81R10467 BEF-F

By: Leibowitz H.B. No. 2243

A BILL TO BE ENTITLED

AN ACT

relating to the licensing and regulation of residential construction contractors and the abolition of the Texas Residential Construction Commission; providing a criminal penalty.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

ARTICLE 1. LICENSING AND REGULATION OF GENERAL RESIDENTIAL

CONTRACTORS

SECTION 1.01. Subtitle C, Title 7, Occupations Code, is amended by adding Chapter 1203 to read as follows:

CHAPTER 1203. GENERAL RESIDENTIAL CONTRACTORS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 1203.001. DEFINITIONS. In this chapter:

(1) "Commission" means the Texas Commission of Licensing and Regulation.

(2) "Department" means the Texas Department of Licensing and Regulation.

(3) "General residential contractor" means a person who under a license issued under this chapter is engaged in the business of residential construction.

(4) "Residential construction" means the business of building, altering, repairing, improving, moving, or demolishing a residential structure or an appurtenance on or within the structure's residential property lines.

[Sections 1203.002-1203.050 reserved for expansion]

SUBCHAPTER B. COMMISSION AND DEPARTMENT POWERS AND DUTIES

Sec. 1203.051. ADMINISTRATION. The department shall administer this chapter.

Sec. 1203.052. FORMS. The department shall prescribe application forms for original and renewal licenses and shall design the licenses.

Sec. 1203.053. CONTRACTS FOR ENFORCEMENT. The department may contract with another state agency or a political subdivision of the state to enforce this chapter and rules adopted under this chapter.

Sec. 1203.054. DIRECTORY OF LICENSE HOLDERS. (a) The department shall publish annually a directory of license holders.

(b) The department may sell the directory on payment of a reasonable fee set by the commission.

Sec. 1203.055. RULES REGARDING USE AND DISPLAY OF LICENSE. The commission shall adopt rules relating to the use, display, and advertisement of a license.

[Sections 1203.056-1203.100 reserved for expansion]

SUBCHAPTER C. LICENSE REQUIREMENTS

Sec. 1203.101. LICENSE REQUIRED. A person may not engage in the business of residential construction unless the person holds a general residential contractor license under this chapter.

Sec. 1203.102. REQUIREMENTS TO OBTAIN LICENSE. The department shall issue a general residential contractor license to a person who, at the time of application:

(1) is at least 21 years of age;

(2) is a citizen of the United States or a lawfully admitted alien;

(3) provides proof of insurance in the amount required by this chapter;

(4) provides proof satisfactory to the department that the person has worked in residential construction for at least three years;

(5) is a resident of this state;

(6) pays the application fee; and

(7) passes the applicable licensing examination with a score of at least 70 percent.

Sec. 1203.103. REQUIREMENTS TO RENEW LICENSE. The department shall renew a general residential contractor license if the applicant:

(1) holds a general residential contractor license in good standing;

(2) provides proof of insurance in the amount required by this chapter; and

(3) pays the renewal fee.

Sec. 1203.104. APPLICANT LICENSED IN ANOTHER JURISDICTION. The department may waive any requirement to obtain a license under this chapter if the department determines that the applicant holds a license issued by another jurisdiction that has licensing requirements substantially equivalent to those of this state.

Sec. 1203.105. LICENSED ACTIVITY. (a) A license holder may exercise all professional rights, honors, and privileges relating to the profession of a general residential contractor.

(b) A license is the property of the department and must be surrendered on demand.

(c) A license is valid throughout this state.

(d) A license holder is not required to hold an additional license or certificate issued by a political subdivision to operate in the political subdivision.

Sec. 1203.106. LICENSE TERM. A license issued under this chapter is valid for one year.

Sec. 1203.107. INSURANCE REQUIREMENTS. (a) Except as provided by Subsection (b), a license holder must maintain a general liability insurance policy at all times with a limit of at least $500,000.

(b) A license holder who has built or remodeled 25 or more homes during the previous year must maintain a general liability insurance policy at all times with a limit of at least $2 million.

