BILL ANALYSIS H.B. 2152 By: Bailey (Gallegos) Jurisprudence 5-26-95 Senate Committee Report (Unamended) BACKGROUND Property owners' associations in certain counties have a special relationship with the homeowners. A large number of such communities are subjected to restrictive covenants which are extremely difficult, if not impossible, to amend or modify. In Houston, about 30 percent of all homes are rental properties, making it difficult to track down the owners for their signatures. Homeowners in these areas are unable to amend the covenants to provide for such things as contract deputies to fight crime. PURPOSE As proposed, H.B. 2152 sets forth provisions relating to restrictive covenants in certain residential real estate subdivisions. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not grant any additional rulemaking authority to a state officer, institution, or agency. SECTION BY SECTION ANALYSIS SECTION 1. (a) Provides that public policy considerations require that a procedure be available to allow for the extension of, addition to, or modification of existing property restrictions in residential real estate subdivisions. (b) Sets forth the findings of the legislature relating to the relationship between property owners' associations and residential real estate subdivisions. SECTION 2. Amends Title 11, Property Code, by adding Chapter 204, as follows: CHAPTER 204. POWERS OF PROPERTY OWNERS' ASSOCIATION RELATING TO RESTRICTIVE COVENANTS IN CERTAIN SUBDIVISIONS Sec. 204.001. DEFINITIONS. Defines "restrictions," "residential real estate subdivision," "subdivision," "owner," "real property records," "lienholder," "dedicatory instrument," "petition," "restrictive covenant," "regular assessment," and "special assessment." Sec. 204.002. APPLICATION. (a) Provides that this chapter applies only to a residential real estate subdivision, excluding a certain condominium development. (b) Provides that this chapter applies to a restriction regardless of its effective date. (c) Provides that this chapter does not apply to portions of a subdivision that are zoned for or that contain a commercial or industrial structure, an apartment complex, or a condominium development governed by Title 7, Property Code. Defines "apartment complex." Sec. 204.003. PROVISIONS OF RESTRICTIVE COVENANTS PREVAIL IN CERTAIN CIRCUMSTANCES. Provides that an express designation in a document creating restrictions applicable to a residential real estate subdivision that provides for the extension of, addition to, or modification of existing restrictions by a designated number of owners of real property in the subdivision prevails over the provisions of this chapter. Sec. 204.004. PROPERTY OWNERS' ASSOCIATION. (a) Provides that a property owners' association (association) is a designated representative of the owners of property in a subdivision and may be referred to as a "homeowners association," "community association," "civic association," "civic club," "association," "committee," or similar term contained in the restrictions. Provides that the membership of the association consists of the owners of property within the subdivision. (b) Provides that the association must be nonprofit and may be incorporated as a Texas nonprofit corporation. Authorizes an unincorporated association to incorporate under Article 1396-1.01, et seq. (Texas Non-Profit Corporation Act). Sec. 204.005. EXTENSION OF, ADDITION TO, OR MODIFICATION OF EXISTING RESTRICTIONS. (a) Provides that an association has authority to approve and circulate a petition relating to the extension of, addition to, or modification of existing restrictions. Provides that an association is not required to comply with Sections 201.009-201.012. (b) Provides that a petition to extend, add to, or modify existing restrictions approved and circulated by an association is effective if the petition is approved by certain owners and filed with the county clerk of the county in which the subdivision is located. (c) Authorizes the approval requirement to be satisfied by obtaining approval of at least 75 percent of the owners on a section-by-section basis or of the total number of properties in the association's jurisdiction, if a subdivision consisting of multiple sections. (d) Provides that the petition is binding on all properties in the subdivision or section, as applicable, if approved. Requires an association that circulates a petition to notify all record owners of property in the subdivision in writing of the proposed extension, addition to, or modification of the existing restrictions. Authorizes notice to be hand-delivered to residences within the subdivision or sent by regular mail to the owner's last known mailing address as reflected in the ownership records maintained by the association. Authorizes the approval of multiple owners of a property to be reflected by the signature of a single co-owner. Sec. 204.006. CREATION