Homeowners of Texas Comments Re: TRCC

Ladies and Gentlemen: 

Homeowners of Texas, Inc. offers the attached comments in response to the Staff Report of the Sunset Advisory Commission regarding the Texas Residential Construction Commission (TRCC). 

Our organization was recently formed to promote the legislative and regulatory enactment of residential construction reform in Texas.  Homeowners of Texas (HOT) supports new laws and regulations designed to ensure that all new residential construction and remodeling in Texas is properly engineered and constructed to protect homeowners from the devastating consequences of substandard construction.  Our comments address the Staff Report as well as our proposals for improving the quality of new and remodeled homes in Texas, establishing high professional standards for residential builders and the construction trades they hire, and providing homeowners with the consumer protections they deserve. 

We look forward to testifying at the upcoming hearings on September 23 and 24, 2008.
 
Tom Archer
President
Homeowners of Texas, Inc.
807 Brazos, Suite 714
Austin, TX 78701-2508
512-502-5349

HOMEOWNERS OF TEXAS, INC.
807 BRAZOS STREET, SUITE 714
AUSTIN, TX  78701-2567
OFFICE:  (512) 502-5349

COMMENTS ON THE SUNSET ADVISORY COMMISSION STAFF REPORT
TEXAS RESIDENTIAL CONSTRUCTION COMMISSION

Homeowners of Texas, Inc. submits the following comments in response to the Sunset Advisory Commission Staff Report released on August 19, 2008.  Homeowners of Texas, Inc. (HOT) is a Nonprofit Texas Corporation formed on May 7, 2008, dedicated to the enactment of residential construction reform in Texas.   HOT advocates new statutes and regulations designed to ensure that all new residential construction and remodeling in Texas are properly engineered and constructed by licensed homebuilders, as well as licensed swimming pool, framing, foundation, roofing and flashing contractors.  HOT also believes that consumers who purchase new homes or remodel existing homes must have access to the courts to recover damages resulting from construction defects.   

The policies which HOT advocates will greatly improve the quality of new and remodeled homes in Texas, establish high professional standards for residential builders and the construction trades they hire, and provide homeowners with the consumer protections they deserve.  Currently Texans who purchase a used car have far more consumer protections than do Texas citizens who build or remodel a home.  The lack of statutory consumer protections for homeowners is unacceptable public policy that has led to the tragic losses of countless Texans’ life savings due to substandard construction on the part of unscrupulous homebuilders.  

HOT wholeheartedly endorses the findings and recommendations of the Sunset Advisory Commission Staff Report on the Texas Residential Construction Commission.  The analysis contained in this report is thorough and incisive, examining in great detail the fundamental flaws inherent in both the commission itself and the act that created it. 

In the following comments, Homeowners of Texas will summarize and analyze the key elements of a compelling case presented by the Staff Report for abolishing the Texas Residential Construction Commission.  Then HOT will examine why the Texas Legislature should license homebuilders and critical construction trades via a new state agency with dispute resolution mechanisms based on both historical Texas public policy standards as well as the licensing regulations adopted in 28 other states.   

The following elements comprise the most critical flaws inherent in both the TRCCA and TRCC identified in the report: 

1. The TRCCA registration requirement doesn’t require builders to satisfy the basic capabilities typical for some of the other trades in the residential construction industry, such as plumbers and electricians.  Thus, the regulations don’t prevent unqualified persons from entering the field and are therefore not designed to prevent problems from occurring.  The registration requirement also applies only to individual builders or their designated agents, and even builders with prior offenses may remain active as homebuilders by simply changing their designated agents. 
2. With no requirement for financial responsibility, there is no means to ensure that a builder is able to assume liability for all warranty items.  The Commission is also not positioned to review contracts and has never pursued a third-party warranty company to require the repair of post-construction defects confirmed through SIP.
3. No grounds for enforcement relate directly to ensuring quality construction.  Grounds typically relate to business practices or compliance with the agency’s statute or rules.   The majority of actions taken against builders were for failure to timely renew their registrations. 
4. Currently the average time to process a SIP request is 147 days, or approximately 5 months.  Some outstanding cases have been open for as long as a year and 8 months, and TRCC has no system in place for processing urgent cases involving habitability issues, such as structural problems, major leaks, or HVAC failures.  In such cases, if the owners do take action (usually at great expense) to repair the home while the SIP case is pending, the items repaired are no longer considered post-construction defects and are administratively closed.   When a new home becomes uninhabitable in Texas, TRCC’s policy fails to recognize that time is of the essence, even though the owners may no longer be able to live in their home.
5. Once the State Inspection Process is complete and a defect is confirmed, the Commission lacks authority to ensure that the confirmed defect is repaired.   Only 12% of all closed SIP cases have resulted in a satisfactory offer of repair or compensation over the life of the program.  In addition 69% of homeowners felt that the Commission’s Process did NOT help them resolve issues with their builders.  
6.  The Commission’s newly created County Inspections Program has some fundamental conceptual problems with the statutory framework and the agency’s implementation.  The agency does not have the resources to actively audit construction projects in unincorporated areas to ensure that these projects are inspected.  The program also requires builders to hire inspectors directly, with no agency oversight of this process and no assurance that builders and inspectors do not have a relationship that poses a threat to the quality of inspections performed. 
7. By law the Building and Performance Standards adopted by the Commission are also intended to define the quality of home construction in legal proceedings that follow the State Inspection Process but are outside the agency’s jurisdiction.
   

