1-1  By:  Bailey, Combs (Senate Sponsor - Gallegos)        H.B. No. 2152
    1-2        (In the Senate - Received from the House May 10, 1995;
    1-3  May 11, 1995, read first time and referred to Committee on
    1-4  Jurisprudence; May 25, 1995, reported favorably by the following
    1-5  vote:  Yeas 4, Nays 0; May 25, 1995, sent to printer.)
    1-6                         A BILL TO BE ENTITLED
    1-7                                AN ACT
    1-8  relating to restrictive covenants in certain residential real
    1-9  estate subdivisions.
   1-10        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
   1-11        SECTION 1.  (a)  Public policy considerations require that a
   1-12  procedure be available to allow for the extension of, addition to,
   1-13  or modification of existing property restrictions in residential
   1-14  real estate subdivisions.
   1-15        (b)  The legislature finds that:
   1-16              (1)  property owners' associations serve to benefit
   1-17  residential real estate subdivisions and assist in avoiding the
   1-18  problems described by Section 201.002, Property Code;
   1-19              (2)  there is a special relationship between property
   1-20  owners' associations and the property owners within the
   1-21  subdivisions;
   1-22              (3)  it is in the best interest of residential real
   1-23  estate subdivisions that a procedure be available to readily
   1-24  facilitate increases in the amount of the regular or special
   1-25  assessments to allow the property owners' associations to better
   1-26  provide services to the subdivisions; and
   1-27              (4)  restrictions that severely limit the amount of the
   1-28  regular assessment may result in the inability of an ineffective
   1-29  property owners' association to maintain common area facilities,
   1-30  including swimming pools, tennis courts, clubhouses, greenbelt
   1-31  areas, or jogging trails, or to provide services, including
   1-32  streetlights, security, architectural control, and deed restriction
   1-33  enforcement.
   1-34        (c)  The purpose of this Act is to:
   1-35              (1)  provide a less burdensome procedure for extending
   1-36  the term of, adding to, or modifying residential real estate
   1-37  restrictions by approval and circulation of a petition by a
   1-38  property owners' association;
   1-39              (2)  provide for the removal of any restriction or
   1-40  other provision relating to race, religion, or national origin that
   1-41  is void and unenforceable under either the United States
   1-42  Constitution or Section 5.026, Property Code; and
   1-43              (3)  codify certain powers of property owners'
   1-44  associations.
   1-45        SECTION 2.  Title 11, Property Code, is amended by adding
   1-46  Chapter 204 to read as follows:
   1-47     CHAPTER 204.  POWERS OF PROPERTY OWNERS' ASSOCIATION RELATING
   1-48           TO RESTRICTIVE COVENANTS IN CERTAIN SUBDIVISIONS
   1-49        Sec. 204.001.  DEFINITIONS.  In this chapter:
   1-50              (1)  "Restrictions," "residential real estate
   1-51  subdivision," "subdivision," "owner," "real property records," and
   1-52  "lienholder" have the meanings assigned by Section 201.003.
   1-53              (2)  "Dedicatory instrument," "petition," and
   1-54  "restrictive covenant" have the meanings assigned by Section
   1-55  202.001.
   1-56              (3)  "Regular assessment" means an assessment, charge,
   1-57  fee, or dues that each owner of property within a subdivision is
   1-58  required to pay to the property owners' association on a regular
   1-59  basis and that are to be used by the association for the benefit of
   1-60  the subdivision in accordance with the original, extended, added,
   1-61  or modified restrictions.
   1-62              (4)  "Special assessment" means an assessment, charge,
   1-63  fee, or dues that each owner of property within a subdivision is
   1-64  required to pay to the property owners' association, after a vote
   1-65  of the membership, for the purpose of paying for the costs of
   1-66  capital improvements to the common areas that are incurred or will
   1-67  be incurred by the association during the fiscal year.  A special
   1-68  assessment may be assessed before or after the association incurs
    2-1  the capital improvement costs.
    2-2        Sec. 204.002.  APPLICATION.  (a)  This chapter applies only
    2-3  to a residential real estate subdivision, excluding a condominium
    2-4  development governed by Title 7, Property Code, that is located in
    2-5  whole or in part in a county with a population of 2.8 million or
    2-6  more.
    2-7        (b)  This chapter applies to a restriction regardless of its
    2-8  effective date.
    2-9        (c)  This chapter does not apply to portions of a subdivision
   2-10  that are zoned for or that contain a commercial structure, an
   2-11  industrial structure, an apartment complex, or a condominium
   2-12  development governed by Title 7, Property Code.  For purposes of
   2-13  this subsection, "apartment complex" means two or more dwellings in
   2-14  one or more buildings that are owned by the same owner, located on
   2-15  the same lot or tract, and managed by the same owner, agent, or
   2-16  management company.
