1-1 By: Carona, Ellis S.B. No. 507 1-2 (In the Senate - Filed February 1, 2001; February 5, 2001, 1-3 read first time and referred to Committee on State Affairs; 1-4 March 26, 2001, reported adversely, with favorable Committee 1-5 Substitute by the following vote: Yeas 6, Nays 0; March 26, 2001, 1-6 sent to printer.) 1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 507 By: Carona 1-8 A BILL TO BE ENTITLED 1-9 AN ACT 1-10 relating to residential subdivisions that require membership in a 1-11 property owners' association. 1-12 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-13 SECTION 1. Title 11, Property Code, is amended by adding 1-14 Chapter 209 to read as follows: 1-15 CHAPTER 209. TEXAS RESIDENTIAL PROPERTY OWNERS 1-16 PROTECTION ACT 1-17 Sec. 209.001. SHORT TITLE. This chapter may be cited as 1-18 the Texas Residential Property Owners Protection Act. 1-19 Sec. 209.002. DEFINITIONS. In this chapter: 1-20 (1) "Assessment" means a regular assessment, special 1-21 assessment, or other amount a property owner is required to pay a 1-22 property owners' association under the dedicatory instrument or by 1-23 law. 1-24 (2) "Board" means the governing body of a property 1-25 owners' association. 1-26 (3) "Declaration" means an instrument filed in the 1-27 real property records of a county that includes restrictive 1-28 covenants governing a residential subdivision. 1-29 (4) "Dedicatory instrument" means each governing 1-30 instrument covering the establishment, maintenance, and operation 1-31 of a residential subdivision. The term includes restrictions or 1-32 similar instruments subjecting property to restrictive covenants, 1-33 bylaws, or similar instruments governing the administration or 1-34 operation of a property owners' association, to properly adopted 1-35 rules and regulations of the property owners' association, and to 1-36 all lawful amendments to the covenants, bylaws, rules, or 1-37 regulations. 1-38 (5) "Lot" means any designated parcel of land located 1-39 in a residential subdivision, including any improvements on the 1-40 designated parcel. 1-41 (6) "Owner" means a person who holds record title to 1-42 property in a residential subdivision and includes the personal 1-43 representative of a person who holds record title to property in a 1-44 residential subdivision. 1-45 (7) "Property owners' association" or "association" 1-46 means an incorporated or unincorporated association that: 1-47 (A) is designated as the representative of the 1-48 owners of property in a residential subdivision; 1-49 (B) has a membership primarily consisting of the 1-50 owners of the property covered by the dedicatory instrument for the 1-51 residential subdivision; and 1-52 (C) manages or regulates the residential 1-53 subdivision for the benefit of the owners of property in the 1-54 residential subdivision. 1-55 (8) "Regular assessment" means an assessment, a 1-56 charge, a fee, or dues that each owner of property within a 1-57 residential subdivision is required to pay to the property owners' 1-58 association on a regular basis and that is designated for use by 1-59 the property owners' association for the benefit of the residential 1-60 subdivision as provided by the restrictions. 1-61 (9) "Residential subdivision" or "subdivision" means a 1-62 subdivision, planned unit development, townhouse regime, or similar 1-63 planned development in which all land has been divided into two or 1-64 more parts and is subject to restrictions that: 2-1 (A) limit a majority of the land subject to the 2-2 dedicatory instruments, excluding streets, common areas, and public 2-3 areas, to residential use for single-family homes, townhomes, or 2-4 duplexes only; 2-5 (B) are recorded in the real property records of 2-6 the county in which the residential subdivision is located; and 2-7 (C) require membership in a property owners' 2-8 association that has authority to impose regular or special 2-9 assessments on the property in the subdivision. 2-10 (10) "Restrictions" means one or more restrictive 2-11 covenants contained or incorporated by reference in a properly 2-12 recorded map, plat, replat, declaration, or other instrument filed 2-13 in the real property records or map or plat records. The term 2-14 includes any amendment or extension of the restrictions. 2-15 (11) "Restrictive covenant" means any covenant, 2-16 condition, or restriction contained in a dedicatory instrument, 2-17 whether mandatory, prohibitive, permissive, or administrative. 