By Ellis                                               S.B. No. 954
         76R8210 PAM-D                           
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to the governance of property owners' associations, to
 1-3     certain procedures involving the relationship between property
 1-4     owners and property owners' associations, and to certain procedures
 1-5     involving the sale of residential real property; providing a civil
 1-6     penalty.
 1-7           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-8           SECTION 1.  Section 27.031, Government Code, is amended to
 1-9     read as follows:
1-10           Sec. 27.031.  JURISDICTION.  (a)  In addition to the
1-11     jurisdiction and powers provided by the constitution and other law,
1-12     the justice court has original jurisdiction of:
1-13                 (1)  civil matters in which exclusive jurisdiction is
1-14     not in the district or county court and in which the amount in
1-15     controversy is not more than $5,000, exclusive of interest;
1-16                 (2)  cases of forcible entry and detainer; [and]
1-17                 (3)  foreclosure of mortgages and enforcement of liens
1-18     on personal property in cases in which the amount in controversy is
1-19     otherwise within the justice court's jurisdiction; and
1-20                 (4)  disputes between property owners and property
1-21     owners' associations, including the enforcement of a lien for
1-22     failure to pay property owners' association dues, in cases in which
1-23     the amount in controversy is otherwise within the justice court's
1-24     jurisdiction.
 2-1           (b)  A justice court does not have jurisdiction of:
 2-2                 (1)  a suit in behalf of the state to recover a
 2-3     penalty, forfeiture, or escheat;
 2-4                 (2)  a suit for divorce;
 2-5                 (3)  a suit to recover damages for slander or
 2-6     defamation of character;
 2-7                 (4)  a suit for trial of title to land; or
 2-8                 (5)  except as provided by Subsection (a)(4), a suit
 2-9     for the enforcement of a lien on land.
2-10           SECTION 2.  Subchapter A, Chapter 5, Property Code, is
2-11     amended by adding Sections 5.012 and 5.013 to read as follows:
2-12           Sec. 5.012.  NOTICE OF HOMESTEAD FORECLOSURE INFORMATION.
2-13     (a)  A seller of residential real property comprising not more than
2-14     one dwelling unit located in this state shall give to the purchaser
2-15     of the property before the transfer of the  property a written
2-16     notice as prescribed by this section.
2-17           (b)  The notice must be conspicuous and printed in 14-point
2-18     bold-faced type and read substantially similar to the following:
2-19                 NOTICE OF HOMESTEAD FORECLOSURE INFORMATION
2-20            CONCERNING THE PROPERTY AT (street address and city)
2-21     WARNING: UNDER TEXAS LAW, YOU MAY LOSE THIS PROPERTY THROUGH
2-22     FORECLOSURE, EVEN IF IT IS DESIGNATED AS HOMESTEAD PROPERTY, IF YOU
2-23     FAIL TO TIMELY PAY ANY OF THE FOLLOWING OBLIGATIONS:
2-24                 (1)  a purchase money obligation secured by a lien on
2-25     this property;
2-26                 (2)  a home improvement contract obligation secured by
2-27     a lien on this property;
 3-1                 (3)  a property owners' association assessment and
 3-2     certain related costs secured by a lien on this property, including
 3-3     a lien provided for in restrictive covenants applicable to this
 3-4     property;
 3-5                 (4)  ad valorem property taxes assessed against this
 3-6     property;
 3-7                 (5)  federal income taxes owed by you; or
 3-8                 (6)  a lien on this property that preexists your
 3-9     purchase of this property and that was not paid at the time you
3-10     purchased this property.
3-11           Depending on state law or the terms of the agreement relating
3-12     to the financial obligation, a financial obligation listed above
3-13     may be foreclosed by judicial foreclosure, which would require the
3-14     filing of a lawsuit against you, or by nonjudicial foreclosure,
3-15     which would require notifying you but would not require the filing
3-16     of a lawsuit against you.  In certain circumstances, attorney's
3-17     fees and other costs associated with the foreclosure may be added
3-18     to the original obligation, which would increase the amount of the
3-19     debt owed.
