Sunset staff: Eliminate builder commission 
The Sunset staff report on the construction commission is already controversial. The homebuilder lobby immediately attacked the report’s recommendation to abolish the commission. The action of the staff itself, and ultimately the Legislature, will be an interesting test of whether lawmakers are actually committed to reducing the size of government."The Texas Residential Construction Commission was never meant to be a true regulatory agency with a clear mission of protecting the public," the staff report notes. "Despite changes last Session ostensibly to strengthen the process by making builders subject to new penalties if they refuse to offer repair of a confirmed defect, the Commission still has no real power to require builders to make needed repairs.

Sunset staff: Eliminate builder commission 
 by Will Lutz   

Yes. It does happen sometimes. The Sunset Advisory Commission staff recommended abolishing a state agency, the Texas Residential Construction Commission, in a report issued Aug. 19.

The Sunset commission was created to review the work of particular agencies and appraise their continued usefulness – or lack of it. Normally, the commission focuses on improving the structure of agencies; seldom does it actually propose abolishing one.

The Sunset staff report on the construction commission is already controversial. The homebuilder lobby immediately attacked the report’s recommendation to abolish the commission. The action of the staff itself, and ultimately the Legislature, will be an interesting test of whether lawmakers are actually committed to reducing the size of government.

"The Texas Residential Construction Commission was never meant to be a true regulatory agency with a clear mission of protecting the public," the staff report notes. "Despite changes last Session ostensibly to strengthen the process by making builders subject to new penalties if they refuse to offer repair of a confirmed defect, the Commission still has no real power to require builders to make needed repairs.

"Because homeowners must submit to this process before they may seek remedies in court, those who fail to satisfy its requirements either out of confusion or frustration lose their access to court. No other regulatory agency has a program with such a potentially devastating effect on consumers’ ability to seek their own remedies …"

The staff concluded that that anything short of a true regulatory program does more harm than good, so that the commission should be abolished.

The Texas Association of Builders is defending the commission, however.

"Today," said TAB vice president Ron Connally, "the Sunset Commission staff released a short-sighted recommendation that would harm consumers by returning Texas to the uncertainty of unregulated home builders and the complete absence of consumer protections, including mandatory written warranties and clear building and performance standards.

"The Texas Association of Builders is disappointed that the Sunset Commission staff has recommended throwing the residential construction industry in this state back to a time when there was no regulation at all of the industry, with no corresponding ability to prevent bad actors from continuing to harm Texas consumers. Without the TRCC’s dispute resolution process, homeowners with construction defects that are currently being resolved in an expedient and cost-effective manner will be left with nowhere to turn but time consuming and expensive litigation."

The Residential Construction Commission, legislatively created in 2003, had been sought by the builder lobby. Prior to the passage of HB 730 (which created the commission), the Residential Construction Liability Act (RCLA) governed disputes between homeowners and homebuilders on construction defects.

The act requires builders to offer to settle and fix defects and significantly reduces available damages if builders behave reasonably.

In 2001, the Fort Worth Court of Appeals issued its decision in Perry Homes v. Al-Watari, which held that a builder who behaves unreasonably can have damages assessed under the Deceptive Trade Practices Act, which calls for more damages than does RCLA.

Much of the debate over the commission surrounds its state inspection and dispute resolution procedure, which is a prerequisite to filing a construction defect lawsuit. But the real purpose behind HB 730 was to knock out Perry Homes v. Al-Watari and reduce the damages that can be assessed against builders who mistreat their customers.

Perry Homes is owned by Bob Perry, one of the largest donors to Texas Republicans — especially candidates loyal to Gov. Rick Perry (no relation) and Speaker Tom Craddick. The company’s general counsel, John Krugh, was instrumental in the formation of HB 730 and currently serves on the commission. This is one of the reasons the Sunset staff’s report is all the more remarkable – it gores the financial ox of one of the largest donors to the current state leadership.

HB 730, in addition to imposing new fees on homes and builders, eliminates all implied warranties on new homes. Previously, all homes sold in Texas had implied warranties of habitability as well as of good and workmanlike construction.

