Legislative review

How did REALTORS® and property owners fare during the 78th Legislature?

The 78th Texas Legislature adjourned sine die (Latin term meaning "without fixing a day for future meeting") on June 2, 2003. This session was the first in 130 years in which Republicans controlled the Texas House of Representatives. The Texas Senate and Governor’s Office are also under Republican leadership. State officials were met at the beginning of the session with a near-$10 billion budget deficit, and most legislators won their elections with a "no new taxes" pledge. When the session ended, a budget was passed without raising any taxes, insurance reform was enacted, and the Texas Association of REALTORS® had a 100% record on all sponsored legislation.

This session, there were 6,221 bills filed. TAR initially reviewed all filed bills, actively tracked 639 bills, and reported on the outcome of an additional 137 bills.  This report gives a brief summary on legislation that affects our industry. The report is broken into two parts: TAR-sponsored legislation and TAR-supported legislation. Many of the issues in this report are also a direct result of the recommendations handed down from the five legislative task forces formed a year a half ago.

TAR-sponsored legislation

Texas Real Estate Commission

HB 1508 — Effective Sept. 1, 2003

This bill, authored by Rep. Kino Flores, modifies statutory language to facilitate the administrative duties of the Texas Real Estate Commission and changes several fee amounts. The bill also allows the use of the Internet for posting public notices for meeting notice requirements and makes adjustments to licensing requirements, including adding a requirement that an applicant for an inspector’s license prove his or her honesty, trustworthiness, integrity, and competence.

More importantly, the bill deletes the requirement that brokers display the licenses of their salespeople in the broker’s office. (TREC Task Force recommendation)

Mortgage bankers

SB 252 — Effective Jan. 1, 2004

This bill, authored by Sen. Todd Staples, establishes registration requirements for mortgage bankers, permits the Texas Savings and Loan Department to investigate complaints filed against mortgage bankers, and provides the savings and loan commissioner with the authority to revoke mortgage bankers’ registrations under certain circumstances.

This new law will enable Texans to seek help from state authorities, rather than federal authorities, when they are aggrieved by the actions of a mortgage banker. (Mortgage Finance Task Force recommendation)

TAR-supported legislation

Insurance

Gov. Rick Perry deemed insurance reform an emergency, and the entire session was consumed with this issue. Both legislative bodies, under the leadership of Speaker Tom Craddick and Lt. Gov. David Dewhurst, passed sweeping insurance reform measures aimed at bringing insurance rates down while at the same time providing a regulatory structure that is competition friendly. Several insurance measures passed the Texas Legislature; however, the major reform measurers that will have the most impact on the insurance market in Texas are briefly discussed below.

SB 14 — Effective June 11, 2003

SB 14 contains three major provisions for Texas consumers. First, homeowners insurances rates are once again subject to regulation by the State of Texas. The form of regulation will be a file-and-use approach that will allow the insurance commissioner to disapprove of rates that are not justified by actuarial risk data. The second provision modifies the use of credit scoring by insurance companies. While still using credit scores in limited circumstances, insurance companies will not be able to deny coverage simply because a homeowner has a bad credit history. The third provision prevents insurance companies from being able to cancel a policy once a binder has been issued if the homeowner has given the insurance company an acceptable home inspection report by a TREC-licensed home inspector. Once a binder has been issued, the insurance company must reject the inspection report within 10 days of receiving it or the company cannot cancel the binder. (Insurance Task Force recommendations)

SB 127 — Effective June 11, 2003

SB 127 contains two consumer- friendly insurance provisions. The bill requires the licensing of public insurance adjusters and addresses the problem of property stigma due to previous loss claims. SB 127 contains TAR language that prohibits insurers from using an appliance-related water claim that has been repaired as an underwriting guideline, unless the homeowner has had more than two such claims in the last three years. This language should address the stigma problems related to persons and property. (Insurance Task Force recommendations)

HB 329 — Effective Sept. 1, 2003

HB 329 will require mold assessors and remediators to become licensed by the Texas Department of Health. This new law will eliminate the wasteful and fraudulent mold remediation con artists who have bilked homeowners and insurance companies alike by inflating and inventing mold claims.

