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Property Rights Denied!
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of Managed Communities
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gives appearances of impropriety
Editorial Feature: Part One - Are Homeowners' Rights a Myth? 

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Substitute HB 2295 Changes to TRCC
Tuesday, 21 April 2009

HB 2295 Changes to the Texas Residential Construction Commission

Committee Substitute

1.  Continues the Commission for six years 
C.S.H.B. 2295 continues the Commission for six years and provides for the next Sunset review to include an assessment of the agency’s overall performance, as in any Sunset review, and the agency’s ability to implement statutory changes and management actions resulting from this current review. 

2.  Clarifies the Commission’s mission 
C.S.H.B. 2295 establishes an agency mission in the Texas Residential Construction Commission Act, which reflects the agency’s dual purpose of providing industry oversight and operating a service-related program through the State-sponsored Inspection and Dispute Resolution Process.  The bill defines the agency’s overall purpose as maintaining oversight of all persons required to be licensed with the agency, ensuring that those persons are responsible and accountable to the homeowners with whom they contract. The bill also includes the Commission’s role in educating builders and homeowners about aspects of the residential construction industry affecting the building and remodeling of Texas homes and facilitating the resolution of disputes between them as part of the agency mission. 

3.  Restructures the Commission 
The bill increases the size of the Commission from nine to 11 members.  The bill adds a public member and provides for both a licensed architect and a building inspector instead of having either of these professions on the Commission.  The bill also provides the staggering of the terms of the expanded Commission. 

4.  Requires builders to meet certain eligibility requirements for licensure 
C.S.H.B. 2295 adds provisions requiring the Commission to adopt rules necessary to implement a licensing program for builders, including rules relating to license eligibility; renewal requirements, examination requirements, and continuing education requirements; security and insurance requirements; and disciplinary actions.  The bill specifies that applicants for licensure who apply on or after September 1, 2011 must take a licensing examination prescribed by the Commission.  The bill also requires builders to post a $25,000 surety bond, approved by the Commission, as a condition of licensure. 

The bill authorizes the Commission to issue a provisional license and specifies eligibility requirements for the license, including granting a provisional license to an applicant who has been licensed or registered by another jurisdiction with substantially equivalent standards and who remain in good standing with that jurisdiction.  The bill provides that a provisional license is only valid for 30 days.  The bill also makes conforming changes to refer to the licensing instead of the registration of builders. 

5.  Requires builders to complete an eight hour class before becoming fully licensed 

The bill requires builders to complete an eight hour course – one hour of which must address ethics and two hours or which must address limited statutory warranties, building and performance standards, requirements of the International Residential Code, and other provisions in law that apply to builder – within the first month of licensure.  The bill requires the Commission to issue a provisional license to persons who have not completed the required coursework and to issue an original license to persons who complete the required coursework within 30 days of receiving the provisional license.  The bill requires the Commission to review the builder’s compliance with completion of the eight-hour course before issuing an original license.  The bill also provides that the new course requirement and provisional license apply only to persons applying for licensure for the first time on or after January 1, 2010.

6.  Increases continuing education requirements for licensed builders and remodelers.  

The bill requires licensed builders and remodelers to have 16 hours of continuing education every two years.  C.S.H.B. 2295 also prohibits licensed builders from completing the existing requirement for one hour of ethics education by self-directed study and it conforms the existing prohibition against self-study to the two-year license renewal cycle. 

7.  Renames the State-sponsored Inspection and Dispute Resolution Process 

C.S.H.B. 2295 changes the name of the State-sponsored Inspection and Dispute Resolution Process to the State Inspection Program and makes conforming changes throughout the Texas Residential Construction Commission Act. 

8.  Clarifies exemptions from licensure for certain individuals making improvements to the interior of an existing home 

C.S.H.B. 2295 clarifies that persons who make an improvement to the interior of an existing home when the cost of the work exceeds $10,000 and sell the home immediately following the completion of the remodeling are responsible as a builder for the statutory warranties provided in the Act and are required to become licensed as a builder.  The bill also clarifies that individuals who improve their homestead by making improvements to the interior of their primary residence when the cost of the work exceeds $10,000 and then immediately sell the home, are not considered builders for purposes of licensure or statutory warranties. 

9.  Requires posting of complaint information 

C.S.H.B. 2295 requires the Commission to post on its website, and annually update, information regarding the number of complaints the commission receives in a calendar year regarding a builder that are justified.  The bill also requires the Commission to post these complaints as a percentage of the number of homes the builder has registered.  The bill defines a justified complaint as one that is considered closed by the agency and the Commission has taken disciplinary action against the builder.

10.  Provides criminal penalties for failure to obtain licensure 

C.S.H.B 2295 provides criminal penalties for persons acting as a builder without a license.  The bill defines the offense as a Class B misdemeanor. 

