By Bailey, Combs                                      H.B. No. 2152
       74R6072 PAM-F
                                 A BILL TO BE ENTITLED
    1-1                                AN ACT
    1-2  relating to powers of a property owners' association or other
    1-3  designated representative relating to restrictive covenants in
    1-4  certain residential real estate subdivisions.
    1-5        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
    1-6        SECTION 1.  (a)  Public policy considerations require that a
    1-7  procedure be available to allow for the extension of, addition to,
    1-8  or modification of existing property restrictions in residential
    1-9  real estate subdivisions.
   1-10        (b)  The legislature finds that:
   1-11              (1)  property owners' associations or other designated
   1-12  representatives serve to benefit residential real estate
   1-13  subdivisions and assist in avoiding the problems described by
   1-14  Section 201.002, Property Code;
   1-15              (2)  there is a special relationship between property
   1-16  owners' associations or other designated representatives and the
   1-17  property owners within the subdivisions;
   1-18              (3)  it is in the best interest of residential real
   1-19  estate subdivisions that a procedure be available to readily
   1-20  facilitate increases in the amount of the annual or special
   1-21  assessments to allow the property owners' associations or other
   1-22  designated representatives to better provide services to the
   1-23  subdivisions; and
   1-24              (4)  restrictions that severely limit the amount of the
    2-1  annual assessment may result in the inability of an ineffective
    2-2  property owners' association or other designated representative to
    2-3  maintain common area facilities, including swimming pools, tennis
    2-4  courts, clubhouses, greenbelt areas, or jogging trails, or to
    2-5  provide services, including streetlights, security, architectural
    2-6  control, and deed restriction enforcement.
    2-7        (c)  The purpose of this Act is to:
    2-8              (1)  provide a less burdensome procedure for extending
    2-9  the term of, adding to, or modifying residential real estate
   2-10  restrictions by approval and circulation of a petition by a
   2-11  property owners' association or other designated representative;
   2-12              (2)  provide for the removal of any restriction or
   2-13  other provision relating to race, religion, or national origin that
   2-14  is void and unenforceable under either the United States
   2-15  Constitution or Section 5.026, Property Code; and
   2-16              (3)  codify certain powers of property owners'
   2-17  associations or other designated representatives.
   2-18        SECTION 2.  Title 11, Property Code, is amended by adding
   2-19  Chapter 204 to read as follows:
   2-20      CHAPTER 204.  POWERS OF DESIGNATED REPRESENTATIVES RELATING
   2-21           TO RESTRICTIVE COVENANTS IN CERTAIN SUBDIVISIONS
   2-22        Sec. 204.001.  DEFINITIONS.  In this chapter:
   2-23              (1)  "Restrictions," "residential real estate
   2-24  subdivision," "subdivision," "owner," "real property records," and
   2-25  "lienholder" have the meanings assigned by Section 201.003.
   2-26              (2)  "Dedicatory instrument," "property owners'
   2-27  association," "petition," and "restrictive covenant" have the
    3-1  meanings assigned by Section 202.001.
    3-2              (3)  "Designated representative" means a representative
    3-3  designated by an owner of real property in a residential real
    3-4  estate subdivision and includes a property owners' association.
    3-5        Sec. 204.002.  APPLICATION.  (a)  This chapter applies only
    3-6  to a residential real estate subdivision, excluding a condominium
    3-7  development governed by Title 7, Property Code, that is located in
    3-8  whole or in part in:
    3-9              (1)  a county with a population of 2.8 million or more;
   3-10  or
   3-11              (2)  a county with a population of 150,000 or more that
   3-12  is adjacent to a county with a population of 2.8 million or more.
   3-13        (b)  This chapter applies to a restriction regardless of its
   3-14  effective date.
   3-15        Sec. 204.003.  EXTENSION OF, ADDITION TO, OR MODIFICATION OF
   3-16  EXISTING RESTRICTIONS.  (a)  A designated representative has
   3-17  authority to approve and circulate a petition relating  to the
   3-18  extension of, addition to, or modification of existing
   3-19  restrictions.  A designated representative is not required to
   3-20  comply with Sections 201.009 through 201.012.
   3-21        (b)  A petition to extend, add to, or modify existing
   3-22  restrictions approved and circulated by a designated representative
   3-23  is effective if:
   3-24              (1)  the petition is approved by the owners, excluding
   3-25  lienholders, contract purchasers, and the owners of mineral
   3-26  interests, of at least 60 percent of the real property in the
   3-27  subdivision or a smaller percentage required by the original
    4-1  dedicatory instrument; and
    4-2              (2)  the petition is filed as a dedicatory instrument
    4-3  with the county clerk of the county in which the subdivision is
    4-4  located.
