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Summary: Under current state law, real estate developers who wish to develop and sell land in colonias face heavy regulation. There is enough regulation that it discourages development. Developers are not allowed to advertise until the entire subdivision is finished, which is different than everywhere else in the state. Developers are not allowed to enter into earnest money contracts with potential customers until completion either. Additionally, developers face fines of up to $5,000 per day for minor violations. Because of these regulations, the few developers who do wish to build along the border find it nearly impossible to obtain a loan from the bank with no list of potential buyers and no way to build up name recognition. Without the loan, developments are not even able to get started.
HB 611 would allow developers to advertise for their subdivisions and enter into earnest money contracts of no more than $250 with potential buyers. HB 611 also includes provisions to ensure that the repeal of these regulations does not make citizens more vulnerable to bad business practices from the developers.
Analysis: Because HB 611 strengthens free market principles and limits government regulation, TPPA supports the legislation. Advertising and earnest money contracts are important steps a developer must take in order to start the process of bringing housing to a community. The regulations were set up to prevent substandard housing from being built along the border in areas with little or no municipal services.
With the passage of HB 611, developers will be able to secure startup capital and build code-compliant affordable housing in the colonias. The $250 deposit would be completely refundable if the developer has not finalized plans to begin construction within 90 days of the agreement and the earnest money contract must be administered by a Registered Mortgage Loan Originator. This provides consumer protection for the buyer by ensuring that the developer is operating legitimately. Additionally and perhaps most importantly, the developers may not finalize any sales until the entire subdivision has been hooked up to septic, water and electric services.
Also, developers will be given a 90 day cure period to fix any problems with the property. This would allow developers to fix any minor issues before facing the $5,000 per day fine. Major safety violations or time sensitive problems (hooking up water heaters, electricity, and septic tanks) would not be covered by this provision and would still require the developer’s immediate attention.
We recommend legislators support HB 611.