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By: West S.B. No. 999
A BILL TO BE ENTITLED
AN ACT
relating to the establishment of reserve accounts to fund necessary
repairs for certain multifamily rental housing developments
assisted by the Texas Department of Housing and Community Affairs;
providing an administrative penalty.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subchapter H, Chapter 2306, Government Code, is
amended by adding Section 2306.186 to read as follows:
Sec. 2306.186. MANDATORY DEPOSITS TO FUND NECESSARY
REPAIRS. (a) In this section:
(1) "Cost-of-living adjustment" means the
cost-of-living adjustment determined for the applicable year under
Section 1(f)(3), Internal Revenue Code of 1986, as amended, by
substituting "calendar year 2004" for "calendar year 1992" in
Subsection (f)(3)(B) of that section.
(2) "Bank trustee" means a bank authorized to do
business in this state, with the power to act as trustee.
(3) "Department assistance" means any state or federal
assistance administered by or through the department, including
low-income housing tax credits.
(4) "First lien lender" means a lender whose lien has
first priority.
(5) "Reserve account" means an individual account:
(A) created to fund any necessary repairs for a
multifamily rental housing development; and
(B) maintained by a first lien lender or bank
trustee.
(b) If the department is the first lien lender with respect
to the development, each owner who receives department assistance
for a multifamily rental housing development that contains 25 or
more rental units shall deposit annually into a reserve account:
(1) for the year 2004:
(A) $250 per unit per year for units one to five
years old; and
(B) $300 per unit per year for units six or more
years old; and
(2) for each year following the year 2004, the amounts
per unit per year as described by Subdivision (1), plus a
cost-of-living adjustment.
(c) A land use restriction agreement or restrictive
covenant between the owner and the department must require the
owner to begin making annual deposits to the reserve account on the
date that occupancy of the multifamily rental housing development
stabilizes or the date that permanent financing for the development
is completely in place, whichever occurs later, and shall continue
making deposits until the earliest of the following dates:
(1) the date of any involuntary change in ownership of
the development;
(2) the date on which the owner suffers a total
casualty loss with respect to the development or the date on which
the development becomes functionally obsolete, if the development
cannot be or is not restored;
(3) the date on which the development is demolished;
(4) the date on which the development ceases to be used
as multifamily rental property; or
(5) the end of the affordability period specified by
the land use restriction agreement or restrictive covenant.
(d) With respect to multifamily rental developments, if the
establishment of a reserve fund for repairs has not been required by
the first lien lender, the development owner shall set aside the
repair reserve amount as a reserve for capital improvements. The
reserve must be established for each unit in the development,
regardless of the amount of rent charged for the unit.
(e) Beginning with the 11th year after the awarding of any
financial assistance for the development by the department, the
owner of a multifamily rental housing development shall contract
for a third-party physical needs assessment at appropriate
intervals that are consistent with lender requirements with respect
to the development. If the first lien lender does not require a
third-party physical needs assessment or if the department is the
first lien lender, the owner shall contract with a third party to
conduct a physical needs assessment at least once during each
five-year period beginning with the 11th year after the awarding of
any financial assistance for the development by the department.
The owner of the development shall submit to the department copies
of the most recent third-party physical needs assessment conducted
on the development, any response by the owner to the assessment, any
repairs made in response to the assessment, and information on any
necessary changes to the required reserve based on the assessment.
(f) The department may complete necessary repairs if the
owner fails to complete the repairs as required by Subsection (e).
Payment for those repairs must be made directly by the owner of the
development or through a reserve account established for the
development under this section.
(g) If notified of the development owner's failure to comply
with a local health, safety, or building code, the department may
complete any repairs necessary to correct a violation of that code,
as identified in the applicable violation report, and may pay for
those repairs through a reserve account established for the
development under this section.
(h) The appropriate level of funding for a reserve account
is determined by department rule according to the physical needs
assessment required by Subsection (e). If the amount in a reserve
account is considered to be inadequate by the department based on
the physical needs assessment, the department shall reassess and,
if appropriate, revise the deposit amount required of the owner and
the level of department assistance provided for the development.
The reserve must be continually maintained as indicated by the
condition of the development according to the physical needs
assessment of the development.
(i) The duties of the owner of a multifamily rental housing
development under this section cease on the date of a voluntary
change in ownership of the development, but the subsequent owner of
the development is subject to the deposit, inspection, and
notification requirements of Subsections (b), (c), (d), and (e).
(j) The first lien lender shall maintain the reserve
account. In the event there is no longer a first lien lender, then
Subsections (b) and (d) no longer apply.
(k) The department shall adopt rules that:
(1) establish requirements and standards regarding:
(A) for first lien lenders and bank trustees:
(i) maintenance of reserve accounts and
reasonable costs of that maintenance;
(ii) asset management;
(iii) transfer of money in reserve accounts
to the department to fund necessary repairs; and
(iv) oversight of reserve accounts and the
provision of financial data and other information to the
department; and
(B) for owners, inspections of the multifamily
rental housing developments and identification of necessary
repairs, including requirements and standards regarding
construction, rehabilitation, and occupancy that may enable
quicker identification of those repairs;
(2) identify circumstances in which money in the
reserve accounts may:
(A) be used for expenses other than necessary
repairs, including property taxes or insurance; and
(B) fall below mandatory deposit levels without
resulting in department action;
(3) define the scope of department oversight of
reserve accounts and the repair process;
(4) provide the consequences of any failure to make a
required deposit, including a definition of good cause, if any, for
a failure to make a required deposit;
(5) specify or create processes and standards to be
used by the department to obtain repairs for developments;
(6) define for purposes of Subsection (c) the date on
which occupancy of a development is considered to have stabilized
and the date on which permanent financing is considered to be
completely in place; and
(7) provide for appointment of a bank trustee as
necessary under this section.
(l) The department shall assess an administrative penalty
on development owners who fail to contract for the third-party
physical needs assessment and make the identified repairs as
required by this section. The department may assess the
administrative penalty in the same manner as an administrative
penalty assessed under Section 2306.6023. The penalty is computed
by multiplying $200 by the number of dwelling units in the
development and must be paid to the department. The office of the
attorney general shall assist the department in the collection of
the penalty and the enforcement of this subsection.
SECTION 2. Section 2306.185, Government Code, is amended by
amending Subsection (a) and adding Subsection (h) to read as
follows:
(a) The department shall adopt policies and procedures to
ensure that, for a multifamily rental housing development funded
through loans, grants, or tax credits under this chapter, the owner
of the development:
(1) keeps the rents affordable for low income tenants
for the longest period that is economically feasible; and
(2) provides regular maintenance to keep the
development sanitary, decent, and safe and otherwise complies with
the requirements of Section 2306.186.
(h) The department shall monitor a development owner's
compliance with this section.
SECTION 3. Subsection (g), Section 2306.185, Government
Code, is repealed.
SECTION 4. (a) The Texas Department of Housing and
Community Affairs shall adopt the rules required by Section
2306.186, Government Code, as added by this Act, not later than
December 1, 2003.
(b) The change in law made by Section 2306.186, Government
Code, as added by this Act, applies only to multifamily rental
housing developments that receive assistance from the Texas
Department of Housing and Community Affairs on or after January 1,
2004.
SECTION 5. This Act takes effect September 1, 2003.