Where we stand

Task forces outline association positions on real estate issues that may come into play during the 78th Texas Legislature.

The 78th Texas Legislature convenes on Jan. 14, 2003. Our association’s task forces have been hard at work gathering member input and studying issues that may affect real estate professionals and private-property owners. Here is a summary of the task forces’ findings and recommendations. I sincerely thank all who served on the task forces and everyone who contributed their comments and experiences. We’re looking forward to another successful session for Texas REALTORS®.

–Mary Frances Burleson, TAR Chairman of the Board

PRIVATE-PROPERTY RIGHTS

Homeowner associations

In recent years, the Texas Legislature has been presented with numerous proposals dealing with conflicts between mandatory homeowner associations and their members. A law passed in the 2001 session enhanced protections for homeowners, but problems remain. One continuing issue is the regulation of attorneys’ fees. Some want to limit the amount an attorney may charge for communication with a homeowner when a violation of a restrictive covenant occurs.

Recommendations

• Let current law solve most problems.

• Monitor the issue of excessive attorneys’ fees.

• Any legislative change should not hurt the homeowner associations or homeowners.

Down-zoning

The TAR task force asked whether municipalities are continuing to re-zone property over the objections of landowners. The task force was unable to uncover any recent cases of re-zoning over the objections of property owners.

Recommendations

• Continue to monitor the actions of municipalities.

• If new down-zoning cases can be substantiated or if the Texas Supreme Court overturns the Sheffield decision affirming the rights of property owners, then appropriate legislative action could be initiated.

Streams and rivers

In late 2001, the Texas Parks and Wildlife Commission appointed a task force to review recreational use of state-owned riverbeds by owners of off-road vehicles. Landowners contend these off-road vehicle users trespass on private property, litter, and pose a great danger to the protection of riverbeds and their inhabitants. The task force learned of the difficulty of determining the appropriate gradient line of a riverbank and where the river is open to the public. This has been caused, in some cases, by the extreme use of off-road trucks and SUVs, destroying the gradient lines and foundations of these rivers. Issues that remain to be answered include funding of new game wardens to implement any new laws, access to river beds, and private-property rights.

Recommendations

• Continue to work with the Texas Parks and Wildlife Department on this issue.

• Support preserving natural water sources and habitats while balancing the rights of riverbed users and private-property owners.

County rule-making authority

During the past several sessions, there have been numerous proposals advocating broad county rule-making authority to protect the public health, safety, and welfare. The basis for these proposals has been unprecedented growth in counties adjacent to the most populous counties in the state. These county powers vary but can include regulating land use, regulating structures, platting and subdividing land, and providing and regulating water, sewer, and other utility service to residential property.

Recommendations

• Oppose any new legislative attempts for broad county rule-making authority. The vast majority of counties throughout the state already have adequate rule-making authority.

• However, some counties may have special needs that would justify additional–specific–authority to address those needs.

Frontage roads

Texas has more than 6,481 miles of frontage roads, constructed to avoid adverse impacts to adjacent properties where roadways have been converted to freeways. Earlier this year, the Texas Transportation Commission gave preliminary approval to proposed rules to implement a revised frontage-road policy that would no longer construct frontage roads unless necessary and justified. After numerous public meetings, the proposed rules were deemed to be a detriment to traffic flow and development of adjacent properties and were rescinded.

Recommendations

• Continue to monitor the issue of telemarketing regulation.

• Any tweaking of the Texas law should stop additional telemarketing abuses while allowing for real estate licensees and other regulated entities to continue to conduct business via telephone.

Mandatory sales-price disclosure

Historically, the Texas Association of REALTORS® has not been in favor of divulging the purchase price of residential and commercial properties to third parties. However, some individual local REALTOR® associations have recently signed agreements with local appraisal districts to provide purchase-price information on a regular basis. In addition, the public-school financing structure is currently being debated, and a related issue is whether adequate tools are in place to properly appraise private property.

Recommendations

• Support legislation requiring the mandatory disclosure of sales-price information–with adequate confidentiality protections to forbid the information being released to the public.

• Public release of this information should trigger stiff penalties, which may include fines and incarceration.

County roads

Some rural counties are unclear on the ownership status of county roads. In these cases, there are no records showing county or private ownership of roads that have historically been used by the public and maintained by the county.

Recommendations

• Monitor the county-roads ownership issue.

• Support any proposed cleanup legislation that does not trample on the private-property rights of landowners.

TEXAS REAL ESTATE COMMISSION

TREC strategic plan

The TREC strategic plan for 2003-2007 was approved in June 2002 and reviewed by TAR staff and members of the association’s TREC Task Force. Many areas of the strategic plan were debated by the task-force members, including license fees, continuing education reform, and license renewal periods.

Recommendations

• Take no legislative action regarding mandatory continuing education (MCE) or training for MCE instructors.

• Work with TAR’s Commercial Investment Division to further study TREC’s proposal that would allow out-of-state commercial brokers to actively participate, with certain restrictions, in Texas transactions.