3-20           If you cease using this home as your primary residence or
3-21     otherwise lose your homestead exemption, the failure to timely pay
3-22     financial obligations other than those listed above may result in
3-23     the foreclosure of this property.
3-24           I UNDERSTAND THAT I CAN LOSE THIS PROPERTY THROUGH
3-25     FORECLOSURE FOR THE REASONS STATED ABOVE.
3-26     Date:__________            ________________________________________
3-27                                Signature of Purchaser                  
 4-1                                Print Name:_________________________    
 4-2                                Property Address:_____________________  
 4-3           (c)  The seller's failure to provide the notice required by
 4-4     this section:
 4-5                 (1)  is a false, misleading, or deceptive act or
 4-6     practice within the meaning of Section 17.46, Business & Commerce
 4-7     Code, and is actionable in a public or private suit brought under
 4-8     Subchapter E, Chapter 17, Business & Commerce Code; and
 4-9                 (2)  entitles the purchaser to cancel and rescind the
4-10     purchase contract and receive a full refund of any purchase payment
4-11     made to the seller.
4-12           Sec. 5.013.  NOTICE OF OBLIGATIONS RELATED TO MEMBERSHIP IN
4-13     PROPERTY OWNERS' ASSOCIATION.  (a) A seller of residential real
4-14     property that is subject to membership in a property owners'
4-15     association and comprises not more than one dwelling unit located
4-16     in this state shall give to the purchaser of the property before
4-17     the transfer of the  property a written notice as prescribed by
4-18     this section.
4-19           (b)  The notice must be conspicuous and printed in 14-point
4-20     bold-faced type and read substantially similar to the following:
4-21            NOTICE OF MEMBERSHIP IN PROPERTY OWNERS' ASSOCIATION
4-22                 CONCERNING THE PROPERTY AT (street address)
4-23                       (name of residential community)
4-24           As a purchaser of property in this residential community, you
4-25     are obligated to be a member of (name of property owners'
4-26     association).
4-27           Restrictive covenants governing the use and occupancy of
 5-1     property located in this residential community and a dedicatory
 5-2     instrument governing the establishment, maintenance, and operation
 5-3     of this residential community have been or will be recorded in the
 5-4     Real Property Records of (name of county).   Copies of the
 5-5     restrictive covenants and dedicatory instrument may be obtained
 5-6     from the county clerk.
 5-7           The restrictive covenants ________ may ________ may not be
 5-8     amended without the approval of the members of the property owners'
 5-9     association.
5-10           You are obligated to pay assessments to the property owners'
5-11     association.  The amount of the assessments is subject to change.
5-12     Your failure to pay the assessments could result in a lien on and
5-13     the foreclosure of your property.
5-14           THE STATEMENTS CONTAINED IN THIS NOTICE ARE SUMMARY IN
5-15     NATURE.  AS A PROSPECTIVE PURCHASER, YOU SHOULD REFER TO THE
5-16     RESTRICTIVE COVENANTS AND THE DEDICATORY INSTRUMENT FOR FURTHER
5-17     DETAIL.
5-18           I UNDERSTAND MY OBLIGATIONS RELATING TO MEMBERSHIP IN THE
5-19     PROPERTY OWNERS' ASSOCIATION AS STATED ABOVE.
5-20     Date:__________            ________________________________________
5-21                                Signature of Purchaser                  
5-22                                Print Name:_________________________    
5-23                                Property Address:_____________________  
5-24           (c)  The seller's failure to provide the notice required by
5-25     this section:
5-26                 (1)  is a false, misleading, or deceptive act or
5-27     practice within the meaning of Section 17.46, Business & Commerce
 6-1     Code, and is actionable in a public or private suit brought under
 6-2     Subchapter E, Chapter 17, Business & Commerce Code; and
 6-3                 (2)  entitles the purchaser to cancel and rescind the
 6-4     purchase contract and receive a full refund of any purchase payment
 6-5     made to the seller.
