HBA-MPM C.S.S.B. 507 77(R) BILL ANALYSIS Office of House Bill AnalysisC.S.S.B. 507 By: Carona Business & Industry 5/7/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE There has been an explosive growth of property owners' associations in Texas and the rest of the nation. More than 40 million people live in one of more than 200,000 communities managed by property owners' associations nationwide. In Texas, property owners' associations operate with little statutory regulation or guidance. At times, the volunteer board members of these associations must work to enforce deed restrictions, and conflicts may arise between the board and the homeowners. Sometimes these conflicts result in a home foreclosure. C.S.S.B. 507 establishes the Texas Residential Property Owners Protection Act to provide guidelines for the operation of property owners' associations and to provide homeowners a mechanism by which to redeem property in the event of a foreclosure. 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. ANALYSIS C.S.S.B. 507 amends the Property Code to establish the Texas Residential Property Owners Protection Act (Act). The Act only applies to a residential subdivision in which a property owners' association (association) collects regular or special assessments and to a property owners' association that requires mandatory membership. The Act does not apply to a condominium development (Sec. 209.003). The bill requires an association to record in each county in which any portion of a residential subdivision is located a management certificate containing specified information and to record an amended management certificate not later than 30 days after the date the association has notice of any change in the information (Sec. 209.004). The association is required to make all of its books and records reasonably available to an owner in accordance with the Texas Non-Profit Corporation Act (Sec. 209.005). C.S.S.B. 507 provides that an association must give written notice to a property owner before suspending an owner's right to use a common area, filing a suit against the owner other than a suit to collect assessment fees or to foreclose the property, charging an owner for property damage, or levying a fine for a violation of the restrictions or bylaws or rules of the association. The bill sets forth the content that must be contained in the notice (Sec. 209.006). If an owner is entitled to an opportunity to cure a violation, the owner has the right to request in writing a hearing before the association. The bill authorizes the governing body of the association or the owner to request a postponement of the hearing for a period of no more than 10 days. An owner or association may use alternative dispute resolution services (Sec. 209.007). The bill authorizes the association to collect attorney's fees and reasonable costs incurred for attempting to collect amounts due for enforcing restrictions, bylaws, or rules only if the owner was notified that the fees and costs will be charged if the delinquency or violation continues after a certain date, and provides exceptions. The bill limits the amount of attorney's fees that an association may include in an indebtedness covered by an assessment lien and specifies that the limitation of this amount does not prevent an association from recovering or collecting attorney's fees in excess of those amounts by other legal means (Sec. 209.008). The bill prohibits an association from foreclosing a property owners' association assessment lien if the debt securing the lien consists solely of fines assessed by the association or associated attorney's fees (Sec. 209.009). The bill provides that an association that conducts a foreclosure sale of an owner's lot or the sale of an owner's lot by a sheriff or constable conducted as provided by a judgment obtained by an association must send to the lot owner by certified mail 30 days after the date of the sale a written notice stating the date and time the sale occurred and informing the lot owner of the owner's right to redeem the property (Sec. 209.010). The bill provides that an association or other person purchasing property at such a foreclosure sale must commence and prosecute a forcible entry and detainer action to recover possession of the property. The owner may redeem the property from any purchaser at a sale foreclosing an association's assessment lien no later than the 90th day after the date the owner is served with a citation in a forcible entry and detainer action or the second anniversary of the date of the foreclosure sale, whichever date is earlier. The bill prohibits a person purchasing property at such a sale from transferring ownership of the property to a person other than a redeeming lot owner during the redemption period. The bill sets forth procedures by which a lot owner may redeem property purchased at the foreclosure sale by the association or a third party, including payment of certain amounts due the association, interest, assessment costs, purchase price, taxable costs, fees, redemption premiums, and other costs to the association or the third party, as applicable, and provides legal recourse for a lot owner if a third-party purchaser fails to transfer the property to the owner upon payment of these amounts. The bill provides that the purchaser of the property or the person to whom the property is transferred may presume conclusively that the lot owner did not redeem the property unless the lot owner files in the real property records a deed from the purchaser at the foreclosure sale or an affidavit that states that the owner has redeemed the property and contains a legal description of the property. The bill specifies that all rent and income collected by an association that purchases the property from the date of the foreclosure sale to the date of redemption shall be credited toward the amount due the association, with excess proceeds