By: McClendon H.B. No. 3803
A BILL TO BE ENTITLED
AN ACT
relating to the municipal and county regulation of and the
oversight by the attorney general of property owners' associations
and unit owners' associations; providing penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle A, Title 7, Local Government Code, is
amended by adding Chapter 230 to read as follows:
CHAPTER 230. MUNICIPAL REGULATION OF PROPERTY OWNERS' ASSOCIATIONS
AND UNIT OWNERS' ASSOCIATIONS
Sec. 230.001. DEFINITIONS. In this chapter:
(1) "Association" means a property owners' association
or unit owners' association.
(2) "Property owners' association" has the meaning
assigned by Section 202.001, Property Code.
(3) "Unit owners' association" means an association
organized under Section 82.101, Property Code.
Sec. 230.002. REGULATORY AUTHORITY. (a) Except as provided
by this chapter, and notwithstanding any other law, a municipality
may regulate the conduct of an association that manages property
located wholly or partly in the municipality or the municipality's
extraterritorial jurisdiction, with respect to matters of
municipal concern, including matters relating to land use, health
and safety, sanitation, infrastructure, and law enforcement.
(b) A municipality may require an association to which this
chapter applies to register with the municipality in the form and
manner determined by the municipality by ordinance.
SECTION 2. Subtitle B, Title 7, Local Government Code, is
amended by adding Chapter 237 to read as follows:
CHAPTER 237. COUNTY REGULATION OF PROPERTY OWNERS' ASSOCIATIONS AND
UNIT OWNERS' ASSOCIATIONS
Sec. 237.001. DEFINITIONS. In this chapter:
(1) "Association" means a property owners' association
or unit owners' association.
(2) "Property owners' association" has the meaning
assigned by Section 202.001, Property Code.
(3) "Unit owners' association" means an association
organized under Section 82.101, Property Code.
Sec. 237.002. REGULATORY AUTHORITY. (a) Except as provided
by this chapter, and notwithstanding any other law, a county may
regulate the conduct of an association that manages property wholly
located in the unincorporated areas of the county with respect to
matters of county concern, including matters relating to land use,
health and safety, sanitation, infrastructure, and law
enforcement.
(b) A county may require an association to which this
chapter applies to register with the county in the form and manner
determined by the county.
SECTION 3. Subchapter C, Chapter 82, Property Code, is
amended by adding Sections 82.1031, 82.1032, 82.1033, 82.1034, and
82.1035 to read as follows:
Sec. 82.1031. TRUST ACCOUNTS. (a) All money paid to a unit
owners' association board by or on behalf of a unit owner pursuant
to an assessment or fee collected for common purpose expenditures
is held in trust. Within two business days after receipt, the board
shall deposit the money in a financial institution in one or more
trust accounts established for the benefit of the unit owners. The
board shall maintain its operating expense accounts separately from
trust accounts maintained for capital expenditures and other common
purposes.
(b) Money held in trust by a unit owners' association board
is not property of the board or the board's designee.
(c) A unit owners' association board shall segregate funds
held for the benefit of unit owners from operating funds held on
deposit for use by the board, as follows:
(1) maintain separate records of account for each unit
owner who pays funds to the unit owners' association pursuant to an
assessment or common purpose expenditure; and
(2) disburse money paid by or on behalf of a unit owner
only to pay for assessments or fees collected for common purpose
expenditures as provided by the declaration, articles of
incorporation, bylaws, or rules of the association.
(d) A unit owners' association board may not commingle money
in a trust account established for the benefit of unit owners with
operating funds of the board or money of other persons or business
entities.
(e) A trust account under this section must at all times
have a cash balance equal to if not greater than the sum of the
balances of each individual unit owner's account record.
(f) A unit owners' association board shall reconcile a trust
account annually under this section. If the board or the board's
designee has more than one trust account, each trust account must be
reconciled separately.
