By: Lindsay S.B. No. 949
(In the Senate - Filed March 6, 2003; March 11, 2003, read
first time and referred to Committee on Intergovernmental
Relations; April 22, 2003, reported adversely, with favorable
Committee Substitute by the following vote: Yeas 3, Nays 0;
April 22, 2003, sent to printer.)
COMMITTEE SUBSTITUTE FOR S.B. No. 949 By: Wentworth
A BILL TO BE ENTITLED
AN ACT
relating to the operation of property owners' associations;
providing penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subsection (a), Section 5.006, Property Code, is
amended to read as follows:
(a) Except as provided by Section 209.008(f), in [In] an
action based on breach of a restrictive covenant pertaining to real
property, the court shall allow to a prevailing party who asserted
the action reasonable attorney's fees in addition to the party's
costs and claim.
SECTION 2. The chapter heading for Chapter 203, Property
Code, is amended to read as follows:
CHAPTER 203. ENFORCEMENT OF PROVISIONS RELATING TO LAND USE
RESTRICTIONS OR PROPERTY OWNERS' ASSOCIATIONS IN CERTAIN COUNTIES
SECTION 3. Section 203.003, Property Code, is amended to
read as follows:
Sec. 203.003. ENFORCEMENT AUTHORITY OF COUNTY ATTORNEY
[AUTHORIZED TO ENFORCE RESTRICTIONS]. (a) The county attorney
may:
(1) sue in a court of competent jurisdiction to enjoin
or abate a violation of this title by a property owners' association
or an owner or a violation [violations] of a restriction contained
or incorporated by reference in a properly recorded plan, plat,
replat, or other instrument affecting a real property subdivision
located in the county, regardless of the date on which the
instrument was recorded; and
(2) recover from a property owners' association or an
owner that violates this title a reasonable penalty as determined
by the court not to exceed:
(A) $1,000 for each violation by an association;
and
(B) $100 for each violation by an owner.
(b) The county attorney may not enforce a restriction
relating to race or any other restriction that violates the state or
federal constitution.
SECTION 4. Section 204.010, Property Code, is amended by
amending Subsection (a) and adding Subsections (c) and (d) to read
as follows:
(a) Unless otherwise provided by the restrictions or the
association's articles of incorporation or bylaws, the property
owners' association, acting through its board of directors or
trustees, may:
(1) adopt and amend bylaws;
(2) adopt and amend budgets for revenues,
expenditures, and reserves and collect regular assessments or
special assessments for common expenses from property owners;
(3) hire and terminate managing agents and other
employees, agents, and independent contractors;
(4) institute, defend, intervene in, settle, or
compromise litigation or administrative proceedings on matters
affecting the subdivision;
(5) make contracts and incur liabilities relating to
the operation of the subdivision and the property owners'
association;
(6) regulate the use, maintenance, repair,
replacement, modification, and appearance of the subdivision;
(7) make additional improvements to be included as a
part of the common area;
(8) grant easements, leases, licenses, and
concessions through or over the common area;
(9) impose and receive payments, fees, or charges for
the use, rental, or operation of the common area [and for services
provided to property owners];
(10) impose interest, late charges, and, if
applicable, returned check charges for late payments of regular
assessments or special assessments;
(11) [if notice and an opportunity to be heard are
given, collect reimbursement of actual attorney's fees and other
reasonable costs incurred by the property owners' association
relating to violations of the subdivision's restrictions or the
property owners' association's bylaws and rules;
[(12) charge costs to an owner's assessment account
and collect the costs in any manner provided in the restrictions for
the collection of assessments;
[(13)] adopt and amend rules regulating the collection
of delinquent assessments, provided that any payment by an owner
for such assessments shall be applied first to pay the delinquent
assessments [and the application of payments];
(12) [(14)] impose reasonable charges for preparing,
recording, or copying amendments to the restrictions, resale
certificates, or statements of unpaid assessments;
(13) [(15)] purchase insurance and fidelity bonds,
including directors' and officers' liability insurance, that the
board considers appropriate or necessary;
(14) [(16) if the restrictions allow for an annual
increase in the maximum regular assessment without a vote of the
membership, assess the increase annually or accumulate and assess
the increase after a number of years;
[(17)] subject to the requirements of the Texas
Non-Profit Corporation Act (Article 1396-1.01 et seq., Vernon's
Texas Civil Statutes) and by majority vote of its board of
directors, indemnify a director or officer of the property owners'
association who was, is, or may be made a named defendant or
respondent in a proceeding because the person is or was a director;
(15) [(18)] if the restrictions vest the
architectural control authority in the property owners'
association or if the authority is vested in the property owners'
association under Section 204.011:
(A) implement written architectural control
guidelines and [for its own use or] record the guidelines in the
real property records of the applicable county; and
(B) modify the guidelines as the needs of the
subdivision change;
(16) [(19)] exercise other powers conferred by the
restrictions, its articles of incorporation, or its bylaws;
(17) [(20)] exercise other powers that may be
exercised in this state by a corporation of the same type as the
property owners' association; and
(18) [(21)] exercise other powers necessary and
proper for the governance and operation of the property owners'
association.