    4-5        (c)  If a subdivision consisting of multiple sections, each
    4-6  with its own restrictions, is represented by a single designated
    4-7  representative, the approval requirement may be satisfied by
    4-8  obtaining approval of at least 60 percent of the owners on a
    4-9  section-by-section basis or of the total number of properties in
   4-10  the designated representative's jurisdiction.
   4-11        (d)  If approved, the petition is binding on all properties
   4-12  in the subdivision or section, as applicable.
   4-13        (e)  A designated representative who circulates a petition
   4-14  must notify all record owners of property in the subdivision in
   4-15  writing of the proposed extension, addition to, or modification of
   4-16  the existing restrictions.  Notice may be hand-delivered to
   4-17  residences within the subdivision or sent by regular mail to the
   4-18  owner's last known mailing address as reflected in the ownership
   4-19  records maintained by the designated representative.  The approval
   4-20  of multiple owners of a property may be reflected by the signature
   4-21  of a single co-owner.
   4-22        Sec. 204.004.  EFFECT ON LIENHOLDERS.  (a)  Extensions of,
   4-23  additions to, or modifications of restrictions under this chapter
   4-24  are binding on a lienholder, excluding restrictions relating to
   4-25  annual or special assessment increases if the assessment is not
   4-26  subordinated to purchase money or home improvement liens.
   4-27        (b)  If the assessment lien of the designated representative
    5-1  is subordinate to purchase money or home improvement liens, the
    5-2  lienholder is not entitled to notice of the proposed dedicatory
    5-3  instrument and the lienholder is bound by the instrument if the
    5-4  instrument is approved.  If the assessment lien is not
    5-5  subordinated, a lienholder who is not a signatory to the dedicatory
    5-6  instrument and whose lien was established before the effective date
    5-7  of the dedicatory instrument is not bound by the portion of the
    5-8  dedicatory instrument that increases the amount of the annual or
    5-9  special assessment during any period of ownership by the
   5-10  lienholder.
   5-11        (c)  A person who acquires title to the property at a
   5-12  foreclosure sale or by deed from a foreclosing lienholder is bound
   5-13  by the assessment increase.
   5-14        Sec. 204.005.  METHOD OF ADOPTION.  An extension, addition
   5-15  to, or modification of restrictions proposed by a designated
   5-16  representative may be adopted:
   5-17              (1)  by a written ballot that states the substance of
   5-18  the amendment and specifies the date by which a ballot must be
   5-19  received to be counted;
   5-20              (2)  at a meeting of the members represented by the
   5-21  designated representative if written notice of the meeting stating
   5-22  the purpose of the meeting is delivered to each owner of property
   5-23  in the subdivision;
   5-24              (3)  by door-to-door circulation of a petition by the
   5-25  designated representative or a person authorized by the designated
   5-26  representative;
   5-27              (4)  by a method permitted by the existing
    6-1  restrictions; or
    6-2              (5)  by a combination of the methods described by this
    6-3  section.
    6-4        Sec. 204.006.  TEXAS NONPROFIT CORPORATIONS.  (a)  If the
    6-5  designated representative is referenced in the existing, extended,
    6-6  added to, or modified restrictions as a Texas nonprofit
    6-7  corporation, the instrument contemplates the interaction of a
    6-8  nonprofit corporation, its articles of incorporation, and its
    6-9  bylaws.
   6-10        (b)  The designated representative has the powers and shall
   6-11  promote the purposes enumerated in the articles of incorporation
   6-12  and bylaws.  These powers and purposes necessarily modify the
   6-13  express provisions of the restrictions to include the referenced
   6-14  powers and purposes.