Sec. 82.1032. BOND REQUIREMENT. (a) A person may not be a
member of a unit owners' association board unless the person has
obtained and maintains in force a surety bond issued by a surety
company authorized to do business in this state as prescribed by
this section. A copy of the bond currently in effect must be filed
contemporaneously with the secretary of state.
(b) The bond must be in favor of:
(1) any person who is damaged by a violation of this
chapter; and
(2) this state for the benefit of any person who is
damaged by a violation of this chapter.
(c) For a board member with access to or custody of unit
owners' association funds, the bond must be in the minimum amount
of:
(1) $50,000, if the association is composed of 14
units or fewer;
(2) $100,000, if the association is composed of more
than 14 units but not more than 100 units;
(3) $250,000, if the association is composed of more
than 100 units but not more than 250 units; and
(4) $500,000, if the association is composed of more
than 250 units.
(d) For a board member who does not have access to or custody
of unit owners' association funds, the bond must be in the minimum
amount of $25,000.
(e) A person who is an agent, employee, or contractor of a
unit owners' association board shall obtain a bond described by
this section for the minimum amounts specified in subsection (c) of
this Section, if the person:
(1) has access to or custody of unit owners'
association funds; and
(2) is not required by other law to obtain a bond in
order to engage in activities described by this subsection.
Sec. 82.1033. INSURANCE REQUIREMENT. A unit owners'
association board shall obtain and maintain insurance as required
by Section 82.1031 during the six months preceding the date the
renewal report is filed that:
(1) provides for single limits of at least $250,000
and aggregate limits of at least $500,000, unless the highest daily
balance in the trust account exceeds the aggregate policy limits,
in which event the insurance limits would need to correspond to the
higher amount;
(2) insures against the risks of dishonesty, fraud,
theft, and other misconduct on the part of the unit owners'
association or a board member, employee, or agent of the
association;
(3) is issued by an insurance company authorized to
engage in business in this state and rated at least "A" or
equivalent by a nationally recognized rating organization approved
by the commissioner;
(4) has a deductible of not more than $5,000; and
(5) is payable for the benefit of the association,
this state, a unit owner, or an individual who is a resident of this
state, as their interests may appear.
Sec. 82.1034. OVERSIGHT BY ATTORNEY GENERAL. (a) The
attorney general shall:
(1) monitor the operations of a unit owners'
association board, as appropriate and within the available
resources of the attorney general's office, to ensure compliance
with this subchapter; and
(2) receive and investigate complaints against a unit
owners' association board related to the fiduciary
responsibilities of the board.
(b) At the request of the attorney general, a property
owners' association board shall:
(1) inform the attorney general of the name, business
address, and telephone number of the financial institution at which
the board maintains a trust account under this section and the
account number of the account;
(2) produce evidence of current insurance coverage;
(3) produce evidence of current surety bond coverage.
(c) Failure by the board or its agents to comply with such a
request may result in injunctive relief under this enactment.
(d) If a property owners' association board discovers, or
has a reasonable suspicion of, embezzlement or other unlawful
appropriation of money held in trust, the board immediately shall
notify the attorney general by a method approved by the attorney
general by rule. Unless the attorney general by rule provides
otherwise, the board shall notify the attorney general 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
attorney general of the appropriation in question.
(e) After notice and opportunity for a hearing, the attorney
general may require, on an ongoing basis, that a property owners'
association board, before transferring a trust account from one
financial institution to another, inform the attorney general of
the name, business address, and telephone number of the institution
to which the account will be transferred, and as soon as practicable
after the transfer, the account number at the transferee
institution.
(f) The attorney general may adopt rules as necessary or
appropriate to enforce Sections 82.1031, 82.1032, 82.1033,
82.1034, and 82.1035.
Sec. 82.1035. INJUNCTIVE OR DECLARATORY RELIEF; PROVIDING
PENALTIES. (a) The attorney general may institute an action for
injunctive or declaratory relief to restrain a violation of Section
82.1031, 82.1032, 82.1033, 82.1034, and 82.1035.