   2-17        Sec. 204.003.  PROVISIONS OF RESTRICTIVE COVENANTS PREVAIL IN
   2-18  CERTAIN CIRCUMSTANCES.  An express designation in a document
   2-19  creating restrictions applicable to a residential real estate
   2-20  subdivision that provides for the extension of, addition to, or
   2-21  modification of existing restrictions by a designated number of
   2-22  owners of real property in the subdivision prevails over the
   2-23  provisions of this chapter.
   2-24        Sec. 204.004.  PROPERTY OWNERS' ASSOCIATION.  (a)  A property
   2-25  owners' association is a designated representative of the owners of
   2-26  property in a subdivision and may be referred to as a "homeowners
   2-27  association," "community association," "civic association," "civic
   2-28  club," "association," "committee," or similar term contained in the
   2-29  restrictions.  The membership of the association consists of the
   2-30  owners of property within the subdivision.
   2-31        (b)  The association must be nonprofit and may be
   2-32  incorporated as a Texas nonprofit corporation.  An unincorporated
   2-33  association may incorporate under the Texas Non-Profit Corporation
   2-34  Act (Article 1396-1.01 et seq., Vernon's Texas Civil Statutes).
   2-35        (c)  The association's board of directors or trustees must be
   2-36  elected or appointed in accordance with the applicable provisions
   2-37  of the restrictions and the association's articles of incorporation
   2-38  or bylaws.
   2-39        Sec. 204.005.  EXTENSION OF, ADDITION TO, OR MODIFICATION OF
   2-40  EXISTING RESTRICTIONS.  (a)  A property owners' association has
   2-41  authority to approve and circulate a petition relating  to the
   2-42  extension of, addition to, or modification of existing
   2-43  restrictions.  A property owners' association is not required to
   2-44  comply with Sections 201.009-201.012.
   2-45        (b)  A petition to extend, add to, or modify existing
   2-46  restrictions approved and circulated by a property owners'
   2-47  association is effective if:
   2-48              (1)  the petition is approved by the owners, excluding
   2-49  lienholders, contract purchasers, and the owners of mineral
   2-50  interests, of at least 75 percent of the real property in the
   2-51  subdivision or a smaller percentage required by the original
   2-52  dedicatory instrument; and
   2-53              (2)  the petition is filed as a dedicatory instrument
   2-54  with the county clerk of the county in which the subdivision is
   2-55  located.
   2-56        (c)  If a subdivision consisting of multiple sections, each
   2-57  with its own restrictions, is represented by a single property
   2-58  owners' association, the approval requirement may be satisfied by
   2-59  obtaining approval of at least 75 percent of the owners on a
   2-60  section-by-section basis or of the total number of properties in
   2-61  the property owners' association's jurisdiction.
   2-62        (d)  If approved, the petition is binding on all properties
   2-63  in the subdivision or section, as applicable.
   2-64        (e)  A property owners' association that circulates a
   2-65  petition must notify all record owners of property in the
   2-66  subdivision in writing of the proposed extension, addition to, or
   2-67  modification of the existing restrictions.  Notice may be
   2-68  hand-delivered to residences within the subdivision or sent by
   2-69  regular mail to the owner's last known mailing address as reflected
   2-70  in the ownership records maintained by the property owners'
    3-1  association.  The approval of multiple owners of a property may be
    3-2  reflected by the signature of a single co-owner.
    3-3        Sec. 204.006.  CREATION OF PROPERTY OWNERS' ASSOCIATION.  (a)
    3-4  If existing restrictions applicable to a subdivision do not provide
    3-5  for a property owners' association and require approval of more
    3-6  than 60 percent of the owners to add to or modify the original
    3-7  dedicating instrument, a petition to add to or modify the existing
    3-8  restrictions for the sole purpose of creating and operating a
    3-9  property owners' association with mandatory membership, mandatory
   3-10  regular or special assessments, and equivalent voting rights for
   3-11  each of the owners in the subdivision is effective if:
   3-12              (1)  a petition committee has been formed as prescribed
   3-13  by Section 201.005;
   3-14              (2)  the petition is approved by the owners, excluding
   3-15  lienholders, contract purchasers, and the owners of mineral
   3-16  interests, of at least 60 percent of the real property in the
   3-17  subdivision; and
   3-18              (3)  the procedure employed in the circulation and
   3-19  approval of the petition to add to or amend the existing
   3-20  restrictions for the specified purpose complies with the
   3-21  requirements of this chapter.
   3-22        (b)  If the circulated petition is not approved by the
   3-23  required percentage of owners within one year of the creation of
   3-24  the petition committee, the petition is void and another petition
   3-25  committee may be formed.
   3-26        (c)  If the petition is approved, the petition is binding on
   3-27  all properties in the subdivision or section, as applicable.