 6-6           SECTION 3.  Chapter 51, Property Code, is amended by adding
 6-7     Sections 51.007 and 51.008 to read as follows:
 6-8           Sec. 51.007.  NOTICE OF SALE OF REAL PROPERTY UNDER PROPERTY
 6-9     OWNERS' ASSOCIATION'S LIEN.  In addition to the requirements of
6-10     Section 51.002(b), a notice of sale of real property under a power
6-11     of sale conferred by a property owners' association's lien,
6-12     designating the place of the sale and providing a brief description
6-13     of the property sufficient to identify the location of the
6-14     property, must be published in a newspaper of general circulation
6-15     in each county in which the property is located at least once each
6-16     week for three consecutive weeks before the date of the sale, with
6-17     the first publication appearing at least 21 days before the date of
6-18     the sale.
6-19           Sec. 51.008.  RIGHT OF REDEMPTION IN CERTAIN CIRCUMSTANCES.
6-20     (a)  The owner of real property in a residential real estate
6-21     subdivision whose property has been sold at a foreclosure sale
6-22     under a property owners' association's lien for assessments may
6-23     redeem that property not later than the 90th day after the date the
6-24     property owners' association purchases the property at the
6-25     foreclosure sale.
6-26           (b)  If the association purchases real property at a sale
6-27     foreclosing its assessment lien, the association may not transfer
 7-1     ownership of the real property to a person other than a redeeming
 7-2     owner during the redemption period.
 7-3           (c)  To redeem the real property, the property owner must pay
 7-4     to the property owners' association:
 7-5                 (1)  all amounts due to the association at the time of
 7-6     the foreclosure sale;
 7-7                 (2)  interest from the date of the foreclosure sale to
 7-8     the date of the redemption at the rate provided by the dedicatory
 7-9     instrument for a delinquent assessment;
7-10                 (3)  costs incurred by the association in foreclosing
7-11     the lien, including reasonable attorney's fees;
7-12                 (4)  any assessment levied against the property by the
7-13     association after the foreclosure sale; and
7-14                 (5)  any reasonable cost incurred by the association as
7-15     owner of the property, including costs of maintenance and leasing.
7-16           (d)  If the property owner redeems the real property as
7-17     provided by this  section, the property owners' association shall
7-18     execute a deed transferring the property to the redeeming property
7-19     owner.
7-20           (e)  The exercise of the right of redemption is not effective
7-21     after the redemption period against a subsequent purchaser or
7-22     lender for value without notice of the redemption unless the
7-23     redeeming property owner records the deed from the property owners'
7-24     association or an affidavit stating that the owner has exercised
7-25     the right of redemption.
7-26           (f)  Real property that has been redeemed remains subject to
7-27     all liens and encumbrances on the real property before the
 8-1     foreclosure sale.  All rents and other income collected by the
 8-2     property owners' association from the date of the foreclosure sale
 8-3     to the date of the redemption belong to the association, but the
 8-4     association shall credit the rent and income against the redemption
 8-5     amount.
 8-6           SECTION 4.  Chapter 202, Property Code, is amended by adding
 8-7     Sections 202.006-202.008 to read as follows:
 8-8           Sec. 202.006.  HEARING BEFORE PROPERTY OWNERS' ASSOCIATION.
 8-9     (a)  A property owners' association shall establish a dispute
8-10     resolution committee to conduct hearings on disputes relating to a
8-11     fine or penalty imposed on a property owner by the association.
8-12           (b)  A property owners' association shall adopt rules
8-13     relating to hearings conducted by a dispute resolution committee.