(b) In addition to instituting an action for injunctive or
declaratory relief under Subsection (a), the attorney general may
institute an action for civil penalties against a property owners'
association and its agents for a violation of Section 82.1031,
82.1032, 82.1033, 82.1034, and 82.1035. A civil penalty assessed
under this section may not exceed:
(1) $20,000 per violation; and
(2) if the act or practice that is the subject of the
proceeding was calculated to acquire or deprive money or other
property from an owner who was 65 years of age or older when the act
or practice occurred, an additional amount of not more than
$250,000.
SECTION 4. Chapter 209, Property Code, is amended by adding
Sections 209.0042, 209.0043, 209.0044, 209.0045, and 209.0046 to
read as follows:
Sec. 209.0042. TRUST ACCOUNTS. (a) All money paid to a
property owners' association board by or on behalf of a property
owner pursuant to an assessment or fee collected for common purpose
expenditures is held in trust. Within two business days after
receipt, the board shall deposit the money in a financial
institution in one or more trust accounts established for the
benefit of the property owners. The board shall maintain its
operating expense accounts separately from trust accounts
maintained for capital expenditures and for common purposes.
(b) Money held in trust by a property owners' association
board is not property of the board or the board's designee.
(c) A property owners' association board shall segregate
funds held for the benefit of unit owners from operating funds held
on deposit for use by the board, as follows:
(1) maintain separate records of account for each
individual owner who pays funds to the property owners' association
pursuant to an assessment or fee collected for common purpose
expenditures; and
(2) disburse money paid by or on behalf of an owner
only to pay for common purpose expenditures as provided by the
dedicatory instruments of the association.
(d) A property owners' association board may not commingle
money held in a trust account established for the benefit of owners
with operating funds of the board or money of other persons or
business entities.
(e) A trust account under this section must at all times
have a cash balance equal to if not greater than the sum of the
balances of each individual owner's account record.
(f) A property owners' association board shall reconcile a
trust account annually under this section. If the board or the
board's designee has more than one trust account, each trust
account must be reconciled separately.
Sec. 209.0043. BOND REQUIREMENT. (a) A person may not be a
member of a property owners' association board unless the person
has obtained and maintains in force a surety bond issued by a surety
company authorized to do business in this state as prescribed by
this section. A copy of the bond currently in effect must be filed
contemporaneously with the secretary of state.
(b) The bond must be in favor of:
(1) any person who is damaged by a violation of this
chapter; and
(2) this state for the benefit of any person who is
damaged by a violation of this chapter.
(c) For a board member with access to or custody of property
owners' association funds, the bond must be in the minimum amount
of:
(1) $50,000, if the association is composed of 14
units or fewer;
(2) $100,000, if the association is composed of more
than 14 units but not more than 100 units;
(3) $250,000, if the association is composed of more
than 100 units but not more than 250 units; and
(4) $500,000, if the association is composed of more
than 250 units.
(d) For a board member who does not have access to or custody
of property owners' association funds, the bond must be in the
amount of $25,000.
(e) A person who is an agent, employee, or contractor of a
property owners' association board shall obtain a bond described by
this section for the minimum amounts specified in subsection (c) of
this Section, if the person:
(1) has access to or custody of property owners'
association funds; and
(2) is not required by other law to obtain a bond in
order to engage in activities described by this subsection.
Sec. 209.0044. INSURANCE REQUIREMENT. A property owners'
association board shall obtain and maintain insurance as required
by Section 209.0042 during the six months preceding the date the
renewal report is filed, that:
(1) provides for single limits of at least $250,000
and aggregate limits of at least $500,000, unless the highest daily
balance in the trust account exceeds the aggregate policy limits,
in which event the insurance limits would need to correspond to the
higher amount;
(2) insures against the risks of dishonesty, fraud,
theft, and other misconduct on the part of the property owners'
association or a board member, employee, or agent of the
association;
(3) is issued by an insurance company authorized to
engage in business in this state and rated at least "A" or
equivalent by a nationally recognized rating organization approved
by the commissioner;
(4) has a deductible of not more than $5,000; and
(5) is payable for the benefit of the association,
this state, a property owner, or an individual who is a resident of
this state, as their interests may appear.
