BILL ANALYSIS



C.S.H.B. 3028
By: Ehrhardt
4-28-95
Committee Report (Substituted)


BACKGROUND

Landlords may do anything they wish with tenants' security
deposits.  Texas law does not require them to protect, segregate,
or pay interest on the funds.  Foreclosing mortgagors and trustees
in bankruptcy, as judgment-proof landlords, are not obligated to
returning the tenant's deposits.  Thus, many Texas tenants lose
their deposits to failed landlords each year.  There is also no
specific requirement that an application deposit should be returned
within a reasonable time after rejecting a prospective tenant, or
any limitation on how long a landlord may hold a deposit while the
application is being considered.  A search for housing can be
disrupted indefinitely by a delay in the return of these deposits.

PURPOSE

This bill would require landlords to protect the security deposits
of their tenant in trust as a fiduciary on behalf of the tenant and
prohibits commingling of security deposit funds with the assets of
the landlord.  The bill protects these funds from a creditor,
trustee in bankruptcy or foreclosing mortgagee.  This bill also
requires application deposits to be returned within a time certain
after the rejection of the tenant's application to lease.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly
grant any additional rulemaking authority to a state officer,
department, agency, or institution.

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Section 92.102, of the Property Code as follows:

     (a) Excludes application deposits from the definition for
security deposit.
     (b) Establishes that a tenant's security deposit is the
property of the tenant.
     (c) Creates a fiduciary relationship between the landlord and
tenant as relates to the      security deposit.

SECTION 2.  Amends Subchapter C, Chapter 92 of the Property Code by
adding Sec. 92.1021:

     (a) Prohibits commingling tenant's security deposits with
assets or other funds of the  landlord, permits commingling of same
deposits with those of other tenants.
     (b) Requires that the landlord maintain these deposits in such
a way that:

           (1) the funds are protected from the claim of the
landlord's creditors, a       foreclosing mortgagee or a trustee in
bankruptcy; and 
           (2) allows for transfer to a subsequent owner.

SECTION 3.  Amends Sec. 92.102(c), Property Code, as follows:

     Places the tenant's claim to the security deposit funds above
that of a trustee in     bankruptcy.

SECTION 4.  Amends Subchapter C, Chapter 92 of the Property Code by
adding Sec. 92.1041:

     Creates the presumption of a timely deposit refund when it is
     postmarked by the required date.

SECTION 5.  Amends Sec. 92.109 by adding Subsection (e) as follows:

     (e) Landlords who violate section 2 above:

           (1) forfeit the right to withhold from the security
deposit
           (2) are liable to the tenant for damages, fees and court
costs, and
           (3) may be enjoined from future violations in suit.

SECTION 6.  A new subchapter H is added to Chapter 92 of the
Property Code and entitled "RENTAL APPLICATION DEPOSITS"

     Sec. 92.331  Definitions

     Sec. 92.332  If the landlord does not give notice of
acceptance to a prospective tenant within seven days after
completing an application form or tendering an application deposit,
the applicant is deemed rejected.

     Sec. 92.333  This section sets time limits for the return of
application deposits to applicants after the time of their
rejection.

           (a) Certain negotiable instruments must be return
within one day if that             item has not been deposited.
           (b) Cash must be returned within seven days.
           (c) Deposits must otherwise be returned within
fourteen days after rejection,               unless otherwise
agreed to in writing, and
           (d) Such and agreement may not exceed thirty days.

     Sec. 92.334.  Establishes procedures for notice of rejection
to the applicant by phone or mail, provides that refunds may be
made by mail or be made available in the office of the landlord and
stipulates that, upon request by the applicant, the landlord must
mail a refunded application deposit.  Excludes weekend or holidays
from the calculation of applicable days in this Subchapter.

     Sec. 92.335  Establishes a penalty under this Subchapter $100
plus three times the application deposit amount and reasonable
attorney's fees in a suit to recover.

SECTION 7.  This Act would become effective on January 1, 1996. 
This Act would require compliance only for security deposits or
application fees received from tenants after the effective date of
the act.  Establishes that a landlord who has accepted application
funds prior to the  effective date, but has not rejected the
applicant is presumed to have rejected the applicant within seven
days after the effective date of this Act.