2-18 (12) "Special assessment" means an assessment, a 2-19 charge, a fee, or dues, other than a regular assessment, that each 2-20 owner of property located in a residential subdivision is required 2-21 to pay to the property owners' association, according to procedures 2-22 required by the dedicatory instruments, for: 2-23 (A) defraying, in whole or in part, the cost, 2-24 whether incurred before or after the assessment, of any 2-25 construction or reconstruction, unexpected repair, or replacement 2-26 of a capital improvement in common areas owned by the property 2-27 owners' association, including the necessary fixtures and personal 2-28 property related to the common areas; 2-29 (B) maintenance and improvement of common areas 2-30 owned by the property owners' association; or 2-31 (C) other purposes of the property owners' 2-32 association as stated in its articles of incorporation or the 2-33 dedicatory instrument for the residential subdivision. 2-34 Sec. 209.003. APPLICABILITY OF CHAPTER. (a) This chapter 2-35 applies only to a residential subdivision that is subject to 2-36 restrictions or provisions in a declaration that authorize the 2-37 property owners' association to collect regular or special 2-38 assessments on all or a majority of the property in the 2-39 subdivision. 2-40 (b) This chapter applies only to a property owners' 2-41 association that requires mandatory membership in the association 2-42 for all or a majority of the owners of residential property within 2-43 the subdivision subject to the association's dedicatory 2-44 instruments. 2-45 (c) This chapter applies to a property owners' association 2-46 regardless of whether the entity is designated as a "homeowners' 2-47 association," "community association," or similar designation in 2-48 the restrictions or dedicatory instrument. 2-49 (d) This chapter does not apply to a condominium development 2-50 governed by Chapter 82. 2-51 Sec. 209.004. MANAGEMENT CERTIFICATES. (a) A property 2-52 owners' association shall record in each county in which any 2-53 portion of the residential subdivision is located a management 2-54 certificate, signed and acknowledged by an officer of the 2-55 association, stating: 2-56 (1) the name of the subdivision; 2-57 (2) the name of the association; 2-58 (3) the recording data for the subdivision; 2-59 (4) the recording data for the declaration; 2-60 (5) the mailing address of the association or the name 2-61 and mailing address of the person managing the association; and 2-62 (6) other information the association considers 2-63 appropriate. 2-64 (b) The property owners' association shall record an amended 2-65 management certificate not later than the 30th day after the date 2-66 the association has notice of a change in any information in the 2-67 recorded certificate required by Subsection (a). 2-68 (c) The property owners' association and its officers, 2-69 directors, employees, and agents are not subject to liability to 3-1 any person for a delay in recording or failure to record a 3-2 management certificate, unless the delay or failure is wilful or 3-3 caused by gross negligence. 3-4 Sec. 209.005. ASSOCIATION RECORDS. (a) A property owners' 3-5 association shall make all records of the association, including 3-6 financial records, reasonably available for examination by an owner 3-7 during normal business hours at the association's registered office 3-8 or its principal office in this state. 3-9 (b) An attorney's files and records relating to the 3-10 association, excluding invoices requested by an owner under Section 3-11 209.008(d), are not: 3-12 (1) records of the association; 3-13 (2) subject to inspection by the owner; or 3-14 (3) subject to production in a legal proceeding. 3-15 Sec. 209.006. NOTICE REQUIRED BEFORE ENFORCEMENT ACTION. 3-16 (a) Before a property owners' association may suspend an owner's 3-17 right to use a common area, file a suit against an owner other than 3-18 a suit to foreclose under an association's lien, charge an owner 3-19 for property damage, or levy a fine for a violation of the 3-20 restrictions or bylaws or rules of the association, the association 3-21 or its agent must give written notice to the owner. 