TX 2011 Legislation Service White Paper (1)

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RealTexas 2011 Texas Legislation Updates

2011 Texas Legislation Overview

Several new updates were passed during the 2011 Legislative Session impacting HOA management and will be detailed in this document. Governing documents do not need to be amended to comply with the new legislation. Legislative updates automatically override current restrictions on such items outlined within. However, several resolution policies will be created to comply with the new legislation. Those along with all existing policies and rules (Pool Rules, Clubhouse Rules, Rental Rules, ACC Policies, Fine Policies, etc.) as well as any governing documents not previously recorded will need to be filed of record with the county/counties in which the association resides and the management certificate updated. The new mandates are effective in stages, with several restrictions permitting certain architectural items and regulating certain transfer fees now in effect. Many election, meeting and director guidelines were passed effective September 1, 2011 and January 1, 2012. Guidelines were put in place affecting assessments, collections, liens, foreclosures, resale certifications and violations effective January 1, 2012. POA records and document requirements will also be effective January 1, 2012.

Per our management agreement, RealManage charges outside the standard Service Level Agreement (referred to as SLA) for state and/or federal legislative updates.

Service White Paper

© 2004-2011 RealManage Holdings, Inc All Rights Reserved 2

LEGISLATIVE ITEMS CURRENTLY IN EFFECT

June 2011 Legislative updates (APPLIES TO SINGLE FAMILY AND CONDOS)

Architectural: The below items must be permitted, but with restrictions

• Solar Panels (§202.010; HB 362) o HOA must permit owners to install solar panels with certain permissible limitations.

• Storm Shingles (§202.011; HB 362) DOES NOT APPLY DURING DEVELOPMENT PERIOD o HOA must allow owners to install shingles of certain materials made to resist wind and hail, provide

heating/cooling efficiency, or generate solar energy. • Flags (§202.011; HB 2779)

o HOA must permit owner to display the US, Texas, or military branch flag, with permissible limitations. • Religious Display (§202.018; HB 1278)

o HOA must allow an owner to display religious items on his front door or doorframe, with certain permissible limitations.

• Rain Barrels/Rain Harvesting devises (§202.007d; HB 3391) – Sept 1 effective date o HOA must permit owners to install and use rain-harvesting devices if they meet certain architectural

requirements. In order to comply, each association will need to determine if the documents allow for architectural guidelines/policies. If they do, they must now be recorded to be enforceable. If a current policy is in place, it must be modified to ensure compliance with the legislation and recorded with the county. If documents allow for policies and the Board of Directors chooses not to adopt additional guidelines, that is fine, but if one is created at any time, it will need to comply with the statute and be filed of record. If the HOA does not have the ability per their governing documents to create an ACC policy, nothing needs to be done. Transfer Fees (Chapter 5, Subchapter G; HB 8): This targets private transfer fees that provide income to developers who use restrictive covenants to require payment every time lot is sold/resold and makes them void. Existing transfer fees are grandfathered. No action will need to be taken by the Board of Directors of existing associations.


LEGISLATIVE ITEMS CURRENTLY IN EFFECT (continued)

September 1, 2011 Legislative updates (APPLIES TO SINGLE FAMILY ONLY)

Declaration Amendment (§209.0041; HB 472) The Declaration may be amended by 67% of owners (or less if already in declaration). Director Qualifications (§209.00591 & §209.00592; SB 472 & HB 2761) NO owner may be disqualified from running for the Board for ANY reason (unless when the Board is presented with written documented evidence that the prospective or serving director is convicted of a felony or crime involving “moral turpitude”, in which case the individual will be removed and prohibited from future service. Election Vote Tabulators (§209.00594; SB 472 & HB 2761) ONLY election vote tabulators shall be allowed access to ballots (person(s) running for the Board or close relatives cannot have access to the ballots for election/vote). Vote tabulator may not disclose how an individual voted. However, a candidate or other person may be given access to the ballots cast as part of a recount process authorized by law.

• Suggestion: at each election require three owners to count ballots with a RealManage employee supervising/assisting.

Owner Voting Rights (§209.0059; SB 472 & HB 2761) NO owner may be disqualified from voting for ANY reason. Secret Ballots (§209.0058; SB 472 & HB 2761) Secret Ballots are prohibited. Owners must sign their ballot. Electronic ballots, now allowed, are considered to be in writing and signed. In an uncontested, association-wide election, written and signed ballots are not required.

• Suggestion: have owner labels at an annual or special meeting; at sign in secure the label on the ballot and have the owner sign the ballot.


