Bulletin: TX2021003

Dear Associates:

Introduction

Contained in this bulletin are bills you should be aware of that passed in the 2021 Texas Legislative Session. The legislature had almost 10,000 bills filed and about 3,300 passed. STG lobby team had to review all of the bills for impact on real estate and title insurance.

BILLS AFFECTING TITLE

SB 885 – Quitclaim Deeds

(Effective: 9-1-21)

This bill provides a statute of limitations for quitclaims in the chain of title that establishes good faith purchaser status for subsequent transferees that take the property without additional or actual notice of unrecorded matters. It provides that after the fourth anniversary of the date a quitclaim deed is recorded the quitclaim deed does not affect the question of the good faith of a subsequent purchaser or creditor and is not notice to a subsequent purchaser or creditor of any unrecorded conveyance of, transfer of, or encumbrance on the real property.

What you should do: Until 9-1-2025, our requirements under Texas Bulletin TX000065 still apply. In short, QCDs older than 10 years and between known family members are acceptable. Others continue to require underwriter approval. After 9-1-2025 (4 years after the effective date of the bill) a QCD older than 4 years before the date of policy will be acceptable, unless you have information that the purchaser was aware of any potential title defects.

HB 654 – Rule Against Perpetuities

(Effective 9-1-21)

HB 654 modifies the rule against perpetuities to require that an interest in a trust, other than a charitable trust, would have to vest, if at all, not later than 300 years after the effective date of a trust if:

the trust's effective date was on or after September 1, 2021, or;

the trust's effective date was before September 1, 2021, and the trust instrument specifically provided that an interest in the trust would vest under the law governing perpetuities as applicable on the date the interest vested.

The effective date of a trust would be the date that the trust became irrevocable.

What you should do: See 17.54 Rules Against Perpetuities.

HB 1564 – Related to certain Lots in El Paso County

(Effective 9-1-21)

It adds subchapter F to the Local Government Code (§§ 232.151-232.158) to create a statutory framework to enable around 90,000 lots in El Paso County, many of them abandoned and most lacking utilities and of minimal economic value, to be returned to productive use. It establishes a process for the appointment of a receiver for the purpose of selling the lots. It allows the commissioners court to implement a procedure to determine if a platted lot was abandoned, unoccupied or undeveloped, if the lot:

• had remained undeveloped for 25 years or more after being platted;
• was part of a subdivision in which 50 percent or more of the lots were undeveloped or unoccupied;
• was part of a subdivision in which 50 percent or more of the lots are 10 acres or less;
• had an assessed value of less than $1000 as of January 1, 2021; and
• as of that date, had not been valued for ad valorem taxation as land for agricultural use.

It requires publication and recording of a notice of hearing to determine if these criteria have been met. Within 14 days of its determination, the commissioner's court must post and publish notice of its determination. An aggrieved owner or lienholder then has 60 days from the date of the order to file suit in the district court. Upon final determination that the lot was abandoned, unoccupied, and undeveloped the county must file suit for appointment of a receiver. Notice of the suit is to be provided to owners and lienholders of the lot. The donation of a lot to a receiver is final and not revocable if not challenged within one year of the donation date. The owner’s and lienholder’s legal interests in the property (other than a claim to funds) are extinguished and the receiver is given all authority over the lot that an owner would have. The bill has specific requirements for a court approved sale of the lot, a receiver’s lien for unreimbursed costs, expenses and any receivership fee and escheat of unclaimed funds after three years. It provides that upon closing of the sale fee simple title shall vest in the purchaser.

What you should do: The only document recorded in the real property records prior to a sale under this law is the notice of commissioner's court hearing to determine if the five required elements apply to the lot. Accordingly, if your search reveals any such notice, you should contact a Stewart Title Guaranty Company Texas underwriter regarding the requirements to insure.

