1. Presented by Kelly Flanagan, Legislative Attorney & Abby Lee, Senior Associate Counsel May 20, 2015 1

2.  Overview of Legislative Process  How to Stay Informed  Key Issues  Bills Affecting Leasing & Property Management  Questions 2

3. What is it? How does it work? When does it occur? How long is it? Regular v. Special Session? 3

4. What is it? Generally, session is the period of time in which a legislature is convened for the purpose of lawmaking. 4

5. How does it work?  The Legislature is the lawmaking body of the State of Texas. It consists of two chambers, the house of representatives and the senate. 5

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7. When does it occur? The Legislature meets in regular session on the second Tuesday in January of each odd-numbered year. Currently, we are in the 84 th Regular Session. Session began on Tuesday, January 13, 2015. 7

8. How long is it? The Texas Constitution limits the regular session to 140 calendar days. Regular session will end on Monday, June 1, 2015. 8

9. Regular v. Special Session? Only the Governor may call the Legislature into special sessions. The Governor may call as many sessions as he or she wishes. The Texas Constitution limits the duration of each special session to 30 days; lawmakers may consider only those issues designated by the Governor in his "call," or proclamation convening the special session (though other issues may be added by the Governor during a session). 9

10. How many bills have been filed this session? 6,640 How many is TAR following? 2,187 10

11. Sign up for the Property Management Update 1. Sign in at texasrealestate.com 2. Click on “Settings” 3. Click on “Edit Profile” 4. Click on “Email subscriptions” in the far left column 5. Check “Property Management” 6. Click “Save” Sign up for the Legislative Liaison Same process as above, check “Legislative Liaison” Visit Texas Legislature Online http://www.capitol.state.tx.us/ Visit Guide to TX Legislative Information http://www.tlc.state.tx.us/gtli/home.html 11

12. Homeowners’ Associations (HOAs) Home Equity: Mortgage Finance Infrastructure: Transportation Patent Trolls: Patent Assertion Entities Professional Fees Sales Tax/Transfer Tax on Real Estate Transactions 12

13. Homeowners’ Associations (HOAs) What are the issues? Homeowners associations exist to enhance neighborhoods and increase property values. Increasingly, though, HOAs are taking on functions local governments traditionally provide. The Texas Legislature has addressed HOA issues a number times over the last 20 years, yet property owners and property buyers still voice concerns over actions taken by HOAs. Most of the problems with HOAs generally fall into three categories: Money or collection issues Deed-restriction enforcement Lack of responsiveness from the HOA 13

14. Homeowners’ Associations (HOAs) What does this mean for real estate? HOAs can provide a great benefit to property owners by enhancing their quality of life and the enjoyment of their property. However, when the HOA is not managed well, marketing and selling homes in those neighborhoods can be difficult. What is our position? The Texas Association of REALTORS® supports the Legislature’s continuing effort to reform HOA laws to ensure HOA operations are transparent and consumer-friendly. Any HOA legislation should seek to provide an appropriate balance between private property rights and community standards. 14

15. Home Equity: Mortgage Finance What are the issues? When it comes to home-equity lending, Texas has some of the most conservative homeowner protections in the country. Key among these provisions is the requirement stipulating a home-equity loan may not exceed 80% of the market value of the homestead (80% LTV). Such laws allow ample access to capital while at the same time ensuring homeowners do not incur excessive debt. These legal measures helped insulate Texas from the recession that followed the 2008 housing bubble. 15

16. Home Equity: Mortgage Finance What does this mean for real estate? Some states allow for home-equity loans upward of 120% loan- to-value (LTV), creating a situation where homeowners become instantly upside down because they owe more to the bank than their homes are worth. When real estate values dipped in these states, many homeowners walked away from their obligation. Foreclosures hurt the overall real estate market and lower home values. The current law allows property owners ample access to the built-up equity in their home. What is our position? The Texas Association of REALTORS® opposes any weakening of conservative constitutional protections related to home-equity loans. 16

