BILL ANALYSIS: CSHB 2295 (TRCC Sunset
bill)
Rep. Ruth McClendon's Bill
Analysis is inaccurate and misleading, as shown in this marked-up version. HOT provides its
own analysis below.
This bill is clearly written by attorneys
representing builders and their interests. It's disguised as "consumer-friendly" but is far from it. At first
glance, the bill seems to have new provisions for homeowners. But in-depth study reveals a more sinister
side. Rather than improve the TRCC, the bill would make the agency far worse than it was before.
Here's why:
The 62-page bill is horribly deceptive and intentionally convoluted and misleading,
constantly linking to different sections of the bill or to different statutes entirely. The only reason for doing
that is to hide its true intent, and only an experienced construction law attorney would even notice after days of
study.
- Abolishes local arbitration. The bill is written in such a
way as to hide the fact that it does this.
- No judicial review. The bill prohibits a judge from
overturning an arbitration award that is in clear violation of Texas law.
- Voluntary mediation. The bill includes a section titled,
VOLUNTARY MEDIATION, but it's an illusion. Hidden in what is actually said, and not said, is the
truth.
- Regulatory oversight. The bill replaces the term builder
"registration" with "licensing," but registered builders are automatically granted a license. There's nothing
to get rid of bad builders or prevent unqualified persons from entering the field. And homeowners will
unwittingly think the State is regulating the industry and protecting them.
- Bonding. Rather than require a performance bond for each
home, builders only need a $25K surety bond. For a company building 30K homes per year, that's less than $1 per
home.
Our detailed analysis follows, but we're sure that there are more land mines that
we've not yet discovered. Better than trying to fix this bill and this agency, or trusting anything
with builder lobbyist fingerprints on it, is to let the TRCC sunset. Better still is to replace ALL of the
language of this bill with the language that Representative Leibowitz introduced in HB 2243. That
would abolish the TRCC and replace builder registration with licensing administered by the Texas Department of
Licensing and Regulation (TDLR).
ARBITRATION
Under Section 66(6), this bill abolishes Subtitle E,
Title 16 of the Texas Property Code that mandates local arbitration of residential construction disputes in Texas
and authorizes a Texas judge to overturn an arbitration award that is in clear violation of Texas law. Under
this provision a property owner would lose the right to have an arbitration proceeding in a residential
construction dispute heard in the county where the property is located. The homeowner could be forced to
attend an arbitration proceeding anywhere in Texas or the United States, and would have absolutely no right of
appeal under any circumstances of an arbitration award that was clearly in violation of Texas law. If the homeowner
is forced to travel to another state for the arbitration proceeding such as Michigan or New York, the law of that
state could be applied to govern the outcome of the dispute even though the property is located in
Texas.
FROM CSHB 2295, PAGE
60:
SECTION 66. The following provisions of
the Property Code are repealed:
(1) Section 401.002(12);
(2) Section 416.011;
(3) Section 416.012(b);
(4) Section 418.002(d);
(5) Section 428.001(c); and
(6) Subtitle E, Title
16.
THIS CURRENT LAW IS
AFFECTED:
TITLE 16. TEXAS RESIDENTIAL CONSTRUCTION COMMISSION ACT
…
SUBTITLE E. RESIDENTIAL CONSTRUCTION ARBITRATION
CHAPTER 436.
GENERAL PROVISIONS
…
Sec. 436.003.
VENUE. (a) An arbitration of a dispute involving
a construction defect shall be conducted in the county in which the home alleged to contain the defect is
located.
(b) The
requirements of this section may not be waived by contract.
MEDIATION
Under Sections 55(a) and 428A.004, voluntary mediation
is an illusion because it is subject to a builder requesting a third party inspection, which virtually never
happens. This bill also contains no requirement for local mediation, which means that the builder can demand
that mediation occur anywhere in Texas or the U.S. The lack of local mediation creates the same problems
identified with arbitration above including the potential application of another state’s law to a Texas property
dispute.
FROM CSHB 2295, PAGE 44:
SECTION 55. Section 428.001(a), Property Code, is amended to read
as follows:
(a) If a dispute between a homeowner and a builder arises out of
an alleged construction defect, the homeowner or the builder may submit to the commission a written request for
[state-sponsored] inspection under
this subtitle [and dispute resolution].
If the builder files a request under this section,
the homeowner may submit a request for mediation as provided by Section 428A.004.
"If the
builder..." is the legal condition that allows the homeowner to request voluntary SIP, but
this condition will virtually never happen. The only reason it's there is to prevent truly voluntary mediation.
What's important in Section 428A.004 that follows is what it does NOT say.
It does NOT say the homeowner has the right to request mediation, only that the commission shall establish
procedures.