• Pursue legislation amending the requirement that a broker must hang actual licenses on office walls.

• Continue to monitor other issues outlined in the TREC strategic plan.

Electronic signatures

The task force received updates on the newly passed Uniform Electronic Transaction Act and learned of its acceptance in electronic commerce and electronic transactions. The law allows real estate transactions to be conducted electronically and for them to be legally enforceable. The task force did discover that current rules under the Texas Real Estate Commission may be hindering the full use of electronic signatures.

Recommendations

• Work with the Texas Real Estate Commission to make the use of electronic signatures in real estate contracts practical. This includes the possibility of promulgating rules allowing for a TREC form to be changed or modified to incorporate electronic signatures.

Telemarketers

Last session, the Texas Legislature approved House Bill 472 requiring the Public Utility Commission (PUC) to establish a telemarketers’ no-call list that contains the telephone numbers of Texans who requested to be on the list. Telemarketers are required to purchase the no-call list and may face economic damages for violating the law. TAR worked closely with the bill sponsors to exempt REALTORS® who initiate telephone calls to potential buyers.

Recommendations

• Continue to monitor the issue of telemarketing regulation.

• Any tweaking of the Texas law should stop additional telemarketing abuses while allowing for real estate licensees and other regulated entities to continue to conduct business via telephone.

Residential service contracts

A residential service company offers contracts to maintain, repair, or replace all or any part of the appliances, structural components, electrical, plumbing, heating, or air-conditioning systems of residential property. The task force reviewed the Texas Real Estate Commission’s 2003-2007 strategic plan as it relates to residential service companies. The suggestions centered on consistency and uniformity of financial statements, penalty provisions in the Residential Service Contract Act, and prohibiting the payment of a commission to an agent of a buyer or seller of real property who is considering purchasing a residential service contract.

Recommendations

• TAR continue to work with the Texas Real Estate Commission and the Texas Warranty Association on the relevant issues identified in TREC’s strategic plan.

Relocation, referral fees, affinity marketing issues

The Texas Association of REALTORS® in June 2000 appointed a relocation task force to review issues related to relocation moves, such as after-the-fact referral fees, affinity programs, referral programs, agent awareness of relocation procedures, and consumer awareness of such procedures. The relocation task force has recently turned its focus to determine the problems with after-the-fact referral fees. TAR’s TREC Task Force received updates on the relocation task force’s work. The relocation task force continues to address these issues.

Recommendations

• Members of TAR’s TREC Task Force strongly believe the relocation task force has a firm grasp on relocation issues and does not want to interfere with its progress.

• In addition, the relocation task force reports directly to the TAR executive board; therefore, no recommendations are warranted at this time.

Mandatory binding arbitration

Mandatory binding arbitration is an alternative solution to litigation and may have huge cost savings when compared to traditional lawsuits. However, proponents and opponents of arbitration have attempted to significantly increase or limit its use in contracts. The task force further learned about the practice of mandatory binding arbitration clauses; many of these clauses are now inserted in credit-card agreements, lay-away or payment plans, health- care, employment, and insurance contracts. The effect of modern arbitration statutes is to endow arbitration agreements the same legal protections as other private agreements, thus enabling arbitration to be an effective tool for the legal profession.

Recommendations

• TAR should pursue legislation requiring disclosure to consumers when a mandatory arbitration clause is inserted into any contract.

• Disclosing when a mandatory arbitration clause is in place, and what it means, will help make consumers aware of the potential effects of signing the contract.

TAXATION

Texas is potentially facing a multibillion-dollar budget deficit during the 78th legislative session, which begins in January. This budget shortfall is significant because, for the past three sessions, lawmakers have enjoyed budget surpluses when writing the two-year state budget. These surpluses have stifled the need to raise taxes. Until now. Meanwhile, the continued financing problems of our public education system are also putting a strain on the state budget. All of this leads to a 2003 legislative session of tough fiscal choices.

Recommendations

• Close the franchise-tax loopholes that siphon off much-needed tax revenue. For tax purposes, limited partnerships should be treated the same as a limited liability corporation. In Texas, partnerships are currently exempt from paying any franchise tax. Closing this and other loopholes may provide between $295 million and $350 million revenue per year.

• Support legislation creating penalties for businesses that do not render their business personal property to appraisal districts. Current state law requires all businesses to render their personal property, but many do not. At the same time, appraisal districts should be subject to oversight so they cannot collect business renditions through inappropriate tactics.

• Support legislation to increase the state fuel tax up to 10 cents per gallon. Texas currently only funds one-third of all approved transportation projects. Any increase in the fuel tax is constitutionally required to be spent on transportation and education.

• Oppose any legislation that will make it harder for Texans to realize the American dream of homeownership. This recommendation includes opposing a tax on the sale or transfer of real estate and opposing the placement of a tax on services and commissions of real estate professionals. Each of these proposals would negatively impact the real estate industry, ultimately affecting the state economy.