The former warranty could not be waived by contract. HB 730 replaces these implied warranties with the rules promulgated by the new state agency, though the agency is required to incorporate a statutory warranty of habitability into the rules.

The commission consists of four builders, an engineer, a building inspector or architect, and three public members. Critics of the commission, including the Sunset staff, argue that the commission is stacked in favor of the builders, as several of its non-builder members have worked in the industry.

In addition to the changes in the standards to which builders are held, the law makes it harder and costlier for homeowners to address a construction defect grievance with a builder.

Prior to filing a lawsuit, a homeowner must file a request with the commission for an inspection and pay a fee that in some cases can be shifted back to a builder. The inspector, hired by the commission, looks at the property and issues a report that may be appealed to another panel of commission inspectors. The report does not bind a builder to do anything, but it is admissible in court or arbitration.

Because of the controversy over the bill, the Legislature passed a law last year giving the agency additional powers. It requires builders to register with the commission, a registration that may be revoked under certain circumstances. According to the Sunset report, a total of 41 registrations were revoked in 2006 and 2007.

Likewise the new law raised fees against homeowners. In 2003, existing law stated that if a state inspector found a defect, the builder had to pay for the inspection.

This feature was part of the selling point for the bill — assuring homeowners that it wouldn’t cost homeowners them more money to address their grievances with builders.

That was until 2007, when the law was changed to require that the inspector’s report be more generous than the builder’s initial offer to fix the defect before any fees shift. Therefore, homeowners have to pay more and spend more time to get to court with a builder.

The builders argue that the state inspection procedures help consumers.

In 2003, the House Regulated Industries Committee held a lengthy hearing where it was seriously discussed what the bill really does. All sides had the opportunity to give input.

Once the bill left that committee, however, the process became much less deliberative.

The bill was set on the House calendar for a Friday evening and was taken up after 8 pm. It was sent on the calendar right after HB 2292, an omnibus health and human services bill that Democrats and newspaper editorial boards spent a lot of time fighting. After HB 2292 passed, most of the press wrote on that. Few paid any attention to HB 730.

A few members did. Rep. Burt Solomons (R-Carrollton) and Sens. Robert Duncan (R-Lubbock), Royce West (D-Dallas), and Leticia Van de Putte (D-San Antonio) worked get concessions for consumers.

Builders were required to register, a statutory warranty of habitability was added, the number of builders on the commission was reduced from six (two-thirds of the commission) to four, and a clause was added stating that a defect is not – in and of itself – a violation of the Deceptive Trade Practice Act. This last clause caused some consumer advocates to believe that the bill did not knock out the Deceptive Trade Practice Act. But the clause that knocks out Perry Homes v. Al-Watari remained in the bill.

The Senate Business and Commerce Committee held a brief hearing on the bill. Chairman and bill sponsor Troy Fraser set a three-minute time limit on all witnesses and berated critics of the bill, demanding they explain their opposition to creating a procedure where customers and builders can resolve disputes without hiring a lawyer.

The time limit prevented the bill’s critics from explaining how the bill lowers standards for builders or that the then-existing RCLA already required negotiation to fix the defect as a prerequisite to litigation.

After concessions were made to consumers, the bill passed.

In 2005, Perry named Krugh to the commission. West and Duncan fought against his confirmation. The Senate delayed the final vote until the very end of the session, and Krugh was eventually confirmed, 25-6.

In 2006, Rep. Todd Smith (R-Euless) asked then-Comptroller Carole Keeton Strayhorn to examine the commission. The chairman of the committee that oversees the agency, Rep. David Swinford (R-Amarillo), requested an Attorney General’s opinion on whether Strayhorn had the authority to examine the agency, as his committee had an interim charge on the agency.

Atty. Gen. Greg Abbott ruled Strayhorn did not have the authority to look into the matter. She issued the report anyway. It surveyed homeowners who had gone through the inspection process and found that most were dissatisfied with the commission.

In 2007, Swinford passed a bill addressing some concerns with the commission by giving the agency power to revoke builder licenses. One of the arguments made for keeping the commission is that without the registration function, bad builders will be able to come back.

Now the agency is up for Sunset. The commission will examine the staff recommendations at its September meeting. Votes will be taken in November.
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