17. Infrastructure: Transportation What are the issues? Despite statewide Proposition 1 passing, highway and road construction in Texas remains underfunded. The shortfall is due mostly to an underperforming gasoline tax and an unwillingness to adjust the tax or increase other transportation-related fees. The problem is magnified by a population boom, mostly in and around urban population centers. With an insufficient revenue stream, the Texas Department of Transportation (TxDOT) has been forced to over-rely on bond debt to fund roadway maintenance and new transportation projects. However, TxDOT’s main bond programs (State Highway Fund bonds, Texas Mobility Fund bonds, and general-obligation highway bonds) are effectively exhausted. 17

18. Infrastructure: Transportation What are the issues? (cont’d) Additionally, the agency currently pays approximately $1 billion per year (about 10% of its annual budget) in interest payments on the outstanding bond debt—which exacerbates the funding shortfall. With the uncertainty of future federal dollars, diminishing revenue, and depleted bond capacity, TxDOT has also resorted to a large number of public/private partnerships, i.e., toll roads. Clearly, bonds and toll roads are important pieces of the transportation- funding solution, but they will not meet the growing demands on transportation infrastructure by themselves. 18

19. Infrastructure: Transportation What does this mean for real estate? An insufficient transportation network: impedes commerce, Increases the costs of goods and services, creates air quality issues, limits viable housing options, and and decreases the quality of life. 19

20. Infrastructure: Transportation What is our position? The state of Texas must ensure its citizens the right to a safe and efficient transportation system. In doing so, the state must address numerous issues: congestion, capacity, construction and maintenance costs, safety, age and condition of roadways, and the impact transportation delays have on air quality, cost of goods, and quality of life. Failing to pay for infrastructure needs will ultimately cost state taxpayers an extraordinary amount of money in the future. Texas REALTORS® support the following concepts: Cease all non-education diversions from the state gasoline tax Constitutionally dedicate all motor vehicle sale taxes to the State Highway Fund, also called Fund 6 Returning to a pay-as-you-go structure for the construction and maintenance of public roadways The Texas Transportation Commission and Texas Department of Transportation should ensure accountability, transparency, and public involvement in the transportation- planning process A statewide, multi-modal transportation system that facilitates safe and efficient movement of people and goods, including sufficient transportation choices like: roads, freight and passenger rail, waterways, sea and inland ports, and air 20

21. Patent Trolls: Patent Assertion Entities What are the issues? A patent troll, also called a patent assertion entity (PAE), is a person or company that acquires patents for the sole purpose of suing operating companies. The patent trolls do not manufacture products or supply services based upon the patents in question, thus engaging in economic “shake downs.” Recent estimates show business entities in the U.S. have incurred over $29 billion in direct costs because of patent trolls. 21

22. Patent Trolls: Patent Assertion Entities What does this mean for real estate? In recent years, real estate brokers have been the subject of patent-infringement claims, especially regarding criteria- based searches for real estate properties. Patent litigation defendants often end up settling the lawsuit— not because the plaintiff’s case has merit, but because the defendant does not have the resources (which can quickly escalate to six figures) to see the case through to final judgment 22

23. Patent Trolls: Patent Assertion Entities What is our position? Texas REALTORS® support the passage of legislation to prevent bad-faith assertions of patent infringement, in which a PAE seeks to extort a license fee by harassing businesses for purportedly infringing on a patent. 23

24. Professional Fees What are the issues? In 1991, the 72nd Texas Legislature imposed a new annual $200 professional tax on certain professional entities, including real estate brokers. The new fee was originally intended to be temporary, but certain professional entities still pay today 24

25. Professional Fees What are the issues? Real estate brokers are currently assessed a $200 annual fee or $400 for a 2-year real estate license. Currently, $50 of this fee is a direct pass-through to partially fund the one-of-a-kind Real Estate Center at Texas A&M. What does this mean for real estate? The Texas Association of REALTORS® supports the repeal of this tax, which was intended to be temporary, with a goal of doing no harm to the Real Estate Center at Texas A&M. 25