   6-15        Sec. 204.007.  POWERS OF DESIGNATED REPRESENTATIVE.  (a)
   6-16  Unless otherwise provided by the restrictions, the designated
   6-17  representative, acting through its board of directors, may:
   6-18              (1)  adopt and amend bylaws;
   6-19              (2)  adopt and amend budgets for revenues,
   6-20  expenditures, and reserves and collect annual assessments or
   6-21  special assessments for common expenses from property owners;
   6-22              (3)  hire and terminate managing agents and other
   6-23  employees, agents, and independent contractors;
   6-24              (4)  institute, defend, intervene in, settle, or
   6-25  compromise litigation or administrative proceedings on matters
   6-26  affecting the subdivision;
   6-27              (5)  make contracts and incur liabilities relating to
    7-1  the operation of the subdivision and the designated representative;
    7-2              (6)  regulate the use, maintenance, repair,
    7-3  replacement, modification, and appearance of the subdivision;
    7-4              (7)  make additional improvements to be included as a
    7-5  part of the common area;
    7-6              (8)  grant easements, leases, licenses, and concessions
    7-7  through or over the common area;
    7-8              (9)  impose and receive payments, fees, or charges for
    7-9  the use, rental, or operation of the common area and for services
   7-10  provided to property owners;
   7-11              (10)  impose interest, late charges, and, if
   7-12  applicable, returned check charges for late payments of annual
   7-13  assessments or special assessments;
   7-14              (11)  if notice and an opportunity to be heard are
   7-15  given, collect reimbursement of actual attorney's fees and other
   7-16  reasonable costs incurred by the designated representative relating
   7-17  to violations of the subdivision's restrictions or the designated
   7-18  representative's bylaws and rules;
   7-19              (12)  charge costs to an owner's assessment account and
   7-20  collect the costs in any manner provided in the restrictions for
   7-21  the collection of assessments;
   7-22              (13)  adopt and amend rules regulating the collection
   7-23  of delinquent assessments and the application of payments;
   7-24              (14)  impose reasonable charges  for preparing,
   7-25  recording, or copying amendments to the restrictions, resale
   7-26  certificates, or statements of unpaid assessments;
   7-27              (15)  suspend the voting privileges of or the use of
    8-1  certain general common areas by a property owner delinquent for
    8-2  more than 60 days in the payment of assessments;
    8-3              (16)  purchase insurance and fidelity bonds, including
    8-4  directors' and officers' liability insurance, that the board
    8-5  considers appropriate or necessary;
    8-6              (17)  if  the restrictions allow for an annual increase
    8-7  in the maximum annual assessment without a vote of the membership,
    8-8  assess the increase annually or accumulate and assess the increase
    8-9  after a number of years;
   8-10              (18)  subject to the requirements of the Texas
   8-11  Non-Profit Corporation Act (Article 1396-1.01 et seq., Vernon's
   8-12  Texas Civil Statutes) and by majority vote of its board of
   8-13  directors, indemnify a director or officer of the designated
   8-14  representative who was, is, or may be made a named defendant or
   8-15  respondent in a proceeding because the person is or was a director;
   8-16              (19)  if the restrictions vest the architectural
   8-17  control authority in the designated representative or if the
   8-18  authority is vested in the designated representative under Section
   8-19  204.008:
   8-20                    (A)  implement written architectural control
   8-21  guidelines for its own use or record the guidelines in the real
   8-22  property records of the applicable county; and
   8-23                    (B)  modify the guidelines as the needs of the
   8-24  subdivision change;
   8-25              (20)  exercise other powers conferred by the
   8-26  restrictions, its articles of incorporation, or its bylaws;
   8-27              (21)  exercise other powers that may be exercised in
    9-1  this state by a corporation of the same type as the designated
    9-2  representative; and
    9-3              (22)  exercise other powers necessary and proper for
    9-4  the government and operation of the designated representative.
    9-5        (b)  Powers enumerated by this section are in addition to any
    9-6  other powers granted to a designated representative by this chapter
    9-7  or other law.
    9-8        Sec. 204.008.  ARCHITECTURAL CONTROL COMMITTEE.  (a)  This
    9-9  section applies to restrictions providing for the creation and
   9-10  operation of an architectural control committee with the power to
   9-11  approve or deny applications for proposed original construction or
   9-12  modification of a building, structure, or improvement.
   9-13        (b)  Unless the restrictions applicable to a residential real
   9-14  estate subdivision vest the architectural control committee
   9-15  authority in the designated representative before either of the
   9-16  following events, the architectural control committee authority
   9-17  automatically vests in the designated representative when:
   9-18              (1)  the term of the architectural control committee
   9-19  authority expires as prescribed by the restrictions;
   9-20              (2)  a residence on the last available building site is
   9-21  completed and sold;
   9-22              (3)  the person or entity designated  as the
   9-23  architectural control committee in the restrictions assigns, in
   9-24  writing, authority to the designated representative; or
   9-25              (4)  an assignee of the original holder abandons its
   9-26  authority for more than one year.
   9-27        (c)  If the architectural control committee authority is
   10-1  transferred to the designated representative, the authority is
   10-2  vested in the designated representative until:
   10-3              (1)  the restrictions are modified to reflect
   10-4  otherwise;
   10-5              (2)  the restrictions are terminated; or
   10-6              (3)  the designated representative ceases to exist.
   10-7        SECTION 3.  The importance of this legislation and the
   10-8  crowded condition of the calendars in both houses create an
   10-9  emergency and an imperative public necessity that the
  10-10  constitutional rule requiring bills to be read on three several
  10-11  days in each house be suspended, and this rule is hereby suspended.