(c) If the restrictions or the association's articles of
incorporation or bylaws do not enumerate one of the following
powers, the association may obtain the power by following the
petition procedures prescribed by Section 204.005 for adding to or
modifying existing restrictions, except that the approval
requirements of Section 204.005(b)(1) are satisfied if a majority
of the owners of real property in the subdivision approve the
petition:
(1) if notice and an opportunity to be heard are given,
the power to collect reimbursement of actual attorney's fees and
other reasonable costs incurred by the property owners' association
relating to violations of the subdivision's restrictions or the
property owners' association's bylaws and rules;
(2) the power to charge costs to an owner's assessment
account and collect the costs in any manner provided in the
restrictions for the collection of assessments; and
(3) if the restrictions allow for an annual increase
in the maximum regular assessment without a vote of the membership,
the power to assess the increase annually or accumulate and assess
the increase after a number of years.
(d) A property owners' association may not exercise a power
granted by petition under Subsection (c) before the petition is
filed as a dedicatory instrument under Section 204.005(b).
SECTION 5. Section 209.005, Property Code, is amended to
read as follows:
Sec. 209.005. ASSOCIATION RECORDS. (a) A property owners'
association shall make the books and records of the association,
including financial records, reasonably available to an owner in
accordance with Section B, Article 2.23, Texas Non-Profit
Corporation Act (Article 1396-2.23, Vernon's Texas Civil
Statutes).
(b) Records of an owner's payment or nonpayment of regular
assessments and special assessments, fees, fines, or any other sums
that have been charged to an owner are not subject to inspection by
any other owner who is not a member of the association's board or an
owner's representative or to production in a legal proceeding,
unless:
(1) the express written approval of the owner whose
records are the subject of the request for inspection is submitted
to the association; or
(2) a court of competent jurisdiction orders the
inspection or production.
(c) Salary or payroll records of an association employee
that disclose the employee's amount of salary or income are not
subject to inspection by an owner who is not a member of the
association's board or an owner's representative unless a court
orders the inspection.
(d) The association shall retain records as follows:
(1) articles of incorporation, bylaws, restrictive
covenants, and all amendments to the articles of incorporation,
bylaws, and covenants shall be retained permanently;
(2) owner account records shall be retained for five
years;
(3) a contract shall be retained for five years after
expiration of the term of the contract;
(4) minutes of meetings of the board shall be retained
for seven years;
(5) tax returns and audit records shall be retained
for seven years; and
(6) any other records not specified in this subsection
shall be retained for five years.
(e) If information requested under this section is not
available for examination at the time of the request because it is
in active use or in storage or if the association is unable to make
the information available immediately, the property owners'
association or its representative shall certify this fact in
writing to the requestor and set a date and time on which the
information will be available for inspection that is not later than
the 15th business day after the date the association receives the
request.
(f) Any unauthorized removal of an original property
owners' association record from the location where it is kept is a
violation of this title.
(g) This section shall be liberally construed in favor of
granting a request for information.
(h) This section does not affect the scope or availability
of the attorney-client privilege.