11.  Allows flexibility in nonprofit organizations’ ability to designate a primary agent 

The bill requires nonprofit organizations to designate either one of its officers or executive-level administrators as its agent. 

12.  Clarifies the Commission’s enforcement authority 

The bill clarifies the Commission’s authority to consider revocation and suspension of a builder’s license without the builder having had repeated violations that result in disciplinary action.  The bill also authorizes the Commission to take disciplinary action against a builder or designated agent for failure to participate in the State Inspection Program, failure to make an offer to repair, failure to respond to a Commission request, failure to comply with the requirements of the County Inspections Program without the builder having to violate these requirements multiple times. 

The bill also adds as grounds for disciplinary action the failure to comply with the post-State Inspection Program reporting requirements and the failure to substantially complete all of the obligations under an express contract for construction, if found by a final, non-appealable court judgment.  The bill also adds as a ground for disciplinary action, the failure to comply with Commission rule regarding the duties and obligations of a Third-party Inspector to disclose a conflict of interest.

The bill adds to the Commission’s disciplinary power the authority to prohibit an individual from acting as a builder, or from owning or operating a company that supplies goods or services to a builder or contractor for a period of time and under conditions specified by the Commission.

C.S.H.B. 2295 also clarifies the Commission’s cease-and-desist authority, including the authority to assess administrative penalties as part of a cease-and-desist order, and the authority for the Executive Director to issue an emergency order in cases involving unlicensed activity. 

13.  Establishes contract requirements for binding arbitration clauses

C.S.H.B. 2295 requires written arbitration agreements to include a statement, initialed by each party to the agreement that each party has chosen to arbitrate a controversy that exists at the time of the agreement or that arises between the parties after the date of the agreement.  The bill also provides that a party to a contract may not require any other party to the contract to agree to arbitration as a condition to a contract.  The bill also requires builders to display arbitration clauses in 12-point bold font type in a residential construction contract.

14.  Establishes a consumer recovery fund 

C.S.H.B. 2295 establishes a recovery fund, within the Texas Treasury Safekeeping Trust Company, to reimburse consumers who have completed the State Inspection Program or voluntary mediation, as outlined in the bill, for damages caused by builders for violations of the Act if the homeowner:  obtains a court judgment against a builder and perfects a judgment lien for unsatisfied damages; proves a claim against a builder in a bankruptcy proceeding for damages that are uncollectable because of a ruling of the bankruptcy courts; or proves damages, including attorneys fees and court costs are less that $10,000, the builder has not repaired the construction defects and the damages are uncollectable without civil action.

The bill requires the agency to hold a hearing after receiving a request for payment to determine if the person is entitled to payment and the amount of the payment.  The bill limits payments from the fund to the lesser of the amount of actual damages or $75,000. 

C.S.H.B. 2295 provides for a one-time deposit to the fund account any excess revenue collected by the agency during fiscal year 2010 that exceeds direct or indirect agency costs.  The bill also provides for the comptroller to annually deposit 10 percent of the administrative penalties collected by the agency into the fund.  The bill prohibits the fund from holding a balance in excess of $5 million at the end of a calendar year, and requires the Commission to deposit any excess money into the general revenue fund. 

15.  Requires the Commission to produce a pamphlet detailing agency programs 

C.S.H.B. 2295 requires the agency to produce a homeowner information pamphlet, providing basic information about the Commission, the State Inspection Process, statutory warranties, and building and performance standards and how they all relate to new and newly remodeled homes.  The bill requires closing agents to distribute this pamphlet at new home closings and for the agency to mail the pamphlet to homeowners of registered remodeled homes.  The bill also requires builders to declare whether a home registered is new construction or a newly remodeled home. 

16.  Clarifies the amount of State Inspection fees collected by the agency 

The bill clarifies that the agency must collect a filing fee for the State Inspection Program that offsets the expense of assigning a Third-party Inspector. 

17.  Allows both parties to opt out of the State Inspection Program 

C.S.H.B. 2295 authorizes both parties to stop the State Inspection Program and pursue legal action if the timeframe for the agency’s Appeal Panel to issue a final action goes beyond the 30-day statutorily allowed timeframe, or if the Program, at any point, goes beyond 75 days for inspections involving workmanship and materials or 90 days for inspection involving structural elements of a home. 

The bill provides that, if a homeowner or builder cause a delay of more than five days in the completion of a State Inspection, the timeframes, including those that allow the homeowner or builder to opt out of the Program, are extended by the number of days delayed

The bill also clarifies that, if the homeowner uses the opt-out provision before a recommendation by a Third-party Inspector, a ruling on an appeal, or within a 90-day expiration period, a builder has the right to make a written offer of settlement or an election to purchase the home as outline in the Residential Construction Liability Act.  C.S.H.B. 2295 also clarifies that once a final, non-appealable recommendation or ruling issued both parties to the State Inspection can immediately pursue legal action.