3-22 (b) The notice must: 3-23 (1) describe the violation or property damage that is 3-24 the basis for the suspension action, charge, or fine and state any 3-25 amount due the association from the owner; and 3-26 (2) inform the owner that the owner: 3-27 (A) is entitled to a reasonable period to cure 3-28 the violation and avoid the fine or suspension unless the owner was 3-29 given notice and a reasonable opportunity to cure a similar 3-30 violation within the preceding 12 months; and 3-31 (B) may request a hearing under Section 209.007 3-32 on or before the 30th day after the date the owner receives the 3-33 notice. 3-34 Sec. 209.007. HEARING BEFORE BOARD; ALTERNATIVE DISPUTE 3-35 RESOLUTION. (a) If the owner is entitled to an opportunity to 3-36 cure the violation, the owner has the right to submit a written 3-37 request for a hearing to discuss and verify facts and resolve the 3-38 matter in issue before a committee appointed by the board of the 3-39 property owners' association, or before the board if the board does 3-40 not appoint a committee. 3-41 (b) If a hearing is to be held before a committee, the 3-42 notice prescribed by Section 209.006 must state that the owner has 3-43 the right to appeal the committee's decision to the board by 3-44 written notice to the board. 3-45 (c) The association shall hold a hearing under this section 3-46 not later than the 30th day after the date the board receives the 3-47 owner's request for a hearing and shall notify the owner of the 3-48 date, time, and place of the hearing not later than the 10th day 3-49 before the date of the hearing. The board or the owner may request 3-50 a postponement, and, if requested, a postponement shall be granted 3-51 for a period of not more than 10 days. Additional postponements 3-52 may be granted by agreement of the parties. The owner or the 3-53 association may make an audio recording of the meeting. 3-54 (d) The notice and hearing provisions of Section 209.006 and 3-55 this section do not apply if the association files a suit seeking a 3-56 temporary restraining order or temporary injunctive relief or files 3-57 a suit that includes foreclosure as a cause of action. If a suit 3-58 is filed relating to a matter to which those sections apply, a 3-59 party to the suit may file a motion to compel mediation. The 3-60 notice and hearing provisions of Section 209.006 and this section 3-61 do not apply to a temporary suspension of a person's right to use 3-62 common areas if the temporary suspension is the result of a 3-63 violation that occurred in a common area and involved a significant 3-64 and immediate risk of harm to others in the subdivision. The 3-65 temporary suspension is effective until the board makes a final 3-66 determination on the suspension action after following the 3-67 procedures prescribed by this section. 3-68 (e) An owner or property owners' association may use 3-69 alternative dispute resolution services. 4-1 Sec. 209.008. ATTORNEY'S FEES. (a) A property owners' 4-2 association may collect reimbursement of reasonable attorney's fees 4-3 and other reasonable costs incurred by the association relating to 4-4 collecting amounts, including damages, due the association for 4-5 enforcing restrictions or the bylaws or rules of the association 4-6 only if the owner is provided a written notice that attorney's fees 4-7 and costs will be charged to the owner if the delinquency or 4-8 violation continues after a date certain. 4-9 (b) An owner is not liable for attorney's fees incurred by 4-10 the association relating to a matter described by the notice under 4-11 Section 209.006 if the attorney's fees are incurred before the 4-12 conclusion of the hearing under Section 209.007 or, if the owner 4-13 does not request a hearing under that section, before the date by 4-14 which the owner must request a hearing. The owner's presence is 4-15 not required to hold a hearing under Section 209.007. 4-16 (c) Attorney's fees and other costs incurred by the 4-17 association collected from the owner shall be paid directly to the 4-18 association or its management company or jointly to the association 4-19 or its management company and the attorney representing the 4-20 association. 4-21 (d) On written request from the owner, the association shall 4-22 provide copies of invoices for attorney's fees and other costs 4-23 relating to the matter for which the association seeks 4-24 reimbursement of fees and costs. 4-25 (e) The notice provisions of Subsection (a) do not apply to 4-26 a counterclaim of an association in a lawsuit brought against the 4-27 association by a property owner. 