HB 3115 – Release of Record of Lien on Homestead Property

(Effective 9-1-21)

This bill amends the statute for affidavits of release of homestead property from judgment liens under Tex. Prop. Code §52.0012. It provides for the filing of both an affidavit of release and certificate of mailing in the real property records, it revises the requirement for mailing notice of the affidavit to the judgment creditor, so that the notice no longer must be mailed at least 30 days prior to filing the affidavit. It also establishes a 90-day period that an affidavit of release of homestead may be conclusively relied on. The 90-day period begins 31 days after the filing of the certificate of mailing. It provides forms for both the affidavit of release and certificate of mailing. Finally, the bill provides that the affidavit does not serve as a release if, within 30 days of filing of the certificate of mailing, the judgment creditor files a contravening affidavit.

What you should know/do: Unless you have reason to believe that the property is not homestead, you may rely on a homestead affidavit of release of judgment lien and certificate of mailing that comply with this statute. You should always make sure your search is current and that no contravening affidavit has been filed.

HB 4374 – Executory Contract Limitations

(Effective 9-1-21)

This bill is designed to allow a commissioner’s court of a rural county (population of less than 100,000) but in a large growth area (within a metropolitan statistical area “MSA” with a population over 1.5 million and adjacent to another MSA with a population over 2 million) to overcome the presumptive application of the requirements of Tex. Prop. Code §5.061, et seq. to the conveyance of residential lots of one acre or less. The commissioner’s courts in those counties can subject executory contracts for conveyance of land of any acreage used or to be used as a residence to the restrictions of the statute.

What you should do: N/A

SB 43 – Wraparound or Wrap Loans

(Effective 1-1-22)

This bill addresses small lenders involved in making wrap loans and registration or licensure requirements under the Finance Code. It requires specified disclosures be made to wrap purchasers, allows rescission of the transaction by the 7^th  day of receipt of the disclosures if they are made before closing, by the 21st day of receipt of the disclosures if they are received after closing and at any time if no disclosures are received by the purchaser. The bill voids the lien securing the wrap loan unless the wrap mortgage loan and conveyance of the residential real estate are closed by an attorney or title company and provides borrowers other consumer protections. It establishes that the wrap lender owes the borrower a fiduciary duty and holds the payments from the borrower in trust.

What you should know/do: You cannot insure any wrap loan lien unless the wrap mortgage loan and the conveyance of the residential real estate securing the loan are closed by an attorney or a title company. You should contact a STGC Texas underwriter if you have any questions about insuring a wrap lien.

HB 738 – Codes of a Municipality

(Effective 6-7-21)

HB 738 adopts the 2012 versions of the International Residential Code and International Building Code as the municipal residential and commercial codes. In order to add to, modify or remove requirements of the codes, a municipality must hold a public hearing before adoption of the local amendment, and adopt the local amendment by ordinance.

What you should know/do: Be aware of what is needed to add, modify, or remove requirements of the codes of a municipality.

HB 1153 – Exemption from Prohibitions on Discrimination

(Effective 9-1-17)

HB 1153 limits certain exemptions from prohibitions on discrimination in certain property sales and rentals by an owner. The exemption applies if the owner does not own more than three single-family homes, does not have any interest or right to proceeds from the sale or rental of more than three single-family homes and the sale or rental is done without a licensed broker, agent or salesperson, or employees of either, or by someone in the business of selling or renting a dwelling. It adopts a definition for “in the business of selling or renting” and excludes attorneys, escrow agents, abstractors, title companies and other professional assistants necessary to transfer title from that definition.

What you should know/do: This bill does not require any action on your part.

HB 1296 – Transfer of Guardianship Proceedings Between Counties

(Effective 9-1-21)

HB 1296 amends the way notice to appear is delivered to a guardian if a court makes a motion to transfer the guardianship to another county or for removal of the guardian because of the guardian’s failure to maintain certification. The notices now must be made by certified mail, return receipt requested.

What you should know/do: Be aware of the change for how notice must be delivered.