LEGISLATIVE ITEMS BEGINNING JANUARY 1, 2012

January 1, 2012 Legislative updates (APPLIES TO SINGLE FAMILY AND CONDOS)

Records and Documents – Recording Requirement (§202.006; HB 1821) UNRECORDED DEDICATORY INSTRUMENTS ARE NOT IN EFFECT AND THEREFORE UNENFORCEABLE

• All existing and new policies and rules (Pool Rules, Clubhouse Rules, Rental Rules, ACC policies, Fine Policies, etc.) as well as any governing documents not previously recorded will need to be filed of record with the county clerk, and the management certificate updated. If an association is located in more than one county, the documents will need to be filed in both counties.

Additional charges by RealManage for work outside of the SLA of the Management Agreement may be incurred by the Association in addition to charges incurred by the owner on behalf of the Association. January 1, 2012 Legislative updates (APPLIES TO SINGLE FAMILY ONLY)

Annual Meetings and Elections (§209.014; HB 2761) The board must hold an annual meeting or owners can call an election meeting.

• This may require an election meeting if annual meeting or board terms are not current. Developer Director Transition (§209.00591c; HB 2761) At least one third of the board members must be elected to the Board by the homeowners (not the declarant) 120 days after 75% of the lots that may be created have been sold to non-declarant owners or at 10 years if the declaration does not include the number of lots that may be created.

• A declarant may appoint and remove Board members during the declarant control period. • Elections may be required to comply.

Director Appointment (§209.00593; HB 2761) Directors may NOT be appointed to terms that have expired (an election of the members is required) – DOES NOT APPLY DURING DEVELOPMENT PERIOD.

• Directors may only be appointed to fill a vacancy created by a resignation, death or disability and only for the unexpired term.

• Compliance may require an election to be called if current terms are expired. Electronic/Absentee Ballots (§209.00592 & §209.00593; SB 472 & HB 2761) Electronic/Absentee ballots are to be allowed and valid. However, they only count toward quorum and only for items listed on ballots at publication. Any items called for consideration on the floor of the meeting are not valid for the previously submitted electronic and absentee ballots for said meeting. Member Meeting Notice (§209.0056; HB 2761) Associations must give owners notice of elections or voting items (10-60 days regardless of the governing documents). Military Notice (§209.006b; HB 1127) MANDATORY inclusion of military notice is established – Notices sent in compliance to Chapter 209 of the Texas Property Code must include a provision notifying owners that they have special rights/relief if in active military duty.

• An inclusion in DRV and Collection final notices shall include the wording: “You may have special rights or relief related to the enforcement action under Federal law, including the Civil Members Service Relief Act (50 U.S.C. app. Section 501 et seq.), if the lot owner is serving on active military duty.”


Open Board Meetings (§209.0051; HB 2761) Board meetings (regular or special) must be open to owners, but with restrictions (including advance notification required for all). Meetings can be adjourned for executive session on specific items with required summarizations.

• The board has the right to adjourn an open board meeting and reconvene in a closed executive session for certain issues as follows: personnel matters; litigation; contract negotiations; enforcement actions; confidential attorney communications; matters involving the invasion of owners’ privacy; or; matters involving parties who have requested confidentiality and the Board has agreed to honor that request.

• Decisions made in executive sessions must be summarized orally in general terms, including any expenditures approved, and recorded in the minutes.

• Boards must keep written minutes as record of each regular and special meeting and give owners access to approved minutes.

• Boards must give members notice of upcoming board meetings (regular and special), including the date, hour, place, and general subject of issues to be brought up in executive sessions.

• The NOTICE OF BOARD MEETING must be either: o Mailed to owners at least 10 days beforehand; or o Provided at least 72 hours before the meeting by: (a) being posted notice in a conspicuous location,

either in a common area or on a HOA website; and (b) being emailed to all owners who have registered their email address to the HOA.