SECTION 8. Emergency Clause.


COMPARISON OF ORIGINAL TO SUBSTITUTE

SECTION 1.  The substitute bill removes from this section all
considerations other than clarifications concerning the ownership
and treatment of the security deposit.  Like the original bill, the
substitute establishes that the security deposit is the property of
the tenant to the extent that the landlord has not made lawful
deductions, and this language requires that the landlord hold the
deposit in trust as a fiduciary on behalf of the tenant.  All
references to deposit accounts, interest on the deposit accounts
and the Texas Department of Housing and Community Affairs as a
beneficiary of interest is removed.  The exclusion of landlords who
lease less than three dwellings is removed.

SECTION 2.  This is a new section of the substitute that makes
reference only to  provisions of the original bill concerning
commingling of security deposits with the landlords assets,
protection of the assets from the landlords creditors and transfer
to subsequent owner.  The notification requirement concerning the
location of the deposit is removed.

SECTION 3.  This is a new section which places the claim of a
tenant to a security deposit above that of a trustee in bankruptcy,
as did the original bill.

SECTION 4.  This is a new provision that a landlord may be presumed
to have refunded deposits or made accounting of deductions by
placement in the U.S. mail.

SECTION 5.  This new section covers penalties and civil recourse of
the tenant against a noncompliant landlord.  These are the same as
those in the original bill.

SECTION 6.  This section creates a new Subchapter H, under Chapter
92, Property Code, entitled "RENTAL APPLICATION DEPOSITS."  This
portion of the bill is substantially similar to that portion of
Section 1 in the original bill which covered deposits of
applicants.  The substitute extends the automatic rejection period
from six to seven days, changes the period for return of applicant
funds from the fifth business day after rejection to:
           one day after rejection is by check and the check was
not deposited,
           seven days after rejection if the deposit was made in
cash,
           fourteen days after rejection if the deposit was made
by check and it was           deposited prior to rejection.

SECTION 7.  The effective date of the Act is moved to Jan 1, 1996
from September 1, 1995 and deposits taken prior to the effective
date are "grandfathered." 

SUMMARY OF COMMITTEE ACTION

The Business and Industry Committee considered H.B. 3028 in a
public hearing on April 25, 1995.  The committee considered a
complete committee substitute to H.B. 3028.  The committee
substitute was withdrawn without objection.  The following
witnesses testified in favor of H.B. 3028:  Fred Fuchs,
representing himself; Katherine Stark, representing Austin Tenants
Council; Robert Doggett, representing Legal Services of North
Texas; Dorothy Masterson, representing Housing Crisis Center;
Pamela Brown, representing herself; Yasmin Thomas, representing
Texas Tenant's Union.  The following witnesses testified against
H.B. 3028:  Joe Sharp, representing Texas Apartment Association;
Larry Niemann, representing Texas Apartment Association.  The
following witnesses testified on H.B. 3028:  J. Raymond Schiflett,
III, representing University of Texas at Austin Students' Attorney
Office; Kelly Rodgers, representing Texas Bankers Association. 
H.B. 3028 was left pending before the committee.  H.B. 3028 was
reconsidered by the committee in a formal meeting on April 28,
1995.  The committee considered a complete committee substitute to
H.B. 3028.  Three (3) amendments were offered to the substitute. 
Committee amendment #1 was adopted without objection.  Committee
amendment #2 was adopted by a record vote of 5 (five) ayes, 4
(four) nays, 0 (zero) present-not-voting, 0 (zero) absent. 
Committee amendment #3 was adopted by a record vote of 8 (eight)
ayes, 1 (one) nays, 0 (zero) present-not-voting, 0 (zero) absent. 
The committee substitute, as amended, was adopted without
objection.  The Chair instructed the staff to incorporate the
amendments into the substitute.  H.B. 3028, as substituted, was
reported favorably with the recommendation that it do pass and be
printed, by a record vote of 8 (eight) ayes, 1 (one) nay, 0 (zero)
present-not-voting, 0 (zero) absent.