   3-28        Sec. 204.007.  EFFECT ON LIENHOLDERS.  (a)  Extensions of,
   3-29  additions to, or modifications of restrictions under this chapter
   3-30  are binding on a lienholder, excluding restrictions relating to
   3-31  regular or special assessment increases if the assessment is not
   3-32  subordinated to purchase money or home improvement liens.
   3-33        (b)  If the assessment lien of the property owners'
   3-34  association is subordinate to purchase money or home improvement
   3-35  liens, the lienholder is not entitled to notice of the proposed
   3-36  dedicatory instrument and the lienholder is bound by the instrument
   3-37  if the instrument is approved.  If the assessment lien is not
   3-38  subordinated, a lienholder who is not a signatory to the dedicatory
   3-39  instrument and whose lien was established before the effective date
   3-40  of the dedicatory instrument is not bound by the portion of the
   3-41  dedicatory instrument that increases the amount of the regular or
   3-42  special assessment during any period of ownership by the
   3-43  lienholder.
   3-44        (c)  A person who acquires title to the property at a
   3-45  foreclosure sale or by deed from a foreclosing lienholder is bound
   3-46  by the assessment increase.
   3-47        Sec. 204.008.  METHOD OF ADOPTION.  An extension, addition
   3-48  to, or modification of restrictions proposed by a property owners'
   3-49  association may be adopted:
   3-50              (1)  by a written ballot that states the substance of
   3-51  the amendment and specifies the date by which a ballot must be
   3-52  received to be counted;
   3-53              (2)  at a meeting of the members represented by the
   3-54  property owners' association if written notice of the meeting
   3-55  stating the purpose of the meeting is delivered to each owner of
   3-56  property in the subdivision;
   3-57              (3)  by door-to-door circulation of a petition by the
   3-58  property owners' association or a person authorized by the property
   3-59  owners' association;
   3-60              (4)  by a method permitted by the existing
   3-61  restrictions; or
   3-62              (5)  by a combination of the methods described by this
   3-63  section.
   3-64        Sec. 204.009.  TEXAS NONPROFIT CORPORATIONS.  (a)  If the
   3-65  property owners' association is referenced in the existing,
   3-66  extended, added to, or modified restrictions as a Texas nonprofit
   3-67  corporation, the instrument contemplates the interaction of a
   3-68  nonprofit corporation, its articles of incorporation, and its
   3-69  bylaws.
   3-70        (b)  The property owners' association has the powers and
    4-1  shall promote the purposes enumerated in the articles of
    4-2  incorporation and bylaws.  These powers and purposes necessarily
    4-3  modify the express provisions of the restrictions to include the
    4-4  referenced powers and purposes.
    4-5        Sec. 204.010.  POWERS OF PROPERTY OWNERS' ASSOCIATION.  (a)
    4-6  Unless otherwise provided by the restrictions or the association's
    4-7  articles of incorporation or bylaws, the property owners'
    4-8  association, acting through its board of directors or trustees,
    4-9  may:
   4-10              (1)  adopt and amend bylaws;
   4-11              (2)  adopt and amend budgets for revenues,
   4-12  expenditures, and reserves and collect regular assessments or
   4-13  special assessments for common expenses from property owners;
   4-14              (3)  hire and terminate managing agents and other
   4-15  employees, agents, and independent contractors;
   4-16              (4)  institute, defend, intervene in, settle, or
   4-17  compromise litigation or administrative proceedings on matters
   4-18  affecting the subdivision;
   4-19              (5)  make contracts and incur liabilities relating to
   4-20  the operation of the subdivision and the property owners'
   4-21  association;
   4-22              (6)  regulate the use, maintenance, repair,
   4-23  replacement, modification, and appearance of the subdivision;
   4-24              (7)  make additional improvements to be included as a
   4-25  part of the common area;
   4-26              (8)  grant easements, leases, licenses, and concessions
   4-27  through or over the common area;
   4-28              (9)  impose and receive payments, fees, or charges for
   4-29  the use, rental, or operation of the common area and for services
   4-30  provided to property owners;
   4-31              (10)  impose interest, late charges, and, if
   4-32  applicable, returned check charges for late payments of regular
   4-33  assessments or special assessments;
   4-34              (11)  if notice and an opportunity to be heard are
   4-35  given, collect reimbursement of actual attorney's fees and other
   4-36  reasonable costs incurred by the property owners' association
   4-37  relating to violations of the subdivision's restrictions or the
   4-38  property owners' association's bylaws and rules;
   4-39              (12)  charge costs to an owner's assessment account and
   4-40  collect the costs in any manner provided in the restrictions for
   4-41  the collection of assessments;
   4-42              (13)  adopt and amend rules regulating the collection
   4-43  of delinquent assessments and the application of payments;