being refunded to the lot owner. The bill specifies that all rent and income collected by a third party be credited toward the amount due the purchaser, with excess proceeds being refunded to the lot owner. The bill requires a third party purchaser before executing a deed of transfer to obtain an affidavit from the association stating that all amounts owed the association have been paid. The bill requires the association to provide the purchaser with the affidavit within 10 days after the association receives all amounts owed. The association or the purchaser of the property is authorized to file an affidavit in the real property records that states the date the citation in a forcible entry and detainer action was served and contains a legal description of the property. The bill authorizes any person to rely conclusively on the information contained in the affidavit. The bill extends this provision to apply to sale of property that is conducted by a constable or sheriff as provided by a judgment obtained by the association (Sec. 209.011). The bill provides that redeemed property remains subject to all existing liens and encumbrances, and any lease entered into by a purchaser is subject to the right of redemption and the lot owner's right to reoccupy the property immediately after redemption. If a lot owner makes partial payments due to the association before the redemption period expires but does not pay the all amounts due, the association is required to refund any partial payments to the lot owner by mailing payment to the owner within 30 days of the expiration date of the redemption period. The bill provides that if a lot owner sends a written request to redeem the property on or before the last day of the redemption period, the lot owner's right of redemption is extended for 10 days after the association and any third party foreclosure purchaser provides written notice of the amounts that must be paid to redeem the property. After the redemption period and any extended redemption period expires, the association or third party purchaser is required to record an affidavit in the real property records stating that the lot owner did not redeem the property (Sec. 209.011). C.S.S.B. 507 provides that in addition to other powers granted by law an association subject to the provisions of this bill is authorized to: _impose fines on property owners for littering within the subdivision; _prohibit property owners from keeping disruptive animals on the property within the subdivision; _impose fines on property owners for keeping animals prohibited by restrictions governing the subdivision on property within the subdivision; and _remove or authorize the removal of a prohibited animal from the property (Sec. 209.012). EFFECTIVE DATE January 1, 2002. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.S.B. 507 differs from the original bill by limiting the amount of attorney's fees a property owners' association (association) may include in an indebtedness covered by an assessment lien (Sec. 209.008). The substitute provides that the sale of an owner's lot by a sheriff or constable conducted as provided by a judgment obtained by an association must send a written notice to the lot owner by certified mail 30 days after the date of the sale (Sec. 209.010). The substitute provides that an association or other person purchasing property at such a foreclosure sale must commence and prosecute a forcible entry and detainer action to recover possession of the property. The substitute authorizes a lot owner to redeem property from a purchaser at a sale foreclosing an association's assessment lien no later than the 90th day after the owner is served with a citation in a forcible entry and detainer action or the second anniversary of the date of the foreclosure sale, whichever date is earlier, whereas the original authorized the owner to redeem the property within 90 days after the association mails the written notice relating to the sale. The substitute includes among amounts owed to the purchaser by a lot owner who redeems property purchased by the purchaser the amount of the deed recording fee, the amount paid to the purchaser as ad valorem taxes, penalties, and interest on the property after the date of the foreclosure sale, taxable costs incurred in a proceeding involving a forcible entry and detainer action, and a 25 percent redemption premium of the collective amounts. The substitute removes from these amounts owed to the purchaser interest from the date of foreclosure to the date of redemption on the purchase price of the property at a rate of 10 percent and any reasonable cost incurred by the purchaser, including costs of repair, maintenance, and leasing of the property. The substitute provides legal recourse for a lot owner if a third party purchaser fails to transfer the property back to the owner upon redemption of the property by the lot owner. The substitute provides that the purchaser of the property or the person to whom the property is transferred may presume conclusively that the lot owner did not redeem the property unless the lot owner files in the real property records a deed from the purchaser at the foreclosure sale or an affidavit that states that the owner has redeemed the property and contains a legal description of the property. The substitute authorizes the association or the purchaser of the property to file an affidavit in the real property records the information upon which any person may rely conclusively and extends this provision to apply to property sold as a result of a judgment by the association from a constable or sheriff (Sec. 209.011). The substitute grants an association the authority to impose certain fines and prohibitions on property owners regarding littering within the subdivision and keeping restricted animals on the property and authorizes the association to remove the prohibited animals (Sec. 209.012).