The bill contains exemptions so that routine cleaning and property management will not be affected in most cases, so no additional costs should fall on REALTORS® who own and/or manage real property. The bill also prohibits insurance companies from denying or canceling homeowners insurance when a property has had a prior mold claim. (Insurance Task Force recommendations)

Senate Bill 113 — Effective June 20, 2003

This bill requires a 1% discount on homeowners premiums if a claim has not been filed in the previous three years, and requires the discount to increase by 1% a year until it reaches 10%. Until this bill became law, there was not any statutorily mandated or optional premium discounts for homeowners continuously insured by the same insurer for at least three years and who have not filed any homeowners insurance claims during that period.

SB 115 — Effective June 20, 2003

This bill requires an insurer to provide written notice in plain language to consumers of any difference in each form of the policy offered on renewal and the policy held prior to renewal. (Insurance Task Force Recommendation)

HB 1338 — Effective Sept. 1, 2003

This bill provides that no lender may require, in connection with certain financing arrangements, a borrower to purchase homeowners, mobile or manufactured home, or other residential property insurance coverage in an amount that exceeds the replacement value of the
dwelling and its contents.

Home equity

Reverse annuity mortgages — Submitted to voters for approval Sept. 13, 2003

HJR 23 requires the submission to the voters of an amendment to the Texas Constitution to permit a home equity loan to be refinanced as a reverse mortgage. Currently, home equity loans made in Texas can be refinanced but must remain home equity loans. In other words, they cannot be converted to "first mortgages" by the process of refinancing. This requirement assures that the constitutional consumer protections applicable to home equity loans are not circumvented by refinancing the loan. However, this has the effect of preventing a home equity loan from being converted into a reverse mortgage. Like home equity loans, reverse mortgages have strong constitutional consumer protections, including a limit on the ability of a lender to foreclose on a homestead. (Mortgage Finance Task Force recommendation)

Lines of credit - Submitted to voters for approval Sept. 13, 2003

SJR 42 requires the submission to the voters of an amendment to the Texas Constitution to permit home equity lines of credit, allowing payments to be made more often than monthly, clarifying the cure process, and permitting the Legislature to authorize state agencies to interpret constitutional provisions related to home equity lending.

Currently, a home equity loan must be a closed-end debt, which is repaid in substantially equal monthly payments over a specific length of time. The Texas Constitution provides that the lender forfeits all principal and interest if a failure to comply with all the lender’s obligations is not corrected in a reasonable time. This "cure process" is not otherwise described, either in the Constitution or in statute. Furthermore, no state agency has the authority to interpret home equity law, leaving the resolution of questions over the meaning of the law exclusively to the judiciary.

Interpretive authority — Contingent upon passage of SJR 42

SB 1067 authorizes the Finance Commission (SFC) to issue interpretations relating to the home equity lending law and authorizes the Credit Union Commission (CUC) to issue interpretations applicable to lenders regulated by the CUC. The bill also requires the SFC and CUC to attempt to adopt interpretations that are as consistent as feasible or state justification for any inconsistency.

Mandatory business rendition

SB 340 — Various effective dates

SB 340 creates a penalty for the failure to render business properties and provides criteria for the information that is required to be included in the rendition statement. Currently, Section 22.01, Tax Code, requires the rendering of personal property used in the production of income for ad valorem tax purposes. However, no penalty exists for the failure to render such property. This bill requires the mandatory rendition of personal property used in the production of income if greater than $20,000 in value. A criminal penalty (Class A misdemeanor) is created and fines are levied for failure to comply with the new law. If business personal property is less than $20,000 in value, then the only requirement is to provide the name and address of the property owner, a general description of property, and the physical location of property. (Tax Task Force recommendation)

Access management

SB 361 — Effective June 20, 2003

This legislation provides that the Texas Transportation Commission’s orders under Section 203.031 (Control of Access) do not supersede a municipal ordinance, unless such an ordinance interferes with the ability of the Texas Department of Transportation (TxDOT) or the state to receive federal highway funds. Recently, TxDOT reviewed municipal highway access rules, specifically those regarding the distance between curb cuts along state highways, causing concern in local communities about safety, local control, and economic development. This bill will allow municipalities to determine, through local control, what is best for their communities when granting access management. (Private Property Rights Task Force recommendation)