8-14     The rules must:
8-15                 (1)  provide a property owner with notice of a hearing
8-16     as provided by Rule 21a, Texas Rules of Civil Procedure;
8-17                 (2)  provide for the recording of a hearing by a court
8-18     reporter or by audio or video recording;
8-19                 (3)  require the property owners' association to retain
8-20     a record of a hearing for at least two years after the  date  of
8-21     the final determination of the matter in dispute; and
8-22                 (4)  allow a property owner to appeal the decision of
8-23     the dispute  resolution committee to the entire board of the
8-24     property owners' association before the association may institute
8-25     any legal proceeding, including an alternative dispute resolution
8-26     procedure, relating to the fine or penalty in dispute.
8-27           Sec. 202.007.  ALTERNATIVE DISPUTE RESOLUTION REQUIRED TO
 9-1     ENFORCE LIEN FOR ASSESSMENTS.  (a)  Except as provided by
 9-2     Subsection (b), a property owners' association may not enforce a
 9-3     lien on real property for an assessment levied by the property
 9-4     owners' association against the real property unless the
 9-5     association submits to an alternative dispute resolution procedure
 9-6     to establish the existence and amount of the debt owed.
 9-7           (b)  The property owners' association must provide written
 9-8     notice to the property owner of its intention to initiate an
 9-9     alternative dispute resolution procedure. The property owner shall
9-10     participate in the alternative dispute resolution procedure. If the
9-11     property owner refuses to participate in the alternative dispute
9-12     resolution procedure, the property owners' association is not
9-13     required to comply with this section.
9-14           (c)  The property owners' association and the property owner
9-15     may agree on the type of alternative dispute resolution procedure.
9-16     If the parties fail to reach an agreement before the 30th day after
9-17     the date the property owners' association notifies the property
9-18     owner of its intention to initiate an alternative dispute
9-19     resolution procedure, either party may file a petition in a
9-20     district court in the county in which all or part of the property
9-21     is located requesting the court to refer the dispute to an
9-22     alternative dispute resolution procedure. The court shall refer the
9-23     dispute before the 31st day after the date the petition is filed.
9-24           (d)  If the property owner agrees to be bound by the decision
9-25     reached in the alternative dispute resolution procedure, the cost
9-26     of the alternative dispute resolution procedure shall be paid by
9-27     the property owners' association.
 10-1          Sec. 202.008.  BOARD MEMBER TRAINING; INDEMNIFICATION.  (a)
 10-2    The attorney general shall adopt rules establishing minimum
 10-3    standards for the training of board members of a property owners'
 10-4    association.
 10-5          (b)  Each board member of a property owners' association
 10-6    shall attend a training program that meets the standards developed
 10-7    under Subsection (a)  not later than six months after assuming the
 10-8    duties of the board.
 10-9          (c)  A property owners' association may not indemnify a board
10-10    member for liability imposed as damages because of an act, error,
10-11    or omission committed in the individual's capacity as a board
10-12    member unless the board member has completed a training program as
10-13    required by Subsection (b).
10-14          SECTION 5.  Title 11, Property Code, is amended by adding
10-15    Chapter 207 to read as follows:
10-16        CHAPTER 207.  STANDARD OF CONDUCT FOR AND CAUSES OF ACTION
10-17      APPLICABLE TO GOVERNING BOARDS OF PROPERTY OWNERS' ASSOCIATIONS
10-18          Sec. 207.001.  DEDICATORY INSTRUMENT.  In this chapter,
10-19    "dedicatory instrument" has the meaning assigned by Section
10-20    202.001.
10-21          Sec. 207.002.  REASONABLY PRUDENT BUSINESS PERSON STANDARD.
10-22    The governing board of a property owners' association shall conduct
10-23    the business of the association in the same manner that a
10-24    reasonably prudent business person would conduct business under the
10-25    same or similar circumstances.
10-26          Sec. 207.003.  ENFORCEMENT.  (a)  The attorney general may
10-27    bring an action in the name of the state against the governing
 11-1    board of a property owners' association to enjoin the governing
 11-2    board from:
 11-3                (1)  violating a provision of a dedicatory instrument
 11-4    applicable to the property owners' association; or
 11-5                (2)  violating the standard established by Section
 11-6    207.002.
