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.