FROM CSHB 2295, SECTION
428A.004:
CHAPTER 428A. OFFICE OF OMBUDSMAN; VOLUNTARY
MEDIATION
…
Sec. 428A.004. VOLUNTARY
MEDIATION. (a) The commission by rule shall
establish procedures for a builder and homeowner to engage in a third-party mediation, as described by
Section 154.023, Civil Practice and Remedies Code, performed by a third-party mediator not
employed by the commission, of a dispute involving a construction defect as an alternative to the
inspection process under this subtitle, if the homeowner, before the expiration of the time to submit a
request for inspection under Section 426.006, and before a third-party inspection has been performed,
submits a statement to the commission and the builder, in the form prescribed by the commission, that the
homeowner is requesting mediation as an alternative to the state inspection process. If a homeowner requests mediation under this section, a builder is required to
participate in mediation in good faith, as determined by the mediator.
(b) Notwithstanding any other law, if the homeowner
requests mediation under this section, an action described by Section
426.005(a):
(1)
may not be filed before the expiration of the mediation period unless an
agreement is executed as a result of the mediation that is breached before the end of the mediation period;
and
(2)
must be filed on or before the later of:
(A) the expiration of any applicable
statute of limitations; or
(B) the 45th day after the earlier
of:
(i) the expiration of the
mediation period; or
(ii) the execution of an
agreement as a result of the mediation.
(c) For the purposes of this section, the mediation
period expires on the 90th day after the date the homeowner submits a statement of intent to engage in
mediation under this section. A homeowner or builder may, in
accordance with Subsection (b), file an action described by Section 426.005(a) if no agreement is reached
before the expiration of the mediation period.
(d) A builder's failure to comply with an agreement
executed by the parties as a result of a mediation under this section is grounds for disciplinary action under
Chapter 418, including the imposition of an administrative penalty under Chapter
419.
(e) The parties to a mediation under this section
shall split the fees of the third-party mediator equally.
(f) For purposes of
Chapter 27, good faith participation in mediation under this section, as determined by the mediator, for
the mediation period established by this section constitutes a final, nonappealable determination under
this subtitle and completion of the state inspection process, and a written agreement to mediate
submitted by the parties under this section constitutes a request under Section 428.001. For the purposes
of Section 27.004(l), if the builder makes a repair pursuant to an offer under Section 27.004(b),
the builder may engage any third-party inspector to inspect the repair and
determine whether the residence, as repaired, complies with the applicable limited statutory warranty and
building and performance standards.
BIASED PROCEEDINGS
TRCC proceedings are
inherently biased and unfair, resulting in a 12% complaint resolution rate. Not a single consumer has
testified in favor of retaining this agency during the Sunset Advisory Commission Hearings in September 2008 and
two House committee hearings in March 2009.
This bill does not modify the intent of Sections 426.005(a) and 426.006(a) of the
Texas Property Code which mandate TRCC jurisdiction of residential construction disputes and implement a 1-year
statute of limitations and warranty on workmanship construction defects.
FROM CSHB
2295:
Sec. 426.005. PREREQUISITE TO ACTION. (a) A homeowner or builder
must comply with this subtitle before initiating an action for damages or other relief arising from an alleged
construction defect.
…
Sec.
426.006. TIME FOR REQUESTING INSPECTION [AND DISPUTE RESOLUTION]. (a) For an alleged defect discovered during an applicable warranty
period, an [the state-sponsored] inspection through the state inspection
program [and dispute
resolution process] must be requested on or before the second
anniversary of the date of discovery of the conditions claimed to be evidence of the construction defect
but not later than the 90th day after the date the applicable warranty period
expires.
NON-APPEALABLE
Section 428A.004(f) of the bill introduces “final,
non-appealable determination” language describing mediation, and like most of the bill, is so horribly convoluted,
confusing, vague, and open to interpretation that it is an invitation to litigation and
abuse.
FROM CSHB 2295, PAGE
44:
CHAPTER 428A. OFFICE OF OMBUDSMAN; VOLUNTARY
MEDIATION
…
Sec. 428A.004. VOLUNTARY
MEDIATION.
(f) For purposes of
Chapter 27, good faith participation in mediation under this section, as determined by the mediator,
for the mediation period established by this section constitutes a final, nonappealable determination under this
subtitle and completion of the state inspection process, and a
written agreement to mediate submitted by the parties under this section constitutes a request under
Section 428.001. For the purposes of Section 27.004(l), if the builder makes a repair pursuant to an
offer under Section 27.004(b), the builder may engage any third-party inspector to inspect the repair and
determine whether the residence, as repaired, complies with the applicable limited statutory warranty and
building and performance standards.