18.  Allows flexibility in the agency’s assignment of Third-party Inspectors

The bill allows the Commission flexibility to assign two Third-party Inspectors to those cases involving both structural and workmanship and materials issues.

19.  Requires the agency to implement a priority processing scheme for State Inspection cases 

C.S.H.B. 2295 requires the Commission to adopt procedures, by rule, for processing State Inspection requests, including allocating agency staff and other resources in the most efficient manner to address requests.  The bill requires the Commission to consider ways to expedite the State Inspection Program in cases involving emergency circumstances, such as habitability; appropriate handling of complex case material; and the most efficient use of staff.

20.  Streamlines the State Inspection Program 

C.S.H.B. 2295 eliminates the requirement for homeowners to provide an initial, 30-day written notice to a builder or remodeler before filing a State Inspection request with the Commission.  The bill decreases the statutory timeframe for the agency to assign a third-party inspector to a State Inspection case from 30 days to 10 days after the Commission receives the request.  The bill also authorizes the Commission to use its own staff to conduct inspections in emergency situations.  C.S.H.B. 2295 decreases the timeframe for a third-party inspector to complete structural case reports from 60 days to 45 days.

21.  Changes appointment provisions for Third-party Inspectors

The bill removes the ability for the homeowner and builder to each strike the appointment of an inspector to conduct State Inspections.  The bill requires Third-party Inspectors to decline an appointment to a State Inspection case and disclose a conflict of interest, including having an employment or financial interest in a business entity or other organization owned by or receiving money from the homeowner or builder involved in the case.  The bill also authorizes the Commission to impose an administrative penalty on or remove an Inspector from the list of eligible State Inspectors if the Inspector knowingly fails to decline and appointment or disclose a conflict of interest. 

22.  Authorizes Third-party Inspectors to include additional defects in the final inspection report 

C.S.H.B. 2295 allows Third-party Inspectors to add defects discovered during the inspection that are not included in the homeowner’s original list of defects filed in the State Inspection request.  The bill specifies that any additional defects listed in the inspector’s final report must be a violation of applicable building performance standards that if left unrepaired, may threaten the health and safety of the home’s occupants, or a violation of a building code applicable to the construction.  The bill clarifies that the Third-party Inspector is not obligated to inspect any alleged defects that are not included as part of the initial State Inspection request. 

23.  Clarifies posting information for State Inspection reports 

C.S.H.B. 2295 prohibits the Commission from including a homeowner’s name when posting a State Inspection final report.  The bill also requires the agency to post whether the builder offered to make repairs, as recommended by the final report, or otherwise resolved the dispute with the homeowner. 

24.  Requires the deletion of all State Inspection cases from the agency’s website and open records when a defect repair is made
The bill requires the agency to remove State Inspection request forms, case material, and final report from its website and internal files if the builder repairs the confirmed defect and if the agency has confirmed with the homeowner and the Inspector that the repairs were made.  The also specifies that such a final report removed from the agency’s website is not subject to public disclosure.  The bill requires the agency to confirm all repairs made with the homeowner and the inspector who performs the second inspection to confirm repairs were, in fact, made. 

25.  Clarifies timeframes for re-inspection of repaired defects 

The bill specifies timeframes for re-inspections of accepted offers to repair as 30 days after completion of the repairs for workmanship and materials cases and 45 days after completion of repairs for structural cases. 

The bill adds language to clarify the process for conducting inspections to determine that repairs comply with the applicable statutory warranty and building and performance standards.  The bill also clarifies that the builder is entitled to a reasonable period of time, no longer than 15 days, as is currently provided in the Residential Construction Liability Act, to address minor cosmetic items that are not necessary to fully complete the repairs. 

C.S.H.B. 2295 authorizes the Commission to require that an alleged defect or repair of a construction defect be re-inspected again by another Third-party Inspector, state inspector, or Commission employee. The bill authorizes the Commission to charge the builder a fee when these types of inspections are performed.  The bill also allows a homeowner to refuse any such inspection of repairs.

26.  Requires builders to report  the status of repaired defects 

C.S.H.B. 2295 requires builders to submit to the Commission information relating to any activities, including settlements, repair efforts, mediation, arbitration or litigation, which have occurred as part of the findings of the State Inspection Process.  The bill details required information on a form prescribed by the Commission, including the builder’s name, name and address of the homeowner, and whether repairs were offered, accepted, and made, and whether the parties pursued further legal action.  The bill requires builders to submit these status reports within the initial 21 days after the report becomes final and non-appealable, and to update the report within 21 days after the defect is repaired and re-inspected, any legal proceedings are final, the builder repurchases the home, or any other resolution of the dispute is finalized.