4-28 Sec. 209.009. FORECLOSURE SALE PROHIBITED IN CERTAIN 4-29 CIRCUMSTANCES. A property owners' association may not foreclose a 4-30 property owners' association assessment lien if the debt securing 4-31 the lien consists solely of: 4-32 (1) fines assessed by the association; or 4-33 (2) attorney's fees incurred by the association solely 4-34 associated with fines assessed by the association. 4-35 Sec. 209.010. NOTICE AFTER FORECLOSURE SALE. (a) A 4-36 property owners' association that conducts a foreclosure sale of an 4-37 owner's lot must send to the lot owner, by certified mail, return 4-38 receipt requested, not later than the 30th day after the date of 4-39 the foreclosure sale a written notice stating the date and time the 4-40 sale occurred and informing the lot owner of the owner's right to 4-41 redeem the property under Section 209.011. 4-42 (b) The notice must be sent by certified mail, return 4-43 receipt requested, to the property owner's last known mailing 4-44 address, as reflected in the records of the property owners' 4-45 association. 4-46 (c) Not later than the 30th day after the date the 4-47 association sends the notice required by Subsection (a), the 4-48 association must record an affidavit in the real property records 4-49 of the county in which the lot is located, stating the date on 4-50 which the notice was sent and containing a legal description of the 4-51 lot. Any person is entitled to rely conclusively on the 4-52 information contained in the recorded affidavit. 4-53 Sec. 209.011. RIGHT OF REDEMPTION AFTER FORECLOSURE. 4-54 (a) The owner of property in a residential subdivision may redeem 4-55 the property from any purchaser at a sale foreclosing a property 4-56 owners' association's assessment lien not later than the 90th day 4-57 after the date the association mails written notice of the sale to 4-58 the owner under Section 209.010. 4-59 (b) A person who purchases property at a sale foreclosing a 4-60 property owners' association's assessment lien may not transfer 4-61 ownership of the property to a person other than a redeeming lot 4-62 owner during the redemption period. 4-63 (c) To redeem property purchased by the property owners' 4-64 association at foreclosure sale, the lot owner must pay to the 4-65 association: 4-66 (1) all amounts due the association at the time of the 4-67 foreclosure sale; 4-68 (2) interest from the date of the foreclosure sale to 4-69 the date of redemption on all amounts owed the association at the 5-1 rate stated in the dedicatory instruments for delinquent 5-2 assessments or, if no rate is stated, at an annual interest rate of 5-3 10 percent; 5-4 (3) costs incurred by the association in foreclosing 5-5 the lien and conveying the property to the redeeming lot owner, 5-6 including reasonable attorney's fees; 5-7 (4) any assessment levied against the property by the 5-8 association after the date of the foreclosure sale; 5-9 (5) any reasonable cost incurred by the association, 5-10 including mortgage payments and costs of repair, maintenance, and 5-11 leasing of the property; and 5-12 (6) the purchase price paid by the association at the 5-13 foreclosure sale less any amounts due the association under 5-14 Subdivision (1) that were satisfied out of foreclosure sale 5-15 proceeds. 5-16 (d) To redeem property purchased at the foreclosure sale by 5-17 a person other than the property owners' association, the lot 5-18 owner: 5-19 (1) must pay to the association: 5-20 (A) all amounts due the association at the time 5-21 of the foreclosure sale less the foreclosure sales price received 5-22 by the association from the purchaser; 5-23 (B) interest from the date of the foreclosure 5-24 sale through the date of redemption on all amounts owed the 5-25 association at the rate stated in the dedicatory instruments for 5-26 delinquent assessments or, if no rate is stated, at an annual 5-27 interest rate of 10 percent; 5-28 (C) costs incurred by the association in 5-29 foreclosing the lien and conveying the property to the redeeming 5-30 lot owner, including reasonable attorney's fees; and 5-31 (D) any unpaid assessments levied against the 5-32 property by the association after the date of the foreclosure sale; 5-33 and 5-34 (2) must pay to the person who purchased the property 5-35 at the foreclosure sale: 5-36 (A) any assessments levied against the property 5-37 by the association after the date of the foreclosure sale and paid 5-38 by the purchaser; 5-39 (B) the purchase price paid by the purchaser at 5-40 the foreclosure sale; 5-41 (C) interest from the date of foreclosure to the 5-42 date of redemption on the purchase price amount at an annual 5-43 interest rate of 10 percent; and 5-44 (D) any reasonable cost incurred by the 5-45 purchaser, including costs of repair, maintenance, and leasing of 5-46 the property. 