• An owner has a duty to register and keep his email address updated with the HOA. • Allowances are made for certain recessed board meetings to be continued to the next day without notice. • Board meeting notice is not required if:

o The Board meets by telephone or electronically in any alternate manner whereby all directors may speak and be heard by all other directors or by unanimous written consent on: (1) routine or administrative matters, or (2) an action is necessary to address an urgent or emergency situation that requires immediate action.

o The right of a Board to meet and vote without prior notice to the members does not apply if the following matters will be discussed (which would then require an open board meeting with advance notice): (1) fines; (2) damage assessments; (3) initiation of foreclosure actions or enforcement actions; (4) increases in assessments; (5) levying special assessments; (6) appeals from denials of architectural control approval; or (7) suspending rights of an owner before the owner has an opportunity to appear before the board.

o Actions taken without prior meeting notice must be summarized orally, including any actual or estimated expenditures approved, and documents in the minutes of the next regular or special noticed meeting.

o Open board meetings requirements do not apply during the development period unless the meeting is conducted for the purpose of: (1) adopting or amending the governing documents, including declarations, bylaws, rules, and

regulations of the HOA; (2) increasing the amount of regular assessments of the HOA or adopting or increasing a special

assessment; (3) electing non-developer board members of the HOA or establishing a process by which those

members are elected; or (4) changing the voting rights of members of the HOA.

Open Records (§209.005; HB 2761) Associations are to adopt and file of record with the county a policy regarding costs to produce and copy records (if no policy is in place, NO charges may be allowed). Additional charges by RealManage for work outside of the SLA of the Management Agreement may be incurred by the Association in addition to charges incurred by the owner on behalf of the Association.

• Owners (or their agent, attorney or certified public accountant designated in writing) may have access to HOA records, but they must submit written requests to the HOA or its representative by certified mail to the mailing address of the HOA or authorized representative as listed in the current management certificate.

• The request must identify the records requested and indicate whether the requesting owner wants to inspect the records or have the HOA forward copies.

• The HOA then has 10 business days from receipt of the request to, as appropriate:


o Provide written notice of dates on which records may be inspected, or o Provide the requested copies, or o Provide the owner written notice that it is unable to produce the records within the 10-day period and

provide a date, within an additional 15 days, by which the records will be sent or made available to the owner for inspection.

• General exceptions are made for attorney’s files. • Inspection must take place at a mutually agreed upon time during normal business hours. • Records can be produced in hard copy, electronic or other format reasonably available. • Any costs set forth in the association’s cost policy cannot exceed those listed under the Texas Administrative

Code’s charges for providing copies of public information (1 TAC Section 70.3). • HOAs may require the owner to pay in advance. • If estimated costs are lesser or greater than the actual costs, the HOA shall submit a final invoice to owner before

the 30th business day after information is delivered. • If the final invoice includes additional amounts due not reimbursed to HOA before 30th business day after date

invoice sent to owner, the amounts may be added to the owner’s account as an assessment. • If estimated costs exceed the final invoice amount, the owner is entitled to a refund that shall be issued not later

than the 30th business day after the date the invoice is sent to the owner. • HOAs may keep certain records confidential and decline to make them available (e.g., violation histories of

owners, owners’ personal financial information, owners’ contact information other than address, and HOA personnel files) unless the owner gives written approval or a court orders the HOA to release the information.

• Owners denied access to records are given JP court remedies, after certified demand; prevailing party is entitled to attorneys’ fees.

Payment Plan Guidelines (§209.0062; HB 1228 & HB 1821) PAYMENT PLANS ARE REQUIRED for HOA’s with at least 15 lots and must be at least 3 months but no more than 18 months in length.

• Associations must adopt and file of record a payment plan policy. • Application of Payments (§209.0063; HB 1228) – MANDATORY application of payments will be in order of:

(1) delinquent assessments; (2) current assessments; (3) attorney fees/collection costs associated with delinquent assessments; (4) other attorney fees; (5) fines; (6) other.

• If an owner defaults in assessment payments, the association does not have to follow the above schedule, with the exception that fines cannot be given priority over any other amount owed. In the case of default, the owner does not have to be offered another payment plan for two years.

Additional charges by RealManage for work outside of the SLA of the Management Agreement may be incurred by the Association in addition to charges incurred by the owner on behalf of the Association. Records Retention Policy (§209.005m; HB 2761) Associations must adopt and file (record) a records retention policy (for HOA’s with at least 15 lots).

• Adopt and file of record a policy that includes the following: (1) governing docs permanently; (2) financial – 7 years; (3) meeting minutes – 7 years; (4) tax returns/audits – 7 years; (5) owner account records – 5 years; (6) contracts that are one year or more in length – 4 years after expiration.

Recount Procedures (§209.0057; HB 2761) An association must conduct a recount of election votes if requested by an owner with certain restrictions, which are outlined as follows:

• The request from an owner must be in writing, to the mailing address as listed on the latest management certificate, by certified mail, return receipt requested, or other USPS confirmation service or in person to managing agent within 15 days after the date of the election.