   4-44              (14)  impose reasonable charges  for preparing,
   4-45  recording, or copying amendments to the restrictions, resale
   4-46  certificates, or statements of unpaid assessments;
   4-47              (15)  purchase insurance and fidelity bonds, including
   4-48  directors' and officers' liability insurance, that the board
   4-49  considers appropriate or necessary;
   4-50              (16)  if the restrictions allow for an annual increase
   4-51  in the maximum regular assessment without a vote of the membership,
   4-52  assess the increase annually or accumulate and assess the increase
   4-53  after a number of years;
   4-54              (17)  subject to the requirements of the Texas
   4-55  Non-Profit Corporation Act (Article 1396-1.01 et seq., Vernon's
   4-56  Texas Civil Statutes) and by majority vote of its board of
   4-57  directors, indemnify a director or officer of the property owners'
   4-58  association who was, is, or may be made a named defendant or
   4-59  respondent in a proceeding because the person is or was a director;
   4-60              (18)  if the restrictions vest the architectural
   4-61  control authority in the property owners' association or if the
   4-62  authority is vested in the property owners' association under
   4-63  Section 204.011:
   4-64                    (A)  implement written architectural control
   4-65  guidelines for its own use or record the guidelines in the real
   4-66  property records of the applicable county; and
   4-67                    (B)  modify the guidelines as the needs of the
   4-68  subdivision change;
   4-69              (19)  exercise other powers conferred by the
   4-70  restrictions, its articles of incorporation, or its bylaws;
    5-1              (20)  exercise other powers that may be exercised in
    5-2  this state by a corporation of the same type as the property
    5-3  owners' association; and
    5-4              (21)  exercise other powers necessary and proper for
    5-5  the governance and operation of the property owners' association.
    5-6        (b)  Powers enumerated by this section are in addition to any
    5-7  other powers granted to a property owners' association by this
    5-8  chapter or other law.
    5-9        Sec. 204.011.  ARCHITECTURAL CONTROL COMMITTEE.  (a)  This
   5-10  section applies to restrictions providing for the creation and
   5-11  operation of an architectural control committee with the power to
   5-12  approve or deny applications for proposed original construction or
   5-13  modification of a building, structure, or improvement.
   5-14        (b)  Unless the restrictions applicable to a residential real
   5-15  estate subdivision vest the architectural control committee
   5-16  authority in the property owners' association before either of the
   5-17  following events, the architectural control committee authority
   5-18  automatically vests in the property owners' association when:
   5-19              (1)  the term of the architectural control committee
   5-20  authority expires as prescribed by the restrictions;
   5-21              (2)  a residence on the last available building site is
   5-22  completed and sold;
   5-23              (3)  the person or entity designated  as the
   5-24  architectural control committee in the restrictions assigns, in
   5-25  writing, authority to the property owners' association; or
   5-26              (4)  an assignee of the original holder abandons its
   5-27  authority for more than one year.
   5-28        (c)  If the architectural control committee authority is
   5-29  transferred to the property owners' association, the authority is
   5-30  vested in the property owners' association until:
   5-31              (1)  the restrictions are modified to reflect
   5-32  otherwise;
   5-33              (2)  the restrictions are terminated; or
   5-34              (3)  the property owners' association ceases to exist.
   5-35        SECTION 3.  Title 11, Property Code, is amended by adding
   5-36  Chapter 205 to read as follows:
   5-37       CHAPTER 205.  RESTRICTIVE COVENANTS APPLICABLE TO REVISED
   5-38                   SUBDIVISIONS IN CERTAIN COUNTIES
   5-39        Sec. 205.001.  DEFINITIONS.  In this chapter, "restrictions"
   5-40  and "subdivision" have the meanings assigned by Section 201.003.
   5-41        Sec. 205.002.  APPLICABILITY.  This chapter applies only to a
   5-42  county with a population of 65,000 or more.
   5-43        Sec. 205.003.  RESTRICTIONS APPLICABLE TO REVISED
   5-44  SUBDIVISIONS.  (a)  If all or part of a subdivision plat is revised
   5-45  to provide for another subdivision of land within all or part of
   5-46  the earlier subdivision, the restrictions that apply to the
   5-47  subdivision before the revision apply to the newly created
   5-48  subdivision.
   5-49        (b)  The property owners of the newly created subdivision
   5-50  must comply with the petition procedures prescribed by Chapter 204
   5-51  to modify the restrictions.
   5-52        SECTION 4.  The importance of this legislation and the
   5-53  crowded condition of the calendars in both houses create an
   5-54  emergency and an imperative public necessity that the
   5-55  constitutional rule requiring bills to be read on three several
   5-56  days in each house be suspended, and this rule is hereby suspended.
   5-57                               * * * * *