HB 1543 - Public Improvement District

(Effective 9-1-21)

HB 1543 imposes the same obligations and penalties relating to notices of property in a public improvement district as those currently imposed related to property in a municipal utility district. It requires that a resolution authorizing the district be filed with the county clerk within 7 days of adoption, the service plan and any amendments or updates to the service plan be filed with the county clerk within 7 days of adoption, sellers of real property within a public improvement district provide the prescribed notice prior to entering into the contract to sell the property (either separately or as an addendum to the contract), and the seller and purchaser sign the notice. It allows the purchaser to terminate the contract if it did not get the notice, provides that the purchaser waives its right to terminate the contract and any claim for damages under the statute if it receives the notice any time prior to closing and the purchaser elects to close. The bill removes the exception for condominium transactions, so condominiums are now also covered by the statute.

The bill provides that a separate copy of the notice with current information must be executed by the seller and purchaser at closing, acknowledged and recorded in the deed records. If a sale is closed without the purchaser receiving the notice and the separate notice is not executed, acknowledged and recorded the purchaser may institute a suit for damages not to exceed $5,000 plus reasonable attorney’s fees or the purchaser may sue the seller for rescission of the sale. The bill provides that all sellers, title companies, real estate brokers and examining attorneys and their agents, representatives and anyone acting on their behalf are entitled to rely on the last filed plan in completing the notice form, and each are not liable for damages for failing to provide the notice when the governing authority has not filed the service plan as required or for unintentionally providing a notice that is not correct under the circumstances. It also provides that no action can be maintained against a title company for failure to disclose the inclusion of the property in a public improvement district when the governing authority has not recorded the service plan. Finally, a purchaser may not recover damages under the bill if the purchaser does not require proof of title by abstract, title policy, or any other proof of title.

What the title company should do: You should continue to except to any recorded resolution authorizing a public improvement district and any recorded service plan which effects the property in each commitment and policy issued on property included in a public improvement district.

HB 2237 M&M Liens

(Effective 1-1-21)

This bill broadens and clarifies various definitions under the mechanic’s lien law, including “improvement” and “labor” to include a design, drawing, plan, plat, survey, or specification provided by a licensed architect, engineer, or surveyor. It includes a definition of “purported original contractor” used in Tex. Prop. Code §53.026 relating to sham contracts. It allows delivery of notice by certified mail or other traceable, private delivery service that can confirm proof of receipt. It extends deadlines to the next day that is not a Saturday, Sunday or legal holiday. It specifies that an original contractor must file an affidavit claiming a lien no later than the 15^th day of the fourth month (third month for residential construction projects) after the month the original contractor’s work was completed, terminated or abandoned. It provides that subcontractors must file the affidavit no later than the 15^th day of the fourth month (third month for residential construction projects) after the later of: the month the claimant last provided labor or materials, or the month the claimant would normally have been required to deliver the last of specially fabricated materials that have not been actually delivered, and the claimant must file an affidavit claiming a lien for retainage not later than the 15^th day of the third month after the month in which the original contractor was completed, terminated or abandoned. It makes clarifications to the deadlines for sending notices of the claim, including a claim for retainage, and provides statutory forms of the notice of claim and notice of claim for retainage. It provides that a suit to enforce a lien must be filed within one year of the last day a claimant may file the lien affidavit, unless extended for up to one additional year by a written agreement with the current owner executed before expiration of the one year period and is recorded. A recorded agreement is notice of the extension to subsequent purchasers.

What the title company should do: You should continue to follow existing guidelines, including the requirements of Procedural Rule P-8.

