Cook Housing Finance Bill Has A 90-Day Out For Failed Audits

The text as introduced · 2,055 words

89R2688 JAM-D

By: Cook
H.B. No. 2675

A BILL TO BE ENTITLED

AN ACT

relating to housing finance corporations.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subchapter E, Chapter 341, Finance Code, is

amended by adding Section 341.407 to read as follows:

Sec. 341.407. LOANS TO HOUSING FINANCE CORPORATION. An

authorized lender, credit union, or other person involved in a

transaction subject to this title may not make a loan to a housing

finance corporation unless the corporation presents proof of

compliance with Section 394.031(c) or (d), Local Government Code,

as applicable.

SECTION 2. The heading to Section 394.031, Local Government

Code, is amended to read as follows:

Sec. 394.031. EXERCISE OF POWERS ; AREA OF OPERATION .

SECTION 3. Section 394.031, Local Government Code, is

amended by adding Subsections (c) and (d) to read as follows:

(c) Subject to Subsection (d), the area in which a housing

finance corporation may exercise its powers is limited to:

(1) for a housing finance corporation sponsored by a

municipality under Section 394.011, the jurisdictional boundaries

of the municipality that sponsored the corporation;

(2) for a housing finance corporation sponsored by a

county under Section 394.011, the unincorporated areas of the

county that sponsored the corporation; or

(3) for a housing finance corporation sponsored by

more than one local government under Section 394.012:

(A) the jurisdictional boundaries of each

municipal sponsor of the corporation; and

(B) the unincorporated areas of each county

sponsor of the corporation.

(d) A housing finance corporation may exercise its powers

outside an area described by Subsection (c) only if a resolution or

order, as applicable, approving that exercise of power in the

outside area is adopted by the governing body of each sponsoring

local government and by the governing bodies of:

(1) each municipality that contains any part of the

outside area in which the corporation proposes to operate; and

(2) if proposing to operate in the unincorporated area

of a county, each county that contains any part of the outside area

in which the corporation proposes to operate.

SECTION 4. Sections 394.032(a) and (e), Local Government

Code, are amended to read as follows:

(a) Subject to the limitations of Sections 394.031(c) and

(d), a [ A ] housing finance corporation may:

(1) make contracts and other instruments as necessary

or convenient to the exercise of powers under this chapter;

(2) incur liabilities;

(3) borrow money at rates determined by the

corporation;

(4) issue notes, bonds, and other obligations; and

(5) secure any of its obligations by the mortgage or

pledge of all or part of the corporation's property, franchises,

and income.

(e) A housing finance corporation may delegate to the Texas

Department of Housing and Community Affairs the authority to act on

its behalf in the financing, refinancing, acquisition, leasing,

ownership, improvement, and disposal of home mortgages or

residential developments, within [ and outside ] the jurisdiction of

the housing finance corporation, including its authority to issue

bonds for those purposes.

SECTION 5. Section 394.039, Local Government Code, is

amended to read as follows:

Sec. 394.039. SPECIFIC POWERS RELATING TO FINANCIAL AND

PROPERTY TRANSACTIONS. A housing finance corporation may:

(1) lend money for its corporate purposes, invest and

reinvest its funds, and take and hold real or personal property as

security for the payment of the loaned or invested funds;

(2) mortgage, pledge, or grant security interests in

any residential development, home mortgage, note, or other property

in favor of the holders of bonds issued for those items;

(3) purchase, receive, lease, or otherwise acquire,

own, hold, improve, use, or deal in and with real or personal

property or interests in that property, [ wherever the property is

located, ] as required by the purposes of the corporation or as

donated to the corporation; and

(4) sell, convey, mortgage, pledge, lease, exchange,

transfer, and otherwise dispose of all or part of its property and

assets.

SECTION 6. Section 394.9025(b), Local Government Code, is

amended to read as follows:

(b) Following a public hearing by the governing body of the

applicable local government, a housing finance corporation may

issue bonds to finance a multifamily residential development to be

owned by the housing finance corporation in accordance with the

requirements of this chapter [ Section 394.004 ] if the housing

finance corporation receives approval of the governing body of that

[ the ] local government.

SECTION 7. Subchapter Z, Chapter 394, Local Government

Code, is amended by adding Section 394.9026 to read as follows:

Sec. 394.9026. AUDIT REQUIREMENTS FOR MULTIFAMILY

RESIDENTIAL DEVELOPMENTS OWNED BY HOUSING FINANCE CORPORATIONS.

(a) In this section, "department" means the Texas Department of

Housing and Community Affairs.

(b) A housing finance corporation that owns a multifamily

residential development and claims an exemption for the development

under Section 394.905(a) must annually submit to the department and

the chief appraiser of the appraisal district in which the

development is located an audit report for a compliance audit,

prepared at the expense of the housing finance corporation and

conducted by an independent auditor or compliance expert with an

established history of providing similar audits on housing

compliance matters, to determine whether the housing finance

corporation is in compliance with the conditions imposed for the

exemption by this chapter.

(c) Not later than the 60th day after the date of receipt of

the audit conducted under Subsection (b), the department shall

examine the audit report and publish a report summarizing the

findings of the audit. The report must:

(1) be made available on the department's Internet

website;

(2) be issued to the housing finance corporation that

owns the development that is the subject of an audit, the

comptroller, and the governing body of the housing finance

corporation's sponsoring local government or governments; and

(3) describe in detail the nature of any failure to

comply with the conditions imposed for the exemption by this

chapter.