27.  Establishes an Office of the Ombudsman 

The bill establishes an Office of the Ombudsman in statute to provide information and advice to homeowners and builders engaged in defect repairs and to help them understand the post-inspection process.  The bill also provides for the Ombudsman to help homeowners and builders locate mediation services, if requested, under the Commission’s voluntary mediation procedures.  The bill would also require the lead Ombudsman to be a licensed attorney who would be hired by and report directly to the Commission.  The bill requires the Ombudsman to comment on rules and other policy changes before the Commission. 

The bill also prohibits the Ombudsman from giving legal advice to homeowners or builders.

28.  Establishes a Voluntary Mediation Program 

C.S.H.B. 2295 requires the Commission to, by rule, establish procedures for the builder and homeowner to engage in a third-party mediation in lieu of going through the State Inspection Process.  The bill allows homeowners to choose whether to go through the State Inspection Process or the Voluntary Mediation Program.   Once a homeowner makes the decision to go through the Mediation Program, the bill requires the builder to agree in good faith, as determined by the mediator, to submit to the mediation, and, before the expiration of time outlined for the State Inspection Process, submit a Commission-approved form indicating that both parties have agreed to the mediation as an alternative to the State Inspection Process.  A party to the mediation may not file an action for damages or other relief arising from the alleged construction defect before the expiration of the mediation period, unless an agreement is executed as a result of the mediation that is breached before the mediation period expires.  The bill specifies that a builder’s failure to comply with an agreement reached by both parties as a result of the mediation process is grounds for disciplinary action, including an administrative penalty.  The bill clarifies that the mediation would not be performed by Commission staff, but rather a third-party mediator not employed by the Commission.  The bill also places a time limit of 90 days on the mediation proceedings and clarifies that if the parties have failed to reach an agreement within 90 days, the homeowner may bring forward a law suit.  The bill also clarifies that, if both parties use the mediation program and still pursue other legal action, a builder has the right to make a written offer of settlement or an election to purchase the home as outlined in the Residential Construction Liability Act. The bill requires both parties to split the fees of the third-party mediator equally. 

29.  Extends timeframes for statutory warranties
C.S.H.B. 2295 changes the warranty periods to two years for workmanship and materials and to four years for plumbing, electrical, heating, and air-conditioning delivery systems.  The bill requires the Commission to adopt new statutory warranties and building performance standards under these new timeframes to apply to new residential construction beginning or under a contract entered on or after January 1, 2010.

30.  Redefines the building code for unincorporated areas 

C.S.H.B. 2295 specifies that the International Residential Code and National Electric Code that apply to residential construction located in an unincorporated area that is not in the extraterritorial jurisdiction of a municipality is the version adopted by the Commission, and not the codes of the county seat of the county in which the construction is located.  The bill also deletes language specifying that the codes applicable to unincorporated areas of counties that do not contain incorporated areas are the versions that existed on May 1, 2001.

31.  Establishes the Warranty and Performance Standards Advisory Committee 

The bill requires the Commission to appoint a Warranty and Performance Standards Advisory Committee and establishes the duties of the Committee to evaluate the residential performance standards adopted by the Commission; to review and evaluate any proposed changes to standards brought forward by Commission members, agency staff, or members of the public; and to make recommendations for action to the Commission.  The bill requires the Commission to establish, by rule,  the number of Committee members, qualifications for appointment, terms of service of Committee members, and duties and operating procedures of the Committee.   The bill also authorizes a Committee member to be reimbursed for reasonable travel expenses incurred from Committee-related business.  The bill also adds an instructional provision to the bill stating that the terms of the current members of the Warranty and Performance Standards Advisory Committee expire on the date when the new Committee is appointed.

32.  Expands the eligibility for fee inspectors under the County Inspections Program

C.S.H.B. 2295 expands the eligibility of persons who may perform fee inspections under the County Inspections program to include plumbing inspectors employed by a municipality and licensed by the Texas State Board of Plumbing Examiners and building inspectors employed by a political subdivision.

33.  Abolishes the Star Builder Program 

The bill removes the Star Builder Program from statute. 

34.  Repeals the Residential Construction Arbitration Subtitle 

C.S.H.B. 2295 repeals the Residential Construction Arbitration Subtitle of the Act, which requires arbitrations involving alleged defect disputes to be held in the county where the home is located; establishes a residential construction arbitration task force to study residential arbitrators and arbitration and advise the commission with respect to both; requires a summary of arbitration awards to be filed, within 30 days of filing in a court, with the Commission; and requires the Commission to set a fee assessed for late filing of arbitration awards.  The bill also repeals grounds for vacating an award in residential construction upon showing of manifest of disregard for Texas law.

35.  Applies standard Sunset across-the-board recommendations

C.S.H.B. 2295 adds standard Sunset language requiring the Commission to make effective use of technology in delivery of services and provision of information to the public and requiring the Commission to develop a policy that encourages the use of negotiated rulemaking and alternative dispute resolution.




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