Riverbed access

SB 155 — Effective Sept. 1, 2003

This bill prohibits the operation of a motor vehicle in or on the beds or banks of Texas rivers, with certain exceptions, and provides penalties. During the past year, the number of recreational motor vehicles entering Texas rivers has reached a critical mass. According to the Texas Parks and Wildlife Department, the frequently traveled areas of Texas rivers have shown signs of erosion and decreased fish and vegetation. The bill should address these erosion problems while at the same time allowing riparian landowners to cross rivers to get to their property on the other side. (Private Property Rights Task Force recommendation)

County roads

HB 1117 — Effective Sept. 1, 2003

This bill enables counties to claim title to county roads by adopting a road map and will allow property owners two years to contest the county title claim. The bill provides that after two years, if the landowner does not protest, the road becomes the responsibility of the county; if after that two-year period, the landowner decides to protest, the burden of proof shifts from the county to the landowner.

Some rural counties were unclear on the status of some country roads, creating a situation where an ownership search for each property could be a substantial financial burden on counties, especially rural counties. (Private Property Rights Task Force recommendation)

Registration of homebuilders

HB 730 — Effective Sept. 1, 2003

This legislation creates the Texas Residential Construction Commission. This bill, for the first time, prohibits a person from acting as a builder unless the person holds a certificate of registration. The bill also establishes performance standards for residential construction and creates a state-sponsored inspection and dispute-resolution process that assists consumers in resolving construction issues with homebuilders.

The lack of state performance standards for residential construction in Texas and case law has made it difficult for homeowners and homebuilders to resolve construction issues without costly and time-consuming litigation.

Manufactured housing

SB 521 — Effective June 18, 2003 (with exceptions)

Legislation passed during the 77th Texas Legislature dramatically affected the manufactured housing industry. This bill restores consumer choice related to financing options while maintaining acquisition requirements and further clarifying when manufactured housing is to be defined as real property.

It establishes requirements for taxation and the escrow of taxes on manufactured housing. This bill reduces legalese in disclosure documents and establishes provisions requiring certification and continuing education. SB 521 also clarifies the process for obtaining statements of ownership and location and declaring a manufactured home and the property on which it is installed from personal to real property. This bill was necessary when unintended consequences became evident after the passage of legislation during the 2001 legislative session.

Agriculture development districts

HB 3383 — Effective Sept. 1, 2003

This bill requires an agricultural development district to file relevant information with the county clerk in the county in which the district is located and with the Texas Department of Agriculture. In 2001, Chapter 60 was added to the Agriculture Code to permit the creation of agricultural development districts. Such districts provide incentives for the development of agricultural operations and facilities. However, property owners, prospective purchasers, real estate professionals, title insurers, and other interested persons raised concerns about locating and obtaining information about newly created districts, including district boundaries, assessments, functions, and other relevant information. The bill should answer many of the unanswered questions that have been raised about agricultural development districts.

Down-zoning

HB 2178 — Failed to pass

This bill would have prohibited the governing body of a municipality from changing the zoning classification of a property that results in a diminution of more than 10% of the property’s value and provided for proceedings related to such a diminution.

Currently, the governing body of a municipality has the power to enact zoning regulations in accordance with its comprehensive plan. When the governing body of a municipality changes the zoning regulations from the comprehensive plan, these changes may adversely affect property value.

Commercial leases

HB 3190 — Effective Sept. 1, 2003

This bill amends the Property Code by changing from a 30-day deadline to a 60-day deadline the time in which a landlord is required to refund a security deposit or to provide documentation of why the deposit will not be refunded. The Texas Legislature in 2001 actually changed the law to a 60-day deadline for return, but a reference to a 30-day deadline was inadvertently not changed. Therefore, this bill should clarify any confusion about the deadline.

Photo by Joel Mathews.

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