SB 1588 – Property Owners’ Associations

(Effective 6-18-21)

This bill caps the fee a property owners' association can charge for a resale certificate at $375 and caps the fee for a resale certificate update at $75. It changes the deadline from seven days to five days for the association to deliver required information after a second request for information and increases the cap on damages an owner can seek if the association fails to do so. It requires an association of 60 lots or more or one with a management company to make its current CCRs available on a website to its members. It requires that a recorded management certificate include a telephone number and email address of the person managing the association, its website, and the amount and description of any fees charged in connection with a transfer of property. It requires the association to electronically file any management certificate or amended certificate with TREC within seven days of recording. It relieves owners of liability for interest and attorney’s fees on delinquent assessments if incurred during a period the management certificate is not recorded or electronically filed with TREC. It provides for an appeal by an owner to the board of the association of any denial by an architectural review authority of an application or request to construct improvements. It limits when an association may adversely report an owner to a credit reporting service.

What the title company should do: You should continue to follow existing guidelines regarding association's fees and assessments.

HB 3433- Prohibiting discrimination in insuring

(Effective 9-1-21)

This bill prohibits an insurance company, including a title insurance company, from refusing to insure, limit the amount of coverage or charge a different rate to a person based on that person’s political affiliation or expression. It excludes insuring decisions based on sound underwriting or actuarial principles or required by law and provides enforcement authority and penalties.

What the title company should know/do: Do not base any insuring decision on a person’s political affiliation or expression.

ENTITIES

SB 1203 – Relating to changes to the Business Organizations Code

(Effective 9-1-21)

This bill contains both substantive and technical changes to the Business Organizations Code. It includes changes to enhance the operating capabilities of business entities during an emergency or disaster, advances entity management functions, includes procedural modifications for consents and makes regulatory and filing requirement changes. Of note, it amends Tex. Bus. Org. Code §101.251 to make clear that the Company agreement controls over the certificate of formation regarding whether a Limited Liability Company’s governing authority is its members or managers and provides that the certificate of formation only controls if the company agreement is silent on that issue.

What you should know: This legislative change points out the importance of requiring and reviewing the LLC’s operating agreement along with all other formation documents. You should continue to follow our existing guidelines regarding transactions involving business entities (see STGC Bulletin TX000078).

SB 1523 - Relating to Series LLCs

(Effective 9-1-21)

This bill updates the law on series limited liability companies to provide for a new type of series LLC, a “registered series.” The existing law remains in place and a series formed under it is referred to as a “protected series.” It sets out provisions relating to certain filings made by or for a registered series, provides requirements for the name of a registered series, establishes procedures for mergers and for the conversion of a protected or registered series to the other type of series, and makes certain other changes relating to the regulation of series.

What you should know: The certificate of formation or company agreement must contain a notice of limitation of liability for each series and identify the individual(s) with authority to act/sign. Look to see if the Company agreement expressly provides for the automatic creation of a Series by acquiring an asset into a series named in the deed, or transfer instrument or by Resolution to create the Series. Look for evidence that the company records show each series accounting is kept separate from the other assets of the company or other series, either from the managing member or the company accountant. The Company agreement should provide for the governing authority of the series. If not, then the governing authority consists of the managers associated with the series in the certificate of formation. If the Company agreement does not provide for the governing authority of a series, and the certificate of formation does not associate any managers or members to the series, consult with a Stewart Texas underwriter for additional requirements.

HB 1493 – Relating to Entity Names that Falsely Imply a Governmental Affiliation

(Effective 9-1-21)

HB 1493 amends both the Civil Practice and Remedies Code and the Organizations Code to prohibit the use of an entity name that falsely implies governmental affiliation with a governmental unit. It provides for a governmental unit to obtain injunctive relief and an award of fees and costs in a court action if the court finds the use was willfully intended to imply such affiliation. It also provides a procedure for a governmental unit to make a written request to the secretary of state to determine if a name implies a false affiliation and after notice and final determination the secretary of state may require the entity to cease using the name and require it to file the appropriate instrument to amend its name.  If the entity fails to comply, it authorizes the attorney general to file an action in Travis County District Court for injunctive relief to require compliance and recover its fees and costs.

What you should know/do: Be aware of entity names that may be construed to have a false government affiliation or may have had to get amended to address this issue.