5-47 (e) If a lot owner redeems the property under this section, 5-48 the purchaser of the property at foreclosure shall immediately 5-49 execute and deliver to the owner a deed transferring the property 5-50 to the redeeming lot owner. 5-51 (f) If, before the expiration of the redemption period, the 5-52 redeeming lot owner fails to record the deed from the foreclosing 5-53 purchaser or fails to record an affidavit stating that the lot 5-54 owner has redeemed the property, the lot owner's right of 5-55 redemption as against a bona fide purchaser or lender for value 5-56 expires after the redemption period. 5-57 (g) If the property owners' association purchases the 5-58 property at foreclosure, all rent and other income collected by the 5-59 association from the date of the foreclosure sale to the date of 5-60 redemption shall be credited toward the amount owed the association 5-61 under Subsection (c), and if there are excess proceeds, they shall 5-62 be refunded to the lot owner. If a person other than the 5-63 association purchases the property at foreclosure, all rent and 5-64 other income collected by the purchaser from the date of the 5-65 foreclosure sale to the date of redemption shall be credited toward 5-66 the amount owed the purchaser under Subsection (d), and if there 5-67 are excess proceeds, those proceeds shall be refunded to the lot 5-68 owner. 5-69 (h) If a person other than the property owners' association 6-1 is the purchaser at the foreclosure sale, before executing a deed 6-2 transferring the property to the redeeming lot owner, the purchaser 6-3 shall obtain an affidavit from the association or its authorized 6-4 agent stating that all amounts owed the association under 6-5 Subsection (d) have been paid. The association shall provide the 6-6 purchaser with the affidavit not later than the 10th day after the 6-7 date the association receives all amounts owed to the association 6-8 under Subsection (d). Failure of a purchaser to comply with this 6-9 subsection does not affect the validity of a redemption by a 6-10 redeeming lot owner. 6-11 (i) Property that is redeemed remains subject to all liens 6-12 and encumbrances on the property before foreclosure. Any lease 6-13 entered into by the purchaser of property at a sale foreclosing an 6-14 assessment lien of a property owners' association is subject to the 6-15 right of redemption provided by this section and the lot owner's 6-16 right to reoccupy the property immediately after the redemption. 6-17 (j) If a lot owner makes partial payment of amounts due the 6-18 association at any time before the redemption period expires but 6-19 fails to pay all amounts necessary to redeem the property before 6-20 the redemption period expires, the association shall refund any 6-21 partial payments to the lot owner by mailing payment to the owner's 6-22 last known address as shown in the association's records not later 6-23 than the 30th day after the expiration date of the redemption 6-24 period. 6-25 (k) If a lot owner sends by certified mail, return receipt 6-26 requested, a written request to redeem the property on or before 6-27 the last day of the redemption period, the lot owner's right of 6-28 redemption is extended until the 10th day after the date the 6-29 association and any third party foreclosure purchaser provides 6-30 written notice to the lot owner of the amounts that must be paid to 6-31 redeem the property. 6-32 (l) After the redemption period and any extended redemption 6-33 period provided by Subsection (k) expires, the association or third 6-34 party foreclosure purchaser shall record an affidavit in the real 6-35 property records of the county in which the property is located 6-36 stating that the lot owner did not redeem the property during the 6-37 redemption period or any extended redemption period. 6-38 SECTION 2. This Act takes effect January 1, 2002. 6-39 * * * * *