Sec. 1203.108. BOND REQUIREMENTS. (a) A license holder shall obtain a surety bond for each home the license holder constructs or remodels. The bond must:

(1) guarantee the license holder's performance under the license holder's contract with the prospective homeowner; and

(2) be issued in an amount not less than the fair market value of the completed project if the project had no defects.

(b) A license holder who has constructed or remodeled 25 or more homes in the preceding year shall obtain a surety bond issued to the department in an amount equal to the fair market value of all homes built by the license holder in the preceding year.

[Sections 1203.109-1203.150 reserved for expansion]

SUBCHAPTER D. EXAMINATION

Sec. 1203.151. EXAMINATION REQUIRED. Each applicant for a license under this chapter must take the general residential contractor licensing examination.

Sec. 1203.152. CONTENTS OF EXAMINATION. The examination must be comprehensive in nature and require the successful applicant to demonstrate an intimate working knowledge of the latest version of the International Residential Code applicable to all nonelectrical aspects of residential construction.

Sec. 1203.153. DEVELOPMENT AND ADMINISTRATION OF EXAMINATION. (a) The department shall contract with a nationally or internationally recognized testing organization to develop the examination and administer the examination at least once each quarter.

(b) The examination administered under this section must be:

(1) developed in consultation with experts in residential construction; and

(2) professionally constructed, validated, and administered.

Sec. 1203.154. REEXAMINATION. (a) The department shall establish the criteria under which an applicant may retake an examination under this chapter.

(b) The commission shall establish a reasonable examination fee for an applicant requesting reexamination under this section.

[Sections 1203.155-1203.200 reserved for expansion]

SUBCHAPTER E. PENALTIES AND ENFORCEMENT

Sec. 1203.201. EMERGENCY SUSPENSION. (a) The department shall temporarily suspend the license of a license holder if the department determines from the evidence or information presented to it that continued practice by the license holder would constitute a continuing and imminent threat to the public welfare.

(b) A license may be suspended under this section without notice or hearing on the complaint if:

(1) action is taken to initiate proceedings for a hearing before the State Office of Administrative Hearings simultaneously with the temporary suspension; and

(2) a hearing is held as soon as practicable under this chapter and Chapter 2001, Government Code.

(c) The State Office of Administrative Hearings shall hold a preliminary hearing not later than the 14th day after the date of the temporary suspension to determine if there is probable cause to believe that a continuing and imminent threat to the public welfare still exists. A final hearing on the matter shall be held not later than the 61st day after the date of the temporary suspension.

Sec. 1203.202. CEASE AND DESIST ORDERS. The department may issue a cease and desist order regarding a violation of this chapter or a rule adopted under this chapter.

Sec. 1203.203. LICENSE SUSPENSION OR REVOCATION. (a) The grounds for suspending or revoking a license under this chapter include:

(1) fraud or deceit in obtaining an original or renewal license under this chapter;

(2) misapplication or misappropriation of trust funds, including a violation of Chapter 32, Penal Code, or Chapter 162, Property Code, if found by a final, nonappealable court judgment;

(3) naming false consideration in a contract to sell a new home or in a construction contract for a new or remodeled home;

(4) discriminating on the basis of race, color, religion, sex, age, national origin, or disability;

(5) publishing a false or misleading advertisement;

(6) failing to honor, within a reasonable time, a check issued to the department or commission, or any other instrument of payment, including a credit or debit card or electronic funds transfer, after the commission or department has sent by certified mail to the person's last known business address according to department records a request for payment;

(7) failing to pay a fine, fee, or administrative penalty assessed by the department or commission;

(8) failing to pay a nonappealable court judgment arising from a construction defect or other transaction between the license holder and the homeowner;

(9) engaging in statutory or common law fraud or misappropriation of funds, if found by a final, nonappealable judgment of any arbitrator or court that includes a finding of fraud against the license holder and is not satisfied before the 30th day after the date of the final judgment or award;

(10) using or attempting to use a general residential contractor license that has expired or been suspended or revoked;

(11) falsely representing that the person holds a license issued under this chapter;

(12) acting as a general residential contractor by using a name other than a name disclosed to the department or commission;

(13) aiding, abetting, or conspiring with a person who does not hold a license issued under this chapter to evade the provisions of this chapter, if found by a final, nonappealable court judgment;

