter K, Chapter 53, Property Code, by adding Section 53.2551, as follows: Sec. 53.2551. ADDITIONAL DISCLOSURE STATEMENT REQUIRED FOR CERTAIN RESIDENTIAL CONSTRUCTION CONTRACTS. Provides that a contract subject to Section 53.2541 must contain a disclosure statement as prescribed by Chapter 39, Business & Commerce Code. SECTION 3. Provides that this Act takes effect January 1, 2000, but only if the constitutional amendment proposed by the 76th Legislature, Regular Session, 1999, prescribing requirements for imposing a lien for work and material used in the construction, repair, or renovation of improvements on residential homestead property, takes effect. Sets forth that this Act has no effect if that amendment is not approved by the voters. SECTION 4. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 2605 modifies the original bill in SECTION 1 by adding proposed Section 53.2541(d), Property Code, to authorize a purchaser, lender, or assignee for value without actual knowledge to conclusively rely on a statement in a residential construction contract initialed by the owner or, in the case of a family homestead, both spouses acknowledging that the contract was not executed at the homestead property. C.S.H.B. 2605 modifies the original bill in SECTION 2 by deleting the text of proposed Section 53.2551, Property Code. Under the original bill, proposed Section 53.2551 set forth that it applies only to a contract for the repair or renovation of property if the contract is executed at the property by the owner or by either spouse in the case of a family homestead. It specified that this section does not apply if the owner or, in the case of a family homestead, both spouses are represented by a licensed attorney, or the contract is negotiated by a licensed real estate broker. It provided that a contract subject to this section must contain a disclosure statement as prescribed by Chapter 39, Business & Commerce Code. It set forth that the failure of a contractor to comply with this section does not invalidate a lien under Chapter 53 (Mechanic's, Contractor's, or Materialman's Lien). It authorized a purchaser, lender, or assignee for value without actual knowledge to conclusively rely on a statement in a contract initialed by the owner or, in the case of a family homestead, both spouses acknowledging that the contract was not signed at the property. Under the substitute, proposed Section 53.2551 provides that a contract subject to Section 53.2541 must contain a disclosure statement as prescribed by Chapter 39, Business & Commerce Code. C.S.H.B. 2605 modifies the original bill in SECTION 3 by providing that this Act takes effect January 1, 2000, but only if the constitutional amendment proposed by the 76th Legislature, Regular Session, 1999, prescribing requirements for imposing a lien for work and material used in the construction, repair, or renovation of improvements on residential homestead property, rather than homestead property, takes effect.