BILL ANALYSIS H.B. 3028 By: Ehrhardt (Gallegos) State Affairs 05-22-95 Senate Committee Report (Unamended) BACKGROUND Texas law does not require landlords to protect, segregate, or pay interest on tenants' security deposits. Foreclosing mortgagors and trustees in bankruptcy, as judgment-proof landlords, are not obligated to return 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 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 As proposed, H.B. 3028 sets forth requirements regarding the return of a security deposit or application deposit provided by residential tenants or prospective residential tenants and lease obligations of certain landlords; provides a civil penalty. 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. Amends Section 92.101, Property Code, to apply this subchapter to all residential leases, rather than a lease executed or entered into after September 1, 1973. SECTION 2. Amends Section 92.102, Property Code, to provide that a security deposit is any advance of money, other than a rental application deposit or an advance payment of rent, that is intended primarily to secure performance under a lease of a dwelling that has been entered into by a landlord and a tenant. SECTION 3. Amends Section 92.103, Property Code, by amending Subsection (c) and adding Subsection (d), to provide that the tenant's claim to the security deposit takes priority over the claim of any creditor of the landlord, including, rather than except, a trustee in bankruptcy. Provides that if a dwelling occupied by a tenant is purchased at a foreclosure or tax sale or is purchased from a bankruptcy trustee and if the new owner accepts rent from the tenant or honors any landlord obligation under the lease (obligation), the new owner is liable for performing all obligations, including the return of any security deposit. SECTION 4. Amends Chapter 92C, Property Code, by adding Section 92.1041, as follows: Sec. 92.1041. PRESUMPTION OF REFUND OR ACCOUNTING. Provides that a landlord is presumed to have refunded a security deposit or made an account of the deductions if the refund or accounting is placed in the mail and postmarked on or before the required date. SECTION 5. Amends Chapter 92, Property Code, by adding Subchapter H, as follows: SUBCHAPTER H. RENTAL APPLICATION DEPOSITS Sec. 92.331. DEFINITIONS. Defines "application deposit," "applicant" or "rental applicant," "co-applicant," "deposited," "landlord," and "required date." Sec. 92.332. REJECTION OF APPLICANT. (a) Provides that the applicant is deemed rejected by the landlord if the landlord does not give notice of acceptance of the applicant within a certain time period. (b) Requires a landlord's rejection of one co-applicant to be deemed as a rejection of all co-applicants. Sec. 92.333. PROCEDURES FOR NOTICE OR REFUND. (a) Provides that a landlord is presumed to have given notice of an applicant's acceptance or rejection if the notice is given in a certain manner and time period. (b) Provides that a landlord is presumed to have refunded an application deposit on or before the required date if the landlord's refund check is sent or made available to the applicant in a certain manner, except as provided by Subsection (c). (c) Requires the landlord to mail the refund check to the applicant at the address furnished by the applicant by the required date if an applicant requests that any acceptance of the applicant or any refund of the application deposit be mailed to the applicant. (d) Requires the date of required notice to be extended to the end of the next day following a Saturday, Sunday, or holiday if the date of required notice of acceptance or refund is a Saturday, Sunday, or state or federal holiday. Sec. 92.334. LIABILITY OF LANDLORD. (a) Provides that a landlord who in bad faith fails to refund an application deposit in violation of this subchapter is liable for the sum of $100, three times the amount of the application deposit, and the applicant's attorney fees in a suit to recover the deposit. (b) Provides that a landlord who fails to refund an application deposit by the required date is presumed to have acted in bad faith. SECTION 6. (a) Effective date: January 1, 1996. Makes application of this Act prospective. (b) Provides that a landlord who accepts funds from a prospective tenant and has not rejected the applicant as a tenant before the effective date of this Act is presumed to have rejected the applicant as a tenant before the seventh day after the effective date of this Act. SECTION 7. Emergency clause.