OVERSIGHT
This bill provides no effective regulatory
oversight of the $35,000,000,000 Texas homebuilding industry or the TRCC itself, which has the dubious distinction
of being recommended for abolition by two different state reports: the Strayhorn Report in 2006 and the TRCC Sunset Staff Report in 2008. The latter report observed: “The TRCC was never
meant to be a true regulatory agency with a clear mission of protecting the
public.”
LICENSING
Texas is the only major
homebuilding state in the nation that does not license homebuilders. As the TRCC Sunset Staff observed in its
August 2008 Report recommending abolition of the TRCC: “By not ensuring the competence and financial
responsibility of builders in Texas, the regulations do not prevent unqualified persons from entering the field and
thus are not designed to prevent problems from occurring.”
This bill does nothing to ensure the competence and
financial responsibility of builders in Texas, nor does it prevent unqualified persons from entering the
field. This bill contains licensing requirements that are a sham. Virtually all builders who are
currently registered are automatically licensed without having to take an exam, provide any proof of knowledge or
proficiency in construction science or demonstrate financial viability.
In short, this bill does NOTHING to weed out bad
builders and is simply an attempt to "artificially" classify Texas as a state that licenses
homebuilders. Under this bill builders have to complete (not pass) an 8-hour course. Two hours of the
course must be devoted to the following subjects: (1) limited statutory warranties, (2) building and performance
standards, (3) requirements of the International Residential Code; and(4) other statutes and rules that apply to
builders under the TRCC Act. A requirement to spend 30 minutes on each of these subjects in an audited course
is an absolute mockery.
BONDING
This bill requires the
license holder to secure a $25K surety bond, but it does not require homebuilders to purchase performance bonds on
the homes they build. This leaves homeowners with no protection against a builder absconding with their money,
abandoning projects, or building homes that are clearly in violation of the plans and
specifications.
WARRANTY
This bill implements a
2-year workmanship warranty for most construction defects, compared to new car warranties that range
from 3 to 10 years. The car warranty matches well with a typical car loan of 3 to 6 years. A 2-year home
warranty, however, does not match well with a 30-year home mortgage and leaves both the homeowner and the
lender at risk afterwards.
A 2-year home warranty with its resulting statute of
limitations is contrary to the typical 4-year statute of limitations that applies to most other contract actions in
Texas. It's half of the minimum 4-year warranty that should be in effect.
What's the justification for the State of Texas
allowing builders to get away with only offering a two year warranty for a home? When you buy a new pair of
shoes or a new jacket and later find that they don’t fit right or don’t match my wardrobe, you can return them
for an exchange or full refund. Home Depot lets you return a defective cordless drill with no questions asked.
Target lets you return a DVD player. Shouldn't something approaching this standard practice also apply to
homes?
BUILDING CODE STANDARDS
This bill deletes
provisions in the Texas Property Code that apply building code standards in unincorporated areas identical to those
applicable in the county seat. This change would allow the TRCC to establish building code standards in
unincorporated areas - standards that would inevitably reflect the minimal code standards advocated by
homebuilders.
FROM CSHB 2295, PAGES 56-57:
SECTION 62. Sections 430.001(b), (d), and (e), Property Code, are
amended to read as follows:
(b) The warranty periods shall be:
(1)
two years [one year] for
workmanship and materials;
(2)
four [two] years for
plumbing, electrical, heating, and air-conditioning delivery systems; and
(3)
10 years for major structural components of the home.
(d) The International Residential Code for One- and Two-Family
Dwellings that applies to nonelectrical aspects of residential construction for the purposes of the limited
statutory warranties and building and performance standards adopted under this section is:
(1)
for residential construction located in a municipality or the extraterritorial jurisdiction of a municipality,
the version of the International Residential Code applicable to nonelectrical aspects of residential
construction in the municipality under Section 214.212, Local Government Code; and
(2)
for residential construction located in an unincorporated area not in the extraterritorial jurisdiction of a
municipality, the version of the International Residential
Code adopted by the commission by rule [applicable to nonelectrical aspects of residential construction in the municipality that is
the county seat of the county in which the construction is located; and
[(3) for residential construction located in an unincorporated
area in a county that does not contain an incorporated area, the version of the International Residential Code
that existed on May 1, 2001].
6 MORE YEARS
Finally, this bill extends the life of the TRCC for 6
more years, even though the original Sunset Bill under HB 2295 extended its life for 4
years.
The TRCC has had a terrible performance
record since its inception. Reports from two separate state agencies documented extensive studies
and recommended abolishing the agency. Every single homeowner who testified (ALL of the 260+) asked
the Sunset Commission and the House Committee on Business and Industry to abolish the agency. The ONLY testimony in
favor of keeping the TRCC was from builders and their representatives, and even some builders said it should be
abolished.
Clearly, the TRCC is the ideal candidate for a
well-deserved final sunset. Surely it not should not be retained for another 6 years.
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