BILL ANALYSIS

C.S.H.B. 2328

By: McClendon

Business & Industry

Committee Report (Substituted)

BACKGROUND AND PURPOSE

Interested parties contend that the lack of a state governmental entity charged with the oversight of condominium unit owners' associations and property owners' associations leaves a member of such an association who wishes to submit an inquiry or complaint about the association with little recourse. C.S.H.B. 2328 aims to address this situation by providing for the registration of condominium unit owners' associations and property owners' associations and creating a process by which association members may submit inquiries or complaints about an association.

RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority is expressly granted to the Finance Commission of Texas in SECTIONS 6 and 8 of this bill.

ANALYSIS

C.S.H.B. 2328 amends the Property Code to prohibit the board of a condominium unit owners' association or a property owners' association from acting on behalf of the association unless the board is registered with the consumer credit commissioner as provided by the bill's provisions. The bill requires an application for such registration to contain the information required to be included in a management certificate of the association and any other information required by the Finance Commission of Texas by rule. The bill requires an applicant to promptly supplement or amend an application to report any material mistake or omission or any actual or expected change in any document or information contained in the application and requires the application to be sworn to and accompanied by an initial registration fee in an amount set by the commission by rule.  The bill requires the board to renew its registration annually by filing a report with the commissioner, which is required to be in a form prescribed by the commission by rule and accompanied by a renewal fee in an amount set by the commission by rule, and sets out procedures and other requirements relating to the report.

C.S.H.B. 2328 requires the commissioner to receive written complaints against any person or board of a unit owners' association or property owners' association with respect to a violation of the bill's provisions relating to a depository account established for the benefit of the association.  The bill requires the commissioner, if the commissioner receives a written complaint against a person or board or otherwise has reasonable cause to believe that a person or board has breached or is breaching a fiduciary duty relating to the depository account, to investigate the person or board.  The bill requires the commissioner, if, following such an investigation, the commissioner finds that a person or board has breached or is breaching a fiduciary duty, to issue a cease and desist order and, if applicable, impose an administrative penalty as provided under provisions of law governing the commissioner's enforcement authority for certain violations.  The bill specifies that the Uniform Condominium Act and the Texas Residential Property Owners Protection Act, as amended by the bill's provisions, do not authorize the commissioner, except as provided by the bill, to issue a cease and desist order or to take other affirmative action against a person or board for any reason, including a complaint arising from the imposition of an assessment or the foreclosure of a lien.

C.S.H.B. 2328 requires the board of a unit owners' association or a property owners' association, within a reasonable time after receipt, to deposit all money paid to the board by or on behalf of a unit or property owner, as applicable, pursuant to an assessment for common expenses with a financial institution in a depository account established for the benefit of the association and insured by the Federal Deposit Insurance Corporation.  The bill requires the board, on the commissioner's request, to inform the commissioner of the name, business address, and telephone number of the financial institution at which the board maintains the account and the account number of the account and specifies that money held in a depository account by the applicable board is the property of the association and not of the board or the board's designee.  The bill requires a condominium unit owners' association board to disburse money paid by or on behalf of a unit owner only to pay for common expenses as provided by the declaration, articles of incorporation, bylaws, or rules of the association and requires a property owners' association board to make this disbursement as provided by the dedicatory instruments of the association. 

C.S.H.B. 2328 prohibits the board of a condominium unit owners' association or a property owners' association from commingling money in a depository account established for the benefit of unit or property owners, as applicable, with money of other persons.  The bill requires the board to annually reconcile the depository account and, if the board or its designee has more than one depository account, requires each depository account to be individually reconciled.  The bill requires the board, upon discovering or having a reasonable suspicion of embezzlement or other unlawful appropriation of money held in the applicable depository account, to immediately notify the commissioner by a method approved by the commission by rule. The bill requires the board, unless the commission by rule provides otherwise, to notify the commissioner of remedial action that the board intends to take with regard to the unlawful appropriation or suspected unlawful appropriation not later than the fifth day after the date on which the board notifies the commissioner of the appropriation.  The bill requires the board, on the commissioner's request and before transferring a depository account from one financial institution to another, to inform the commissioner of the name, business address, and telephone number of the institution to which the account will be transferred and to inform the commissioner of the account number at the transferee institution as soon as practicable after the transfer of a depository account. 

C.S.H.B. 2328 makes its provisions relating to the registration of the board of a unit owners' association or property owners' association, the renewal of such a registration, the monitoring and investigation of a board by the commissioner, and the depository account of an association inapplicable to an association that consists of 15 or fewer units or 15 or fewer lots or units, as applicable.  The bill defines "commission" and "commissioner" for purposes of the Uniform Condominium Act and the Texas Residential Property Owners Protection Act.  

C.S.H.B. 2328 amends the Finance Code to make conforming changes to statutory provisions relating to the general duties and the investigative and enforcement authority of the consumer credit commissioner and to certain information obtained, compiled, or requested by the commissioner.

C.S.H.B. 2328 makes its provisions applicable to a condominium unit owners' association or a property owners' association beginning January 1, 2012.

EFFECTIVE DATE

September 1, 2011.

COMPARISON OF ORIGINAL AND SUBSTITUTE

C.S.H.B. 2328 differs from the original, in provisions requiring the board of a condominium unit owners' association or property owners' association to register with the consumer credit commissioner to act on behalf of the association, by requiring the application for registration to be sworn to, whereas the original requires the application to be signed under oath.  The substitute omits provisions contained in the original authorizing the commissioner to deny such an application under certain conditions and authorizing an applicant, if the commissioner denies an application, to appeal the denial and request a hearing.

C.S.H.B. 2328 omits renewal registration requirements contained in the original specifying that the annual report to the commissioner from the board of a condominium unit owners' association or property owners' association for renewal of its registration be signed under oath, filed by a certain date, disclose any changes in the information contained in the registrant's original application or preceding report, and include evidence of specified insurance coverage.  

C.S.H.B. 2328 omits provisions contained in the original requiring the commissioner to monitor the operations of a condominium unit owners' association or property owners' association to ensure compliance with provisions of law governing condominium management and the Texas Residential Property Owners Protection Act, as applicable, to receive and investigate complaints against a board. 

C.S.H.B. 2328 contains provisions not included the original relating to the commissioner's receipt of complaints with respect to a violation of the bill's provisions relating to an association's depository account and the investigation of such complaints and to the issuance of a cease and desist order and assessment of an administrative penalty, if applicable.  The substitute contains  provisions not included in the original specifying that certain statutory provisions, except as provided by the bill, do not authorize the commissioner to issue a cease and desist order or to take other affirmative action against a person or board for any reason.

C.S.H.B. 2328 omits provisions contained in the original relating to the commissioner's  revocation of the registration of the board of a condominium unit owners' association or property owners' association. 

C.S.H.B. 2328 differs from the original by setting out provisions relating to a depository account for a condominium unit owners' association or property owners' association, whereas the original sets out provisions relating to a trust account for such associations. 

C.S.H.B. 2328 contains provisions not included in the original making certain provisions of the substitute inapplicable to a condominium unit owners' association or property owners' association that consists of 15 or fewer units or 15 or fewer lots or units, as applicable.