(14) allowing a license issued under this chapter to be used by another person;

(15) acting as an agent, partner, or associate of a person who does not hold a license issued under this chapter with the intent to evade the provisions of this chapter or rules adopted under this chapter;

(16) repeatedly failing to respond to a request for information from the department or commission;

(17) failing to obtain a building permit required by a political subdivision before constructing a new home or improving an existing home;

(18) abandoning, without justification, any contract for new home improvement or construction engaged in or undertaken by the license holder, if found to have done so by a final, nonappealable court judgment;

(19) failing to complete a new home or home improvement construction project under the contract terms with the homeowner or prospective homeowner;

(20) failing to correct a violation of building codes or standards;

(21) failing to comply with architectural drawings specified in a contract to improve, build, or purchase a new home;

(22) failing to comply with the engineering design of a home, including the home's foundation;

(23) failing to satisfy a court judgment or a judgment in binding arbitration;

(24) failing to honor a contractual warranty;

(25) failing to disclose in writing:

(A) the products that are installed in the home;

(B) care and component warranties;

(C) building standards; and

(D) the risks and hazards of the home; and

(26) otherwise violating this chapter or a rule adopted under this chapter.

(b) A person whose license is revoked as a result of conduct described by Subsection (a)(9) is not eligible to hold a license under this chapter until the 10th anniversary of the date of revocation.

Sec. 1203.204. OFFENSE; CRIMINAL PENALTY. (a) A person commits an offense if the person knowingly or intentionally violates Section 1203.101.

(b) An offense under this section is a Class A misdemeanor.

SECTION 1.02. Not later than March 1, 2010, the Texas Commission of Licensing and Regulation shall adopt any rules necessary to administer Chapter 1203, Occupations Code, as added by this article.

SECTION 1.03. (a) The Texas Department of Licensing and Regulation shall ensure that the first general residential contractor licensing examination is administered on June 30, 2010.

(b) The Texas Department of Licensing and Regulation shall begin issuing licenses under Chapter 1203, Occupations Code, as added by this article, on September 1, 2010.

SECTION 1.04. (a) Except as provided by Subsection (b) of this section, this article takes effect September 1, 2009.

(b) Section 1203.101 and Subchapter E, Chapter 1203, Occupations Code, as added by this article, take effect January 1, 2011.

ARTICLE 2. ABOLITION OF TEXAS RESIDENTIAL CONSTRUCTION COMMISSION

SECTION 2.01. (a) The Texas Residential Construction Commission is abolished effective September 1, 2009.

(b) The following statutes are repealed:

(1) Section 214.906, Local Government Code;

(2) Title 16, Property Code;

(3) Section 5.016, Property Code, as added by Section 1, Chapter 843 (H.B. 1038), Acts of the 80th Legislature, Regular Session, 2007; and

(4) Sections 27.001(3) and (9), 27.004(l), and 27.007(c), Property Code.

SECTION 2.02. (a) The Texas Department of Licensing and Regulation shall take custody of the property, records, or other assets of the Texas Residential Construction Commission unless the governor designates another appropriate governmental entity to take custody of the property, records, or other assets.

(b) If the Texas Residential Construction Commission has a continuing valid and enforceable obligation, including bonded indebtedness, Section 325.017(f), Government Code, applies in relation to the continuing obligation of the commission.

SECTION 2.03. Sections 59.011(a) and (c), Finance Code, are amended to read as follows:

(a) For purposes of Chapter 27, Property Code, [and Title 16, Property Code,] a federally insured financial institution regulated under this code is not a builder.

(c) A builder hired by a lender to complete the construction of a foreclosed home is not liable for any construction defects of which the builder had no knowledge that existed prior to the acquisition of the home by the lender, but the builder is subject to Chapter 27, Property Code, [and Title 16, Property Code,] for work performed for the lender subsequent to the acquisition of the home by the lender.