(i) This section does not apply to a property owners'
association that is subject to Chapter 552, Government Code [An
attorney's files and records relating to the association, excluding
invoices requested by an owner under Section 209.008(d), are not:
[(1) records of the association;
[(2) subject to inspection by the owner; or
[(3) subject to production in a legal proceeding].
SECTION 6. Chapter 209, Property Code, is amended by adding
Sections 209.0051 and 209.0052 to read as follows:
Sec. 209.0051. AVAILABILITY OF ANNUAL BUDGET PROPOSALS.
Not later than the 10th business day before the date a property
owners' association budget is approved, the budget must be
available for inspection as provided by Section 209.005.
Sec. 209.0052. ASSOCIATION MEETINGS. (a) A property
owners' association shall meet at least once each year. Unless the
declaration, restrictions, bylaws, or articles of incorporation
provide otherwise, a special meeting of the association may be
called by a majority of the board or by owners having at least 10
percent of the votes in the association.
(b) Meetings of the association and the board must be open
to the owners, subject to the right of the board to adjourn a
meeting of the board and reconvene in closed executive session to
consider actions involving personnel, pending litigation, contract
negotiations, enforcement actions, matters involving the invasion
of privacy of an owner, or matters that are to remain confidential
by request of the affected parties and agreement of the board. The
general nature of any business to be considered in executive
session must first be announced at the open meeting.
(c) Notice of a regular or special meeting of the
association must be given as provided by the restrictions, bylaws,
or articles of incorporation or, if those instruments do not
provide for notice, notice must be given to each owner in the same
manner in which notice is given to members of a nonprofit
corporation under Section A, Article 2.11, Texas Non-Profit
Corporation Act (Article 1396-2.11, Vernon's Texas Civil
Statutes).
(d) Notice of a meeting of the board must be given as
provided by the restrictions, bylaws, or articles of incorporation
or, if those instruments do not provide for notice, notice must be
given to each board member in the same manner in which notice is
given to members of the board of a nonprofit corporation under
Section B, Article 2.19, Texas Non-Profit Corporation Act (Article
1396-2.19, Vernon's Texas Civil Statutes).
(e) An association, on the written request of an owner,
shall inform the owner of the time and place of the next regular or
special meeting of the association or board. If the association
representative to whom the request is made does not know the time
and place of the meeting, the association shall promptly obtain the
information and disclose it to the owner or inform the owner where
the information may be obtained.
(f) This section does not apply to an association subject to
Chapter 551, Government Code.
SECTION 7. Section 209.006, Property Code, is amended to
read as follows:
Sec. 209.006. NOTICE REQUIRED BEFORE ENFORCEMENT ACTION.
(a) Before a property owners' association may suspend an owner's
right to use a common area, file a suit against an owner [other than
a suit to collect a regular or special assessment or foreclose under
an association's lien], charge an owner for property damage, or
levy a fine for a violation of the restrictions or bylaws or rules
of the association, the association or its agent must give written
notice to the owner by certified mail, return receipt requested.
(b) The notice must:
(1) describe the violation or property damage that is
the basis for the suspension, suit, [action,] charge, or fine and
state any amount due the association from the owner; and
(2) inform the owner that [the owner]:
(A) the owner is entitled to a reasonable period
to cure the violation and avoid the suspension, suit, charge, or
fine [or suspension] unless the owner was given notice and a
reasonable opportunity to cure a similar violation within the
preceding six months or within the preceding 12 months for a
violation affecting the safety of the neighborhood; [and]
(B) the owner may request a hearing under Section
209.007 on or before the 30th day after the date the owner receives
the notice;
(C) the owner may request that the association
consider settling the matter through alternative dispute
resolution services; and
(D) if applicable, the county in which the
association is located provides alternative dispute resolution
services at no cost to the owner.
SECTION 8. Subsection (c), Section 209.007, Property Code,
is amended to read as follows:
(c) The association shall hold a hearing under this section
not later than the 30th day after the date the board receives the
owner's request for a hearing and shall notify the owner of the
date, time, and place of the hearing not later than the 10th day
before the date of the hearing. The board or the owner may request a
postponement, and, if requested, a postponement shall be granted
for a period of not more than 10 days unless the association and the
owner agree in writing to a longer period. Additional
postponements may be granted by agreement of the parties. The owner
or the association may make an audio recording of the meeting.