 11-7          (b)  An action brought under this section may be commenced in
 11-8    the district court of the county in which the real property covered
 11-9    by the dedicatory instrument is located.
11-10          (c)  The court may issue appropriate temporary or permanent
11-11    injunctions under this section, and the injunctions shall be issued
11-12    without bond.
11-13          Sec. 207.004.  CIVIL PENALTY.  (a)  The governing board of a
11-14    property owners' association is liable to the state for a civil
11-15    penalty of not more than $10,000 for each violation described by
11-16    Section 207.003 in which the governing board engages.
11-17          (b)  If the governing board violates the terms of an
11-18    injunction issued under this chapter, the governing board is liable
11-19    to the state for a civil penalty of not more than $10,000 for each
11-20    violation.  For purposes of this section, the district court
11-21    issuing the injunction shall retain jurisdiction, and the cause
11-22    shall be continued.
11-23          (c)  The attorney general may sue to collect a civil penalty
11-24    under this section.
11-25          Sec. 207.005.  DAMAGES.  (a)  The court may make additional
11-26    orders or judgments as necessary to compensate identifiable persons
11-27    for actual damages resulting from an action described by Section
 12-1    207.003.
 12-2          (b)  If the court finds that the governing board of a
 12-3    property owners' association has engaged or is engaging in an
 12-4    action described by Section 207.003 in bad faith, the court may
 12-5    award not more than three times the amount of actual damages.
 12-6          SECTION 6.  (a)  Except as provided by Subsection (b), this
 12-7    Act takes effect September 1, 1999.
 12-8          (b)  Sections 202.008(a) and (b), Property Code, as added by
 12-9    this Act, take effect January 1, 2000.
12-10          SECTION 7.  The change in law made by Section 27.031,
12-11    Government Code, as amended by this Act, applies only to actions
12-12    filed on or after September 1, 1999.  An action filed before
12-13    September 1, 1999, is governed by the law in effect at the time the
12-14    action was filed, and the former law is continued in effect for
12-15    that purpose.
12-16          SECTION 8.  The change in law made by Sections 5.012 and
12-17    5.013, Property Code, as added by this Act, applies only to a real
12-18    property transaction described by those sections in which the
12-19    transfer of the property occurs on or after September 1, 1999.
12-20          SECTION 9.  The change in law made by Section 51.007,
12-21    Property Code, as added by this Act, applies only to a notice of
12-22    sale that must be provided under that section for a sale of real
12-23    property under a power of sale conferred by a property owners'
12-24    association lien that occurs on or after October 1, 1999.  A notice
12-25    of sale that must be provided for a sale of real property under a
12-26    power of sale conferred by a property owners' association lien that
12-27    occurs before October 1, 1999, is governed by the law in effect
 13-1    immediately preceding September 1, 1999, and the former law is
 13-2    continued in effect for that purpose.
 13-3          SECTION 10.  The changes in law made by Section 51.008,
 13-4    Property Code, as added by this Act, apply only to real property
 13-5    sold at a foreclosure sale that occurs on or after September 1,
 13-6    1999.  Real property sold at a foreclosure sale before September 1,
 13-7    1999, is governed by the law in effect on the date of the sale, and
 13-8    the former law is continued in effect for that purpose.
 13-9          SECTION 11.  The attorney general shall adopt rules as
13-10    required by Section 202.008(a), Property Code, as added by this
13-11    Act, not later than December 1, 1999.
13-12          SECTION 12.  The change in law made by Chapter 207, Property
13-13    Code, as added by this Act, applies only to an action described by
13-14    Section 207.003, Property Code, as added by this Act, that occurs
13-15    on or after September 1, 1999.
13-16          SECTION 13.  The importance of this legislation and the
13-17    crowded condition of the calendars in both houses create an
13-18    emergency and an imperative public necessity that the
13-19    constitutional rule requiring bills to be read on three several
13-20    days in each house be suspended, and this rule is hereby suspended.