SECTION 2.04. Sections 27.001(4), (5), and (8), Property Code, are amended to read as follows:

(4) "Construction defect" [has the meaning assigned by Section 401.004 for an action to which Subtitle D, Title 16, applies and for any other action] means a matter concerning the design, construction, or repair of a new residence, of an alteration of or repair or addition to an existing residence, or of an appurtenance to a residence, on which a person has a complaint against a contractor. The term may include any physical damage to the residence, any appurtenance, or the real property on which the residence and appurtenance are affixed proximately caused by a construction defect.

(5) "Contractor":

(A) means:

(i) a person [builder, as defined by Section 401.003,] contracting with an owner for the construction or repair of a new residence, for the repair or alteration of or an addition to an existing residence, or for the construction, sale, alteration, addition, or repair of an appurtenance to a new or existing residence;

(ii) any person contracting with a purchaser for the sale of a new residence constructed by or on behalf of that person; or

(iii) a person contracting with an owner or the developer of a condominium for the construction of a new residence, for an alteration of or an addition to an existing residence, for repair of a new or existing residence, or for the construction, sale, alteration, addition, or repair of an appurtenance to a new or existing residence; and

(B) includes:

(i) an owner, officer, director, shareholder, partner, or employee of the contractor; and

(ii) a risk retention group registered under Chapter 2201 [Article 21.54], Insurance Code, that insures all or any part of a contractor's liability for the cost to repair a residential construction defect.

(8) "Structural failure" [has the meaning assigned by Section 401.002 for an action to which Subtitle D, Title 16, applies and for any other action] means actual physical damage to the load-bearing portion of a residence caused by a failure of the load-bearing portion.

SECTION 2.05. Section 27.002(b), Property Code, is amended to read as follows:

(b) To [Except as provided by this subsection, to] the extent of conflict between this chapter and any other law, including the Deceptive Trade Practices-Consumer Protection Act (Subchapter E, Chapter 17, Business & Commerce Code) or a common law cause of action, this chapter prevails. [To the extent of conflict between this chapter and Title 16, Title 16 prevails.]

SECTION 2.06. Section 27.003(a), Property Code, is amended to read as follows:

(a) In an action to recover damages or other relief arising from a construction defect:

(1) a contractor is not liable for any percentage of damages caused by:

(A) negligence of a person other than the contractor or an agent, employee, or subcontractor of the contractor;

(B) failure of a person other than the contractor or an agent, employee, or subcontractor of the contractor to:

(i) take reasonable action to mitigate the damages; or

(ii) take reasonable action to maintain the residence;

(C) normal wear, tear, or deterioration;

(D) normal shrinkage due to drying or settlement of construction components within the tolerance of building standards; or

(E) the contractor's reliance on written information relating to the residence, appurtenance, or real property on which the residence and appurtenance are affixed that was obtained from official government records, if the written information was false or inaccurate and the contractor did not know and could not reasonably have known of the falsity or inaccuracy of the information; and

(2) if an assignee of the claimant or a person subrogated to the rights of a claimant fails to provide the contractor with the written notice and opportunity to inspect and offer to repair required by Section 27.004 [or fails to request state-sponsored inspection and dispute resolution under Chapter 428, if applicable,] before performing repairs, the contractor is not liable for the cost of any repairs or any percentage of damages caused by repairs made to a construction defect at the request of an assignee of the claimant or a person subrogated to the rights of a claimant by a person other than the contractor or an agent, employee, or subcontractor of the contractor.

SECTION 2.07. Sections 27.004(a), (b), (c), and (d), Property Code, are amended to read as follows:

(a) Before [In a claim not subject to Subtitle D, Title 16, before] the 60th day preceding the date a claimant seeking from a contractor damages or other relief arising from a construction defect initiates an action, the claimant shall give written notice by certified mail, return receipt requested, to the contractor, at the contractor's last known address, specifying in reasonable detail the construction defects that are the subject of the complaint. On the request of the contractor, the claimant shall provide to the contractor any evidence that depicts the nature and cause of the defect and the nature and extent of repairs necessary to remedy the defect, including expert reports, photographs, and videotapes, if that evidence would be discoverable under Rule 192, Texas Rules of Civil Procedure. During the 35-day period after the date the contractor receives the notice, and on the contractor's written request, the contractor shall be given a reasonable opportunity to inspect and have inspected the property that is the subject of the complaint to determine the nature and cause of the defect and the nature and extent of repairs necessary to remedy the defect. The contractor may take reasonable steps to document the defect. [In a claim subject to Subtitle D, Title 16, a contractor is entitled to make an offer of repair in accordance with Subsection (b). A claimant is not required to give written notice to a contractor under this subsection in a claim subject to Subtitle D, Title 16.]