TAXES

SB 1427 – Temporary Tax Exemption related to Appraised Value after Damage in a Disaster Area

(Effective 6-16-21)

This bill clarifies that actual physical damage to property in a disaster area is required to qualify for a temporary tax exemption of a portion of the appraised value under Tax Code §11.35.

What you should do: This change does not affect how you determine if taxes are unpaid.

HB 1090 – Related to Appraisals

(Effective 9-1-21)

This bill shortens the time frame during which the chief appraiser can discover that real property was omitted from an appraisal roll and appraise such property from the preceding five to three tax years.

What you should do: This change does not affect how you determine if taxes are unpaid.

HB 2535 – Chicken Coops and Rabbit Pens Excluded from Market Value

(Effective 1-1-22)

This bill excludes from market value, for tax purposes, the value of chicken coops and rabbit pens used for the noncommercial production of food for personal consumption.

What you should know/do: Don’t overthink it. It is what it is.

HB 3833 – Rollback Period Reduction

(Effective 6-15-21)

This bill reduces the rollback period (from 5 years to 3 years) and interest rate (from 7% to 5%) applicable to additional taxes imposed on recreational, park, or scenic land; public access airport property; or restricted-use timber for which the use of land changed or that is no longer subject to a deed restriction.

What you should know/do: This bill does not change our requirements for providing roll back coverage under P-20 (see STGC Bulletin TX2010009).

SB 725 – Qualification of land for appraisal as a result of condemnation

(Effective 9-1-21)

This bill amends current law relating to the qualification of land for appraisal for ad valorem tax purposes as agricultural land and the liability for the additional tax imposed on such land if the use of the land changes as a result of a condemnation. Specifically, there is no rollback if the property is subject to a right-of-way that is less than 200 feet wide and was taken by condemnation if the remainder of the parcel of land qualifies as agricultural land. It also provides that if the additional taxes are due because the land has been diverted to non-agricultural use as a result of a condemnation, the additional taxes and interest are the personal obligation of the condemning entity and not the property owner from whom the property was taken.

What you should know/do: Unless the land fits the narrow exemption from rollback taxes (i.e. is subject to a right-of-way that is less than 200 feet wide and was taken by condemnation if the remainder of the parcel of land qualifies as agricultural land) this bill does not change the law related to tax liens and rollback taxes. You should continue to handle potential rollback as you have in the past. Coverage for rollback taxes must still comply with Procedural Rule P-20. B.

SB 742 – Installment Payment Option on certain business property located in a disaster area as a response to the COVID-19 pandemic.

(Effective 9-1-12)

This bill is in response to the COVID-19 pandemic as it relates to economic damages. Under the existing law, property taxes can be paid in four equal installments without penalty or interest if the property was in a disaster area, had been damaged as a direct result of the disaster, and met certain other qualifications. This bill establishes a local option for installment payments of taxes on certain business property located in a disaster area or emergency area that had not been damaged by the disaster or emergency.

What you should know/do: Take note of the statutory changes to apply in evaluating future transactions. Remember that Section 105.001 of the Estates Code excludes the value of the homestead and exempt property from the $50,000 (now $75,000) limitation for small estates. Thus, it remains possible for a homestead of $150,000 or more to be handled under a small estate affidavit under Section 205.006.

SB 794 – Disabled veterans and statutory residence Homestead Tax Exemption

(Effective 1-1-22)

This bill clarifies disabled veterans that qualify for the statutory residence homestead tax exemption. It specifies that Tax Code sec. 11.131(b) applies to a disabled veteran who had been awarded, rather than received, total disability compensation and a rating of 100 percent disabled or of individual unemployability by the U.S. Department of Veteran Affairs.

HB 3971 – Restrictions on Property in Historic Districts

(Effective 1-1-22)

This bill requires that the effect of restrictions placed by a historic district on a property owner's ability to alter, improve, or repair their property be considered when determining the property's market value for tax purposes.

What you should know:  Be aware of the clarification under the statute.