OF PROPERTY OWNERS' ASSOCIATION. (a) Sets forth certain conditions under which a petition to add to or modify the existing restrictions for the sole purpose of creating and operating an association with mandatory membership, mandatory regular or special assessments, and equivalent voting rights for each of the owners in the subdivision is effective, if existing restrictions applicable to a subdivision do not provide for an association and require approval of more than 60 percent of the owners to add to or modify the original dedicating instrument. (b) Provides that a petition is void and another petition committee may be formed, if the circulated petition is not approved by the required percentage of owners within one year of the creation of the petition committee. (c) Provides that the petition is binding on all properties in the subdivision or section, as applicable, if the petition is approved. Sec. 204.007. EFFECT ON LIENHOLDERS. (a) Provides that extensions of, additions to, or modifications of restrictions under this chapter are binding on a lienholder, excluding restrictions relating to regular or special assessment increases if the assessment is not subordinated to purchase money or home improvement liens. (b) Provides that a lienholder is not entitled to notice of the proposed dedicatory instrument and the lienholder is bound by the instrument if the instrument is approved, if the assessment lien of the association is subordinate to purchase money or home improvement liens. Provides that a lienholder who is not a signatory to the dedicatory instrument and whose lien was established before the effective date of the dedicatory instrument is not bound by the portion of the dedicatory instrument that increases the amount of the regular or special assessment during any period of ownership by the lienholder, if the assessment lien is not subordinated. (c) Provides that a person who acquires title to the property at a foreclosure sale or by deed from a foreclosing lienholder is bound by the assessment increase. Sec. 204.008. METHOD OF ADOPTION. Sets forth the means by which an extension, addition to, or modification of restrictions proposed by an association may be adopted. Sec. 204.009. TEXAS NONPROFIT CORPORATIONS. (a) Provides that if the association is referenced in the existing, extended, added to, or modified restrictions as a Texas nonprofit corporation, the instrument contemplates the interaction of a nonprofit corporation, its articles of incorporation, and its bylaws. (b) Provides that the association has the powers and shall promote the purposes enumerated in the articles of incorporation and bylaws. Provides that these powers and purposes necessarily modify the express provisions of the restrictions to include the referenced powers and purposes. Sec. 204.010. POWERS OF PROPERTY OWNERS' ASSOCIATION. (a) Sets forth certain powers that an association, acting through its board of directors or trustees, may exercise, unless otherwise provided by the restrictions or the association's articles of incorporation or bylaws. (b) Provides that powers enumerated by this section are in addition to any other powers granted to an association by this chapter or other law. Sec. 204.011. ARCHITECTURAL CONTROL COMMITTEE. (a) Provides that this section applies to restrictions providing for the creation and operation of an architectural control committee with the power to approve or deny applications for proposed original construction or modification of a building, structure, or improvement. (b) Provides that the architectural control committee authority automatically vests in the property owners' association under certain conditions, unless the restrictions applicable to a residential real estate subdivision vest the architectural control committee authority in the association before certain events. (c) Provides that the authority is vested in an association until the restrictions are modified or terminated, or the association ceases to exist. SECTION 3. Amends Title 11, Property Code, by adding Chapter 205, as follows: CHAPTER 205. RESTRICTIVE COVENANTS APPLICABLE TO REVISED SUBDIVISIONS IN CERTAIN COUNTIES Sec. 205.001. DEFINITIONS. Defines "restrictions" and "subdivision." Sec. 205.002. APPLICABILITY. Provides that this chapter applies only to a county with a population of 65,000 or more. Sec. 205.003. RESTRICTIONS APPLICABLE TO REVISED SUBDIVISIONS. (a) Provides that the restrictions that apply to the subdivision before the revision apply to the newly created subdivision, if all or part of a subdivision plat is revised to provide for another subdivision of land within all or part of the earlier subdivision. (b) Requires the property owners of the newly created subdivision to comply with the petition procedures prescribed by Chapter 204 to modify the restrictions. SECTION 4. Emergency clause. Effective date: 90 days after adjournment.