(b) Not [later than the 15th day after the date of a final, unappealable determination of a dispute under Subtitle D, Title 16, if applicable, or not] later than the 45th day after the date the contractor receives the notice [under this section, if Subtitle D, Title 16, does not apply], the contractor may make a written offer of settlement to the claimant. The offer must be sent to the claimant at the claimant's last known address or to the claimant's attorney by certified mail, return receipt requested. The offer may include either an agreement by the contractor to repair or to have repaired by an independent contractor partially or totally at the contractor's expense or at a reduced rate to the claimant any construction defect described in the notice and shall describe in reasonable detail the kind of repairs which will be made. The repairs shall be made not later than the 45th day after the date the contractor receives written notice of acceptance of the settlement offer, unless completion is delayed by the claimant or by other events beyond the control of the contractor. If a contractor makes a written offer of settlement that the claimant considers to be unreasonable:

(1) on or before the 25th day after the date the claimant receives the offer, the claimant shall advise the contractor in writing and in reasonable detail of the reasons why the claimant considers the offer unreasonable; and

(2) not later than the 10th day after the date the contractor receives notice under Subdivision (1), the contractor may make a supplemental written offer of settlement to the claimant by sending the offer to the claimant or the claimant's attorney.

(c) If [compliance with Subtitle D, Title 16, or] the giving of the notice under Subsections (a) and (b) within the period prescribed by those subsections is impracticable because of the necessity of initiating an action at an earlier date to prevent expiration of the statute of limitations or if the complaint is asserted as a counterclaim, [compliance with Subtitle D, Title 16, or] the notice is not required. However, the action or counterclaim shall specify in reasonable detail each construction defect that is the subject of the complaint. The [If Subtitle D, Title 16, applies to the complaint, simultaneously with the filing of an action by a claimant, the claimant must submit a request under Section 428.001. If Subtitle D, Title 16, does not apply, the] inspection provided for by Subsection (a) may be made not later than the 75th day after the date of service of the suit, request for arbitration, or counterclaim on the contractor, and the offer provided for by Subsection (b) may be made [not later than the 15th day after the date the state-sponsored inspection and dispute resolution process is completed, if Subtitle D, Title 16, applies, or] not later than the 60th day after the date of service [, if Subtitle D, Title 16, does not apply]. If, while an action subject to this chapter is pending, the statute of limitations for the cause of action would have expired and it is determined that the provisions of Subsection (a) were not properly followed, the action shall be abated to allow compliance with Subsections (a) and (b).

(d) The court or arbitration tribunal shall abate an action governed by this chapter if Subsection (c) does not apply and the court or tribunal, after a hearing, finds that the contractor is entitled to abatement because the claimant failed to [comply with the requirements of Subtitle D, Title 16, if applicable, failed to] provide the notice or failed to give the contractor a reasonable opportunity to inspect the property as required by Subsection (a), or failed to follow the procedures specified by Subsection (b). An action is automatically abated without the order of the court or tribunal beginning on the 11th day after the date a motion to abate is filed if the motion:

(1) is verified and alleges that the person against whom the action is pending did not receive the written notice required by Subsection (a), the person against whom the action is pending was not given a reasonable opportunity to inspect the property as required by Subsection (a), or the claimant failed to follow the procedures specified by Subsection (b) [or Subtitle D, Title 16]; and

(2) is not controverted by an affidavit filed by the claimant before the 11th day after the date on which the motion to abate is filed.

SECTION 2.08. Section 27.0042(b), Property Code, is amended to read as follows:

(b) A contractor may not elect to purchase the residence under Subsection (a) if [:

[(1)] the residence is more than five years old at the time an action is initiated [; or

[(2) the contractor makes such an election later than the 15th day after the date of a final, unappealable determination of a dispute under Subtitle D, Title 16, if applicable].