• Support legislation that will comprehensively review the state’s current tax structure and ask if there is a better way to fund state programs and services. If we could create a tax structure that would reduce our property taxes by 75%, would we be interested? If that same structure could increase the value of real estate by 18%-20%, would we be interested? What about dropping the sales tax to 2%-3%? Yes, this recommendation includes reviewing all tax proposals, including a state income tax.

The Texas Legislature, for many years, has taken a Band-Aid approach to any budget shortfall by increasing various taxes. It is widely known that the real estate industry in Texas has taken most of the burden of funding our public education system. The task force strongly believes in fairness and equalization of taxes on all Texans.

A comprehensive review of our tax structure may identify additional avenues on how to pay for state programs and services without placing additional burdens on property owners. Furthermore, a comprehensive review of our tax structure must also be coupled with a comprehensive review of our state budget spending. Current state spending must be scrutinized and prioritized. We need to know the positives and negatives of each proposal and what "controls" are also included with each.

INSURANCE

The task force learned that in recent years insurance companies, seeking to avoid rate regulation altogether, have shifted more and more of their business toward unregulated branches called Lloyd’s companies. In addition, the task force received information on recent insurer practices regarding underwriting guidelines. Practices include the use of credit scoring, use of the Comprehensive Loss Underwriting Exchange or CLUE, and factoring in the age of homes.

Recommendations

• Forbid the use of credit scores by insurance conglomerates and severely limit the use of the Comprehensive Loss Underwriting Exchange in writing new or renewing insurance policies. Seek legislation that would prevent the stigmatization of real property and individuals when an insurance claim is filed.

• Close the loophole that allows insurance companies to write more than 95% of their homeowners’ insurance policies through unregulated Lloyd’s companies or subsidiaries. Without any closure of this insurance loophole, it’s estimated that more than 98% of all homeowners’ insurance policies will be written by unregulated companies within the next few years.

• Require disclosure, in layman’s terms, of actual insurance coverages being offered in home insurance policies.

• Require agency disclosure for insurance agents. The vast majority of consumers are not aware or do not know whether the insurance agent is working for the insurance company or the consumer.

• Establish licensing for public adjusters and mold remediators. These two types of businesses have aggressively advertised their services to the general public, creating hysteria and driving up the cost of insurance mold claims.

• Require insurance carriers to offer their entire insurance portfolio under regulated rates, if they intend to compete in the Texas market. If an insurance carrier wishes to not offer one type of insurance policy, the carrier will forfeit the entire Texas market.

• Prohibit insurance carriers from inserting right-of-rescission clauses into a policy, except for non-payment of the premium. Once a policy is issued, it should remain in full force and effect except for non-payment of the premium.

• Support further study into restructuring the Texas Department of Insurance. This may include dismantling the current commissioner structure and replacing it with a three-, five-, or seven-member board including representatives of the insurance industry, consumer advocates, and private citizens. This type of structure may ensure a more favorable checks-and-balances system benefiting all Texas consumers and industry representatives.

MORTGAGE FINANCE

Mortgage bankers

During the 1999 legislative session, mortgage bankers were excluded from a regulatory bill requiring that all mortgage brokers be licensed in Texas. This exclusion was part of an entire negotiation package made by interested parties to get the bill passed and signed into law. However, an increasing number of consumer complaints are being made against mortgage bankers. In addition, since the Texas Savings and Loan commissioner currently does not have any regulatory authority over mortgage bankers, a mortgage broker who has been found to be engaged in predatory lending practices could easily go across the street and set up ABC Mortgage Bankers Co., and escape the laws and regulations of Texas.

Recommendations

Place mortgage bankers under the auspices of the Mortgage Brokers Act. This would include the regulation, licensing, registration, or oversight of mortgage bankers and give the S&L commissioner the authority to reprimand mortgage bankers who violate provisions of the law.

Home equity lending

In 1997, the Texas Legislature passed home-equity lending provisions. The new law allowed Texans to borrow against the equity in their home. The Texas Association of REALTORS® was heavily involved in the process and was successful in passing a bill that had a number of built-in consumer protections to safeguard against excessive fees, provide valuable disclosures, and enable ample access to home-equity lending. However, since the passage of this landmark legislation, the banking industry has continuously attempted to change certain provisions of the law. At the same time, the Texas Legislature has concentrated its efforts on combating predatory lending practices. After the 77th session, an interim legislative committee was instructed to review lending practices around the state.

Recommendations

• Don’t pursue or support any legislation that would weaken the strong constitutional protections now in place for Texas consumers. However, remain open to proposals that would allow a consumer to use the proceeds of a reverse-mortgage annuity to pay off an existing home-equity loan.

• Strongly repudiate the predatory business practices of lenders who prey on elderly and minority populations, and support legislation that corrects this obvious injustice.

Photo by Joel Mathews.

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