Sec. 209.0045. OVERSIGHT BY ATTORNEY GENERAL. (a) The
attorney general shall:
(1) monitor the operations of a property owners'
association board, as appropriate and within the available
resources of the attorney general's office, to ensure compliance
with this chapter; and
(2) receive and investigate complaints against a
property owners' association board related to the fiduciary
responsibilities of the board.
(b) At the request of the attorney general, a property
owners' association board shall:
(1) inform the attorney general of the name, business
address, and telephone number of the financial institution at which
the board maintains a trust account under this section and the
account number of the account;
(2) produce evidence of current insurance coverage;
(3) produce evidence of current surety bond coverage.
(c) Failure by the board or its agents to comply with such a
request may result in injunctive relief under this enactment.
(d) If a property owners' association board discovers, or
has a reasonable suspicion of, embezzlement or other unlawful
appropriation of money held in trust, the board immediately shall
notify the attorney general by a method approved by the attorney
general by rule. Unless the attorney general by rule provides
otherwise, the board shall notify the attorney general 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
attorney general of the appropriation in question.
(e) After notice and opportunity for a hearing, the attorney
general may require, on an ongoing basis, that a property owners'
association board, before transferring a trust account from one
financial institution to another, inform the attorney general of
the name, business address, and telephone number of the institution
to which the account will be transferred, and as soon as practicable
after the transfer, the account number at the transferee
institution.
(f) The attorney general may adopt rules as necessary or
appropriate to enforce Sections 209.0042-209.0046.
Sec. 209.0046. INJUNCTIVE OR DECLARATORY RELIEF; PROVIDING
PENALTIES. (a) The attorney general may institute an action for
injunctive or declaratory relief to restrain a violation of Section
209.0042, 209.0043, 209.0044, or 209.0045.
(b) In addition to instituting an action for injunctive or
declaratory relief under Subsection (a), the attorney general may
institute an action for civil penalties against a property owners'
association and its agents for a violation of Section 209.0042,
209.0043, 209.0044, or 209.0045. A civil penalty assessed under
this section may not exceed:
(1) $20,000 per violation; and
(2) if the act or practice that is the subject of the
proceeding was calculated to acquire or deprive money or other
property from an owner who was 65 years of age or older when the act
or practice occurred, an additional amount of not more than
$250,000.
SECTION 5. Section 17, Business and Commerce Code, is
amended to read as follows:
Sec. 17.46. DECEPTIVE TRADE PRACTICES UNLAWFUL. (a) False,
misleading, or deceptive acts or practices in the conduct of any
trade or commerce are hereby declared unlawful and are subject to
action by the consumer protection division under Sections 17.47,
17.58, 17.60, and 17.61 of this code and Chapters 82 and 209,
Property Code.
Sec. 17.47. RESTRAINING ORDERS. (a) Whenever the consumer
protection division has reason to believe that any person is
engaging in, has engaged in, or is about to engage in any act or
practice declared to be unlawful by this subchapter or Chapters 82
and 209, Property Code, and that proceedings would be in the public
interest, the division may bring an action in the name of the state
against the person to restrain by temporary restraining order,
temporary injunction, or permanent injunction the use of such
method, act, or practice.
SECTION 6. The remedies made available to an association
member under this enactment shall be in addition to and not in lieu
of other remedies available under other applicable laws or the
constitution of this state or of the United States. The oversight
authority granted to the Attorney General under this enactment is
not to be construed as an administrative prerequisite to the
pursuit by an association member of any other rights and remedies
available to an association member either at law or in equity.
SECTION 7. The changes in law made by this Act apply to a
unit owners' association or property owners' association regardless
of whether the unit owners' association or property owners'
association was created before, on, or after the effective date of
this Act.
SECTION 8. The provisions of this Act take effect September
1, 2013; provided, however, that the provisions relating to
oversight by the office of the attorney general take effect January
1, 2014.