COVENANTS CONDITIONS AND RESTRICTIONS

HB 1659 – Amending Restrictive Covenants Considerations

(Effective 6-15-21)

Under existing law (Tex. Prop. Code §209.0041) there is a cap (67%) placed on the percentage of votes that are required to amend certain residential declarations. The existing law provides that amendments to certain residential subdivisions, subject to mandatory membership in a property owner’s association, can be passed by 67% of those entitled to vote (or a lower percentage as prescribed in the declaration). This bill amends that section to exclude amendments that affect a portion of a subdivision zoned for, or containing a commercial structure, an industrial structure, an apartment complex or a condominium, or which previously contained any such structure as specifically allowed under the declaration. It defines apartment complexes for purposes of this amendment as two or more dwellings in one or more buildings that are owned by the same owner, located on the same lot or tract, and managed by the same owner, agent or management company.

What you should know/do: During the development phase of master planned communities, landowners often set aside tracts of land that are known as "commercial reserves." The usage of these tracts is defined by restrictive covenants, commonly referred to as deed restrictions. These tracts are typically reserved for future multifamily or commercial use, once the residential development is ready to support it. In some instances, local property owners' associations have attempted to change the restrictive covenants of a commercial reserve to prevent the tract's use as a multifamily or commercial tract, despite the recorded intentions or the owner's desires. While there are existing protections for certain non-single-family residential property owners against amending restrictive covenants, it has been suggested that these protections should also apply under the Texas Residential Property Owners Protection Act. H.B. 1659 seeks to remedy this situation by ensuring that the original covenants cannot be overturned by a property owners' association without the owner's consent. Removal of any restriction based on an amendment to a declaration requires scrutiny of compliance with the provisions in the declaration relating to amendments along with all laws applicable to the amendment. You should consult with a Stewart Texas underwriter if you are asked to remove a restriction based on an amendment.

SB 30 – Relating to Discriminatory Provisions in Conveyance Instruments

(Effective 9-1-21)

This bill allows a person who owns real property or an interest in real property the chain of title for which includes a recorded conveyance instrument or document containing a discriminatory provision (one that is void under Tex. Prop. Code 5.026(a)) to request the removal of the provision from the instrument or document. The bill provides for the filing of a form with the district clerk or other court with jurisdiction over real property matters for removal of the provision. It provides the form for use. It provides that the motion is deemed granted if not ruled on within 15 days and provides for expedited appeal. It provides a form order for courts to use, for the filing of the court’s findings in the real property records, and for entry of the findings in the grantor/grantee index.

What you should know/do: You can continue to use the suggested language in the case of covenants and restrictions based on race, color, religion, sex, or national origin that can be found in Section 3.76.7 of Virtual Underwriter. If a search reveals a finding of a court entered under this law, you must determine if the discriminatory provision is the only term, condition or restriction in the document referenced. If it is and thirty days have passed, the order has not been appealed, then the document may be removed as an exception from any commitment or policy. If the thirty day period to appeal has not expired or it is not the only term, condition or restriction contained in the document, then your commitments and policies should continue to reflect the recorded document by Volume and Page reference, unless another reason exists to remove it as an exception.

CEMETERIES

HB 1571 – New Cemetery in City of Mission

(Effective 9-1-21)

HB 1571 amends the Health and Safety Code to allow for the establishment of a new cemetery in the City of Mission if it is established and operating by 9-1-2023.

What you should know/do: Upon establishment refer to Section 3.00.1 related to cemetery considerations in Virtual Underwriter.

HB 1526 – Establishing New Cemeteries in New Braunfels and Seguin

(Effective 6-14-21)

HB 1526 amends the Health and Safety Code to allow both New Braunfels and Seguin by ordinance to permit the establishment of new cemeteries within their municipal boundaries and provides a deadline of December 1, 2022, for a person or entity to file an application to establish or use a cemetery in those municipalities.

What you should know/do: Upon establishment refer to Section 3.00.1 related to cemeteries considerations in Virtual Underwriter.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.