SECTION 2.09. Section 41.007(a), Property Code, is amended to read as follows:

(a) A contract for improvements to an existing residence described by Section 41.001(b)(3) must contain[:

[(1) the contractor's certificate of registration number from the Texas Residential Construction Commission if the contractor is required to register as a builder with the commission;

[(2) the address and telephone number at which the owner may file a complaint with the Texas Residential Construction Commission about the conduct of the contractor if the contractor is required to register as a builder with the commission; and

[(3)] the following warning conspicuously printed, stamped, or typed in a size equal to at least 10-point bold type or computer equivalent:

"IMPORTANT NOTICE: You and your contractor are responsible for meeting the terms and conditions of this contract. If you sign this contract and you fail to meet the terms and conditions of this contract, you may lose your legal ownership rights in your home. KNOW YOUR RIGHTS AND DUTIES UNDER THE LAW."

SECTION 2.10. (a) The repeal by this Act of Section 5.016, Property Code, as added by Section 1, Chapter 843 (H.B. 1038), Acts of the 80th Legislature, Regular Session, 2007, applies only to a transfer of residential property that occurs on or after the effective date of this Act. A transfer of residential property that occurs before the effective date of this Act is governed by the law in effect immediately before the effective date of this Act, and that law is continued in effect for that purpose.

(b) The repeal by this Act of Section 401.005(c), Property Code, applies only to a home or material improvement to a home described by Section 401.005(c), Property Code, repealed by this Act, the building or remodeling of which commences on or after the effective date of this Act. A home or material improvement to a home described by Section 401.005(c), Property Code, repealed by this Act, the building or remodeling of which is commenced before the effective date of this Act is subject to the warranty obligation applicable to the home or material improvement to the home immediately before the effective date of this Act.

(c) The repeal by this Act of Sections 420.002 and 420.003, Property Code, applies only to a contract for the construction of a new home or the improvement of an existing home that is entered into on or after the effective date of this Act. A contract for the construction of a new home or the improvement of an existing home that is entered into before the effective date of this Act is governed by the law as it existed immediately before the effective date of this Act, and that law is continued in effect for that purpose.

(d) Except as provided by this section, the change in law made by this Act to Chapter 27, Property Code, and the repeal by this Act of Sections 426.005, 426.007, and 426.008, Property Code, apply only to an action commenced on or after the effective date of this Act. An action commenced before the effective date of this Act or with respect to which a request was filed under Section 428.001, Property Code, repealed by this Act, before the effective date of this Act, is governed by the law in effect immediately before the effective date of this Act, and that law is continued in effect for that purpose.

(e) The change in law made by this Act to Section 27.003(a)(2), Property Code, applies only to a repair made on or after the effective date of this Act. A repair made before the effective date of this Act is subject to the law as it existed immediately before the effective date of this Act, and that law is continued in effect for that purpose.

(f) The repeal by this Act of Section 428.005, Property Code, does not apply to the receipt by a builder of a notice described by that section before the effective date of this Act. The receipt by a builder of a notice described by that section 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) The repeal by this Act of Chapter 430, Property Code, applies only to residential construction commenced on or after the effective date of this Act. Residential construction commenced before the effective date of this Act or residential construction commenced after the effective date of this Act under a contract entered into before the effective date of this Act is subject to the warranties and building and performance standards applicable to residential construction immediately before the effective date of this Act.

(h) The repeal by this Act of Section 436.003, Property Code, applies only to an arbitration initiated on or after the effective date of this Act. An arbitration initiated before the effective date of this Act is governed by the law applicable to the arbitration immediately before the effective date of this Act, and that law is continued in effect for that purpose.

(i) The repeal by this Act of Chapter 437, Property Code, applies only to an arbitration award filed on or after the effective date of this Act. An award 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.

(j) The repeal by this Act of Chapter 438, Property Code, applies only to an arbitration award issued on or after the effective date of this Act. An award issued 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 2.11. This article takes effect September 1, 2009.

ARTICLE 3. EFFECTIVE DATE

SECTION 3.01. This Act takes effect September 1, 2009.