(d) If an audit report submitted under Subsection (b)

indicates noncompliance with the conditions imposed by this

chapter, a housing finance corporation:

(1) must be given:

(A) written notice from the department or

appropriate appraisal district that:

(i) is provided not later than the 90th day

after the date a report has been submitted under Subsection (b);

(ii) specifies the reasons for

noncompliance;

(iii) contains at least one option for a

corrective action to resolve the noncompliance; and

(iv) informs the housing finance

corporation that failure to resolve the noncompliance will result

in the loss of the exemption under Section 394.905(a);

(B) a period of 60 days after the date notice is

received under this subdivision to resolve the matter that is the

subject of the notice; and

(C) if a matter that is the subject of a notice

provided under this subdivision is not resolved to the satisfaction

of the department and appropriate taxing authority during the

period provided by Paragraph (B), a second notice that informs the

housing finance corporation of the loss of the exemption due to

noncompliance with the conditions imposed by this chapter; and

(2) is considered to be in compliance with those

conditions if notice under Subdivision (1)(A) is not provided as

specified by Subparagraph (i) of that paragraph.

(e) An exemption under Section 394.905(a) does not apply for

a tax year in which the department determines that, based on an

audit conducted under Subsection (b), a multifamily residential

development that is owned by a housing finance corporation created

under this chapter is not in compliance with the conditions imposed

for that exemption by this chapter.

(f) The initial audit report required by Subsection (b) is

due not later than June 1 of the year following the first

anniversary of:

(1) the date of acquisition for an occupied

multifamily residential development that is acquired by a housing

finance corporation; or

(2) the date a newly built multifamily residential

development first becomes occupied by one or more tenants.

(g) Subsequent audit reports following the issuance of the

initial audit report under Subsection (f) are due not later than

June 1 of each year.

(h) An independent auditor or compliance expert may not

prepare an audit under Subsection (b) for more than three

consecutive years for the same housing finance corporation. After

the third consecutive audit, the independent auditor or compliance

expert may prepare an audit only after the second anniversary of the

preparation of the third consecutive audit.

(i) The department shall adopt forms and reporting

standards for the auditing process.

(j) An audit conducted under Subsection (b) is subject to

disclosure under Chapter 552, Government Code, except that

information containing tenant names, unit numbers, or other tenant

identifying information may be redacted.

SECTION 8. Section 394.903, Local Government Code, is

amended to read as follows:

Sec. 394.903. TRANSFER [ LOCATION ] OF [ RESIDENTIAL

DEVELOPMENT; ] RESIDENTIAL DEVELOPMENT SITES. A [ (a) A

residential development covered by this chapter must be located

within the local government.

[ (b) The ] local government may transfer any residential

development site to a housing finance corporation by sale or lease.

The governing body of the local government may authorize the

transfer by resolution without submitting the issue to the voters

and without regard to the requirements, restrictions, limitations,

or other provisions contained in any other general, special, or

local law. The site location is subject to the requirements of this

chapter [ may be located wholly or partly inside or outside the local

government ].

SECTION 9. Section 394.905, Local Government Code, is

amended to read as follows:

Sec. 394.905. EXEMPTION FROM TAXES AND FEES [ TAXATION ].

(a) Notwithstanding any other law, the [ The ] housing finance

corporation, all property owned by it, the income from the

property, all bonds issued by it, the income from the bonds, and the

transfer of the bonds are exempt, as public property used for public

purposes, from license fees, recording fees, and all other taxes

imposed by this state or any political subdivision of this state

only if the property is located in an area in which the housing

finance corporation is authorized to exercise its powers as

described by Section 394.031(c) or the exemption is approved by

each applicable governing body described by Section 394.031(d) .

(b) The corporation is exempt from the franchise tax imposed

by Chapter 171, Tax Code, only if the corporation is exempted by

that chapter.

SECTION 10. (a) Sections 394.031(c) and (d), Local

Government Code, as added by this Act, apply only to the exercise of

power by a housing finance corporation made on or after the

effective date of this Act. An exercise of power made before the

effective date of this Act is governed by the law in effect on the

date the power was exercised, and the former law is continued in

effect for that purpose.

(b) Subject to Subsection (c) of this section, Section

394.905(a), Local Government Code, as added by this Act, applies

only to a tax or fee imposed for a tax year or calendar year,

respectively, that begins on or after the effective date of this

Act.

(c) Section 394.905(a), Local Government Code, as added by

this Act, applies only to a tax or fee to be imposed on a housing

finance corporation with respect to an occupied residential

development that is acquired by the corporation on or after the

effective date of this Act or with respect to a newly built

residential development for which a certificate of occupancy is

issued on or after the effective date of this Act.

(d) Notwithstanding Section 394.9026(f), Local Government

Code, as added by this Act, the initial audit report required to be

submitted under Section 394.9026(b), Local Government Code, as

added by this Act, for an occupied multifamily residential

development that was acquired or for a newly built multifamily

residential development that first became occupied, as applicable,

before the effective date of this Act must be submitted by the later

of:

(1) the date established by Section 394.9026(f), Local

Government Code, as added by this Act; or

(2) June 1, 2026.

SECTION 11. This Act takes effect immediately if it

receives a vote of two-thirds of all the members elected to each

house, as provided by Section 39, Article III, Texas Constitution.

If this Act does not receive the vote necessary for immediate

effect, this Act takes effect September 1, 2025.