26. Sales tax/transfer tax on real estate transactions What is the issue? The state of Texas imposes a sales tax on leases and rentals of most goods, retail sales, and some services. All local governmental entities have the option of imposing an additional local sales tax for a maximum combined state and local tax of 8.25%. Under the guise of property-tax relief, there are groups proposing a restructuring of the state and local taxing system. Their proposal includes eliminating (or greatly reducing) property tax and replacing lost revenue with an expanded sales tax that would include a dramatic increase in the sales-tax rate and an expansion of the tax base to include the sale and lease of real property. Other entities seek to add a transfer tax to real estate transactions 26

27. Sales tax/transfer tax on real estate transactions What does this mean for real estate? Any tax on real estate transactions would wreak havoc on the real estate market, an important part of the Texas economy. A sales tax on real estate would initially destroy the first- time homebuyer sector. But the problem would quickly extend throughout the entire real estate market. Without the first-time homebuyer component, existing homeowners would have a difficult time selling their property, which would preclude them from moving up. Similarly, adding a transfer tax to a transaction would add another barrier to homeownership and impede the real estate market. 27

28. Sales tax/transfer tax on real estate transactions What is our position? The Texas Association of REALTORS® has conducted exhaustive, multi-year studies on the local property tax and believes applying sales tax to real estate is a short-sighted and flawed approach to property-tax relief. Not only would adding real estate to the sales-tax base destroy the state’s real estate economy, it would disproportionately affect lower- and middle-class Texans. 28

29. Sales tax/transfer tax on real estate transactions What is our position? (cont’d) Additionally, there are structural problems with this “tax swap.” First, sales taxes are volatile and make poor revenue sources for core operating budgets of state and local governments—so when consumption inevitably dips, the only viable response is to raise the sales-tax rate. Second, property would have to change hands every 5.5 years to “keep the engine primed.” Not only is that far shorter than common right now, the proposal actually creates a financial disincentive to selling (or buying) property—and that makes this “tax swap” structurally unsustainable. As such, Texas REALTORS® staunchly oppose applying any kind of tax to any real estate transaction. 29

30. HOUSE BILLSSENATE BILLS  146  738  883  1009  1293  1332  1334  1510  1525  1792  1851  1853  2403  2404  2426  2486  2489  2700  2909  3072  3364  3442  3561  4114  267  478  641  739  1344  1367  1473 30

31. HOUSE BILLSSENATE BILLS  1293  1332  1334  1510  1853  2404  2486  2489  3364  267  478  1344  1367  1473 31

32. HB 1293 Relating to the confidentiality of identifying information of victims of stalking; creating a criminal offense. 32

33. HB 1332 Relating to the notice to vacate required to be given by a landlord to a tenant before filing an eviction suit. 33

34. HB 1334 Relating to the appeal of a residential eviction suit. 34

35. HB 1510/SB 1473 Relating to liability of persons who lease dwellings to persons with criminal records. 35

36. HB 1853 Relating to the removal of a tenant's personal property after a writ of possession has been issued in an eviction suit. 36

37. HB 2404 Relating to certain security devices for residential tenancies. 37

38. HB 2486 Relating to the right of a person to enter the person's residence or former residence accompanied by a peace officer to recover certain personal property. 38

39. HB 2489 Relating to the ability of a property owners' association to enforce certain provisions on the lease or rental of real property. 39

40. HB 3364 Relating to the appeal of a judgment in an eviction suit. 40

41. SB 267 Relating to the regulation by a municipality or county of the rental or leasing of housing accommodations. 41

42. SB 478 Relating to promulgation of certain forms for use in landlord-tenant matters. 42

43. SB 1344 Relating to the removal of a tenant's personal property after a writ of possession has been issued in an eviction suit. 43

44. SB 1367 Relating to certain obligations of and limitations on landlords. 44

45. Questions?  If you have further questions, please contact the Governmental Affairs Department or the Legal Hotline at 512.480.8200  Look for the next Property Management webinar on August 21st! 45