• The cost of the recount will be borne by the requesting owner, including the required cost to hire a qualified non-member to do the recount, unless the recount changes the results of the election.

• The recount must be conducted by a current or former county judge, county elections administrator, Justice of the Peace or county voter registrar.

• The recount must be complete within 30 days of owner’s request (the Board will continue to act in the meantime). Website Posting (§207.006; HB 1821) Dedicatory Instruments (setting forth the rules and policies for the association) must be posted on a “PUBLICLY accessible” website if one is maintained by HOA.

• All Dedicatory Instruments must be uploaded; • The RealManage Resident Portal is NOT considered a publicly accessible website.

Copy Charge Foreclosure (§209.009(3); HB 2761) No HOA can foreclose for copy charges related to books and records. Foreclosure Amendment (§209.0093; HB 1228) Members can vote to add/remove foreclosure provisions in the association’s governing documents by a 67% of all votes during a special meeting that requires the presence of at least 10% of all voting interests. Junior Lienholder Notice (§209.0091; HB 1228) Prior notice of foreclosure must be sent to junior lienholders. Judicial Foreclosure (§209.0092; HB 1228) NON-judicial foreclosures are prohibited regardless of what an association’s governing documents state (the Supreme Court of Texas has until 1/1/12 to adopt rules on this process). Lien Notices (§209.0094; HB 1228) HOA lien notices and Notices of Lien affect the title to a property. RESALE CERTS (§207.003; HB 1821) New requirements/timeframes are being set forth as outlined:

• Either the purchaser, seller or their agent or a title company may request a resale certificate. • The purchaser pays for the resale certificate fee unless otherwise agreed by the purchase and seller. • HOAs may require payment before beginning the process to issue a resale certificate, but may not process

payment until the certificate is available for delivery. • In addition to the previously established list of required inclusions, there are new requirements regarding:

o The purpose of special assessments; o Disclosure of all lawsuits the HOA is a party to, except ad valorem tax suits against a member of the

POA; and o Statement of all fees, including description, amount and to whom paid.

• A resale certificate may be requested by an owner, prospective purchaser, the agent of either, or the title company. A resale certificate must have been prepared no more than 60 days before the date of delivery. An owner will have to require a new one if a sale falls through and more than 60 days elapse.

• If the party requesting the information is a purchaser or purchaser’s agent, the HOA may require him to provide the subdivision proof of said agency or otherwise has a right to acquire property in the subdivision.

Third Party Collections (§209.0064; HB 1228)

• Before turning an owner’s account over to a debt collector, a 30-day notice of delinquency via certified return receipt requested must be sent.

• Certain contingency fee arrangements are unenforceable; owners are NOT responsible for fees under contingency fee arrangements between an HOA and attorney/third party collections.

• Contingency fee attorneys may want new engagement letters with the associations.


WHAT IS NEXT?

Resolution Policies

The following resolutions have been created and need to be signed:

• Payment Plan; • Collection Policy (previously available in association records); • Record Retention combined with Open Records Production Policy; • ACC Policy – must be created if the if declaration allows the board to create a policy and will be different for each

association based on the declaration allowance. Record all policies and unrecorded documents

• The association can hire RealManage or an Attorney to record all the association policies and unrecorded documents with the county or counties of record.

Update management certificate

• Once all policies and unrecorded governing documents have been recorded RealManage will update the management certificate (there is a fee outside the SLA associated with this).

RealManage will use a process tracker to manage this process in the following steps

• This Service White Paper and attached Resolution Policies sent to all Board of Directors. • Signed Resolution Policies returned from board and uploaded. • File all unrecorded documents, rules, policies.

o Hire the HOA Attorney or RM (cost for either or both). • Update Management Certificate.

o Cost for RealManage to update.

RESOURCES

WWW.LEGIS.STATE.TX.US; WWW.CAPITOL.STATE.TX.US;

Texas Property Code: o Chapter 202; http://www.statutes.legis.state.tx.us/SOTWDocs/PR/htm/PR.202.htm o Chapter 207; http://www.statutes.legis.state.tx.us/SOTWDocs/PR/htm/PR.207.htm o Chapter 209; http://www.statutes.legis.state.tx.us/SOTWDocs/PR/htm/PR.209.htm

House Bill:

o 8 o 362 o 1127 o 1228 o 1278 o 1737 o 1821 o 2761 o 2779 o 3391

Senate Bill:

o 101 o 472 o 498

TX 2011 Legislation Service White Paper (1)

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