SECTION 9. Section 209.008, Property Code, is amended to
read as follows:
Sec. 209.008. ATTORNEY'S FEES. (a) A property owners'
association may collect reimbursement of reasonable attorney's
fees and other reasonable costs incurred by the association
relating to collecting amounts, including damages, due the
association for enforcing restrictions or the bylaws or rules of
the association only if the owner is provided a written notice that
attorney's fees and costs will be charged to the owner if the
delinquency or violation continues after a date certain.
(b) An owner is not liable for attorney's fees incurred by
the association relating to a matter described by the notice under
Section 209.006 if the attorney's fees are incurred before the 60th
day after the date the owner receives the notice [conclusion of the
hearing under Section 209.007 or, if the owner does not request a
hearing under that section, before the date by which the owner must
request a hearing. The owner's presence is not required to hold a
hearing under Section 209.007].
(c) All attorney's fees, costs, and other amounts collected
from an owner shall be deposited into an account maintained at a
financial institution in the name of the association or its
managing agent. Only members of the association's board or its
managing agent or employees of its managing agent may be
signatories on the account.
(d) On written request from the owner, the association shall
provide copies of invoices for attorney's fees and other costs
relating only to the matter for which the association seeks
reimbursement of fees and costs.
(e) The notice provisions of Subsection (a) do not apply to
a counterclaim of an association in a lawsuit brought against the
association by a property owner.
(f) A court may assess costs of litigation and reasonable
attorney's fees incurred by a plaintiff or defendant who prevails
in an action involving a property owners' association, including an
action by or against a management company or attorney representing
an association. In exercising its discretion under this
subsection, the court shall consider whether the action was
brought, defended, or conducted in good faith.
(g) An attorney may not enter into a contract or agreement
to represent a property owners' association in a matter involving
collection of delinquent regular or special assessments under which
legal fees are charged to an owner's assessment account and payment
of the fees is delayed until after the account is collected from the
owner or the occurrence of another specified event. An attorney who
provides services described by this subsection may not collect
payment of legal fees for those services directly from the
homeowner from whom the association has the right to collect the
legal fees or defer payment of the fees until the association
receives payment from the homeowner. This subsection does not
prohibit an attorney from collecting a debt, including legal fees,
and forwarding the amount collected to the association [If the
dedicatory instrument or restrictions of an association allow for
nonjudicial foreclosure, the amount of attorney's fees that a
property owners' association may include in a nonjudicial
foreclosure sale for an indebtedness covered by a property owners'
association's assessment lien is limited to the greater of:
[(1) one-third of the amount of all actual costs and
assessments, excluding attorney's fees, plus interest and court
costs, if those amounts are permitted to be included by law or by
the restrictive covenants governing the property; or
[(2) $2,500].
(h) An owner is not liable for attorney's fees incurred by
the property owners' association relating to a matter involving
collections of mandatory or special assessments if the attorney's
fees are incurred before the 180th day after the assessment is
delinquent [(g) Subsection (f) does not prevent a property owners'
association from recovering or collecting attorney's fees in excess
of the amounts prescribed by Subsection (f) by other means provided
by law].
SECTION 10. Section 209.009, Property Code, is amended to
read as follows:
Sec. 209.009. FORECLOSURE SALE PROHIBITED IN CERTAIN
CIRCUMSTANCES. (a) A property owners' association may not
foreclose a property owners' association's assessment lien unless
[if] the debt for which the lien secures payment includes a
mandatory regular or special assessment.
(b) A debt described by Subsection (a) may include:
(1) any accrued interest on assessments;
(2) collection costs, attorney's fees, expenses, and
court costs associated with collection of the debt; and
(3) any fees or fines allowed by the dedicatory
instruments for the collection of the debt [securing the lien
consists solely of:
[(1) fines assessed by the association; or
[(2) attorney's fees incurred by the association
solely associated with fines assessed by the association].
