BILL ANALYSIS

C.S.H.B. 2949

By: Eiland

Business & Industry

Committee Report (Substituted)

BACKGROUND AND PURPOSE

Condominium associations have encountered operating difficulties with the present version of the Uniform Condominium Act.  When the act was passed in 1993 and became effective January 1, 1994, there were very few condominiums that had large deductibles for property damage claims.  However, with a number of large insurance claims incurred since 1994, insurance deductibles have been on the rise.  The issue being addressed by the bill is how to process the payment of these deductibles since condominium associations across Texas have dealt with the payment obligation for these deductibles in an inconsistent manner. 

Current law provides that the cost of repair or replacement in excess of the insurance proceeds and reserves is a common expense. A complication arises from the responsibility to pay these amounts before any insurance proceeds are available, because there can be no excess responsibility when there are no insurance proceeds yet paid.  Deductibles are often a percentage of the total value of the structure and, for a large high-rise condominium building, deductibles may be hundreds of thousands of dollars.  These types of losses were incurred with Hurricane Ike; however, the damage caused from an overflowing tub or toilet often incurs repair costs of over $10,000. 

C.S.H.B. 2949 requires the cost of repair or replacement incurred before insurance proceeds are available for a damaged or destroyed portion of a condominium to be paid as determined by resolution of the board of directors of the association and, if the board has not approved a resolution, requires these costs to be a common expense.  The bill amends provisions relating to a unit owner's right of redemption if the unit is sold for nonpayment of association assessments.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

C.S.H.B. 2949 amends the Property Code to authorize a condominium unit owners' association by resolution of its board of directors to borrow money, unless prohibited by the declaration, articles of incorporation, bylaws, rules, or other restrictions.  The bill authorizes the association, if the board of directors issues such a resolution, to assign its right to future income, including the right to receive common expense assessments and assign the association's lien rights, as collateral for the loan authorized by the resolution.  The bill requires the association to comply with any member approval requirement in the association's declaration, articles of incorporation, bylaws, rules, or other restrictions for borrowing money, except that not more than 67 percent of all outstanding votes are required to approve an authorization to borrow money. 

C.S.H.B. 2949 establishes that property insurance and commercial general liability insurance policies carried by the association may provide for commercially reasonable deductibles as the board considers appropriate or necessary.  The bill requires the cost of repair or replacement incurred for a damaged or destroyed portion of a condominium before insurance proceeds are available, or within the association's deductible, to be paid as determined by resolution of the association's board of directors, but requires such costs to be a common expense if the board has not approved a resolution. The bill establishes that a resolution regarding payment of costs is considered a dedicatory instrument and must be recorded in each location in which the declaration is recorded.

C.S.H.B. 2949 amends a provision that authorizes the owner of a unit purchased at a foreclosure sale of the association's lien for assessments to redeem the unit within a specified time after the sale to remove language limiting that authority to such a unit that is used for residential purposes.  The bill applies the existing requirements for the owner's payment to the association of certain redemption costs and fees relating to such a sale to a sale in which the association is the purchaser.  The bill requires the redeeming owner, if a party other than the association is the purchaser, to pay to the purchaser of the unit at the foreclosure sale the amount bid at the sale, interest from the date of foreclosure sale to the date of redemption at the rate of six percent, any assessment paid after the date of the foreclosure, and any reasonable costs incurred by the purchaser as owner of the unit, including costs of maintenance and leasing, and requires the owner to also pay to the association all assessments that are due as of the date of redemption, and reasonable attorney's fees and costs incurred by the association in foreclosing the lien. The bill makes conforming changes and specifies that the deed executed to a redeeming owner by the purchaser of the unit at the foreclosure sale is a deed with no warranty.

EFFECTIVE DATE

September 1, 2009.

COMPARISON OF ORIGINAL AND SUBSTITUTE

C.S.H.B. 2949 removes a provision included in the original specifying that a unit owners' association authority to acquire, hold, encumber, and convey in its own name any right to real or personal property includes lien rights.  The substitute adds provisions not included in the original authorizing the association by resolution of the board of directors to borrow money and establishing requirements relating to the association's compliance with member approval, voting requirements, and other restrictions for borrowing money.  The substitute differs from the original by specifying that a unit owners' association's authority to assign its right to future income as collateral for a loan is contingent upon a resolution issued by the board of directors, whereas the original added as a condition to the authority of a unit owners' association to assign its right to future income that its right is subject to the association's bylaws, articles of incorporation, or certificate of formation.

C.S.H.B. 2949 adds a provision not included in the original authorizing property insurance and commercial general liability insurance policies carried by the association to provide for commercially reasonable deductibles as the board considers appropriate or necessary.  The substitute adds language not included in the original to include certain costs of replacement as a common expense.  The substitute adds provisions not included in the original specifying that a resolution regarding payment of costs is considered a dedicatory instrument and requiring the resolution to be recorded in each location in which the declaration is recorded.

C.S.H.B. 2949 differs from the original by applying provisions relating to the redemption rights of a purchaser other than the association to the purchaser of the unit, rather than to the party acquiring the unit or the party acquiring title as in the original, and by specifying that the deed executed to a redeeming owner by the purchaser of the unit at the foreclosure sale is a deed with no warranty, rather than a special warranty deed as in the original.

C.S.H.B. 2949 adds saving provisions and prospective clauses not included in the original.