SECTION 11. Chapter 209, Property Code, is amended by
adding Section 209.0091 to read as follows:
Sec. 209.0091. JUDICIAL FORECLOSURE REQUIRED. A property
owners' association may not foreclose a property owners'
association's assessment lien unless the association first obtains
a court judgment foreclosing the lien and providing for issuance of
an order of sale.
SECTION 12. Chapter 209, Property Code, is amended by
adding Sections 209.012, 209.013, and 209.014 to read as follows:
Sec. 209.012. ENFORCEMENT BY MANAGEMENT COMPANY. If
expressly provided in a budget approved by the board, a property
owners' association may pay a management company only a flat fee
plus actual postage costs for the enforcement of all restrictions,
bylaws, rules, or guidelines not involving the payment of
assessments during the budget period.
Sec. 209.013. CONFLICTS OF INTEREST. A person who is a
member of the board of a property owners' association or related
within the third degree by consanguinity or within the second
degree by affinity to a member of the board may not be compensated
for providing legal representation or management services to the
association.
Sec. 209.014. SUSPENSION OF VOTING PRIVILEGES. A property
owners' association may not suspend an owner's voting privileges in
the association because of the owner's overdue assessments or
failure to cure a violation of a deed restriction unless:
(1) the assessments are more than 60 days overdue; or
(2) the violation of the deed restriction remains
uncured after notice and opportunity for a hearing under Sections
209.006 and 209.007 or after the violation has been otherwise
mediated or adjudicated.
SECTION 13. Subsection (c), Section 202.004, Property Code,
is repealed.
SECTION 14. (a) Section 203.003, Property Code, as amended
by this Act, applies only to a violation of Title 11, Property Code,
that occurs on or after the effective date of this Act. A violation
that occurs before the effective date of this Act is governed by the
law in effect immediately before that date, and that law is
continued in effect for that purpose.
(b) Section 204.010, Property Code, as amended by this Act,
applies only to an action of a property owners' association that
occurs on or after the effective date of this Act. An action of a
property owners' association that occurs before the effective date
of this Act is governed by the law in effect immediately before that
date, and that law is continued in effect for that purpose.
(c) Section 209.0051, Property Code, as added by this Act,
applies only to a property owners' association budget adopted on or
after the effective date of this Act.
(d) Section 209.006, Property Code, as amended by this Act,
applies only to an enforcement action taken by a property owners'
association on or after the effective date of this Act. An
enforcement action taken before the effective date of this Act is
governed by the law in effect immediately before that date, and that
law is continued in effect for that purpose.
(e) Except as provided by Subsection (f) of this section,
Subsection (b), Section 209.008, Property Code, as amended by this
Act, applies only to a violation that occurs or an arrearage that
accrues on or after the effective date of this Act. A violation
that occurred or an arrearage that accrued before the effective
date of this Act is governed by the law in effect immediately before
that date, and that law is continued in effect for that purpose.
(f) Subsection (f), Section 209.008, Property Code, as
amended by this Act, applies only to an action filed on or after the
effective date of this Act. An action filed before the effective
date of this Act is governed by the law in effect immediately before
that date, and that law is continued in effect for that purpose.
(g) Section 209.012, Property Code, as added by this Act,
applies only to a contract between a property owners' association
and a management company entered into on or after the effective date
of this Act. A contract between a property owners' association and
a management company entered into before the effective date of this
Act is governed by the law in effect immediately before that date,
and that law is continued in effect for that purpose.
(h) Section 209.013, Property Code, as added by this Act,
does not apply to legal representation or management services
provided under a contract entered into before the effective date of
this Act.
(i) Section 209.014, Property Code, as added by this Act,
applies only to a vote taken on or after the effective date of this
Act. A vote taken before the effective date of this Act is governed
by the law in effect immediately before that date, and that law is
continued in effect for that purpose.
(j) Section 209.009, Property Code, as amended by this Act,
and Section 209.0091, Property Code, as added by this Act, apply
only to foreclosure of a lien that attaches on or after the
effective date of this Act. Foreclosure of a lien that attaches
before the effective date of this Act is governed by the law in
effect immediately before that date, and that law is continued in
effect for that purpose.
SECTION 15. This Act takes effect September 1, 2003.
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