Clearly both the Commission and its enabling statute are fundamentally flawed and have harmed consumers in the following respects:  

1. Consumers see a State Inspection Process that is ineffective in fixing identified construction defects. 
2. They see a builder registration program that is not based on qualifications and cannot help prevent problems before they occur. 
3. They see an enforcement process that cannot effectively sanction problem builders because of the shell game of naming a new designated agent.
4. If they opt out of the futile administrative process, they lose their access to the courts.                                                                                                                                                      

Thus, since the consumer harm is well documented, the TRCC also fails to meet any legitimate rationale for regulation: 

1. The rationale for state regulation involves protecting the public by mitigating harm that can result from the regulated activity. 
2. Protecting practitioners is not a valid rationale for evaluating the need for state regulation. 
3. Regulation may also affect the public’s ability to seek redress of its complaints, including access to the courts. 
4. The activities of the practitioner should be of a complexity that consumers cannot adequately evaluate the appropriateness of the service or the qualification of the practitioner. 

As a result, the Staff Report concludes: 

1. The current method of regulating builders fails to adequately protect consumers from potential harm, and it denies them access to the courts. 
2. The registration of builders doesn’t require them to satisfy basic capabilities typical for other trades in the residential construction industry, such as electricians and plumbers, or criteria for financial soundness. 
3. Thus, the regulations don’t prevent unqualified persons from entering the field and are therefore not designed to prevent problems from occurring. 
4. Therefore, without true state regulation designed to ensure public protection, Texans are better served without the TRCC. 

The documentation and analysis contained in the Staff Report conclusively prove that the statutory design and implementation of the Texas Residential Construction Commission have been fundamentally flawed from its inception.  The TRCCA registration requirement doesn’t prevent unqualified persons from entering the field, and it contains no requirement for a builder’s financial responsibility.  No grounds for enforcement relate directly to ensuring quality construction, and the average time to process a SIP request is almost 5 months, with no system in place for processing urgent cases involving habitability issues.  Only 12% of all SIP cases have resulted in a satisfactory offer of repair or compensation over the life of the program, and the County Inspections Program requires builders to hire inspectors directly without agency oversight.  Finally, by law the Building and Performance Standards adopted by the Commission are supposed to define the construction quality standards in legal proceedings that are outside the Commission’s jurisdiction. 

The Report clearly demonstrates that the TRCC and the TRCCA have caused widespread harm to consumers because they protect builders from accountability and fail to protect consumers while denying them access to the courts.  The reality is that the TRCC was created to protect homebuilders, not homeowners.  As a result, the Staff Report appropriately concludes that Texans are better served without the TRCC, and the agency should be abolished.  Homeowners of Texas, Inc. firmly  supports the abolition of the Texas Residential Construction Commission, and proposes that a new state agency be created with dispute resolution mechanisms to license homebuilders as well as swimming pool, framing, flashing, roofing and foundation contractors.

Here is a partial list of the occupational and professional licenses required by the State of Texas: Barbering, Cosmetologists, Auctioneers, Property Tax Consultants, Air Conditioning and Refrigeration Installers, Electricians, Plumbers, Water Well Drillers and Pump Installers, Tow Truck Operators, Architects, Engineers, Dentists, Doctors, Lawyers, Realtors, and Real Estate Inspectors.  As the Staff Report points out, regulating practitioners is justified when “the activities of the practitioner should be of a complexity that consumers cannot adequately evaluate the appropriateness of the service or the qualification of the practitioner.”  The Texas Legislature has determined that the occupations and professions listed above are “of a complexity that consumers cannot adequately evaluate the appropriateness of the service or the qualification of the practitioner.” 

With these facts in mind there is simply no justification for not licensing homebuilders, swimming pool contractors, and framing, foundation, roofing and flashing contractors.  These professions require an extensive amount of skill, knowledge and experience and are so complex that a homeowner is unable to “adequately evaluate the appropriateness of the service or the qualification of the practitioner.”  Consumers also spend an extraordinary amount of money to hire these professionals, and failure on their part to provide a high quality product will be financially devastating to the consumer.  As part of the licensure process, all licensees should be required to pass a written test administered in English, and licenses should be required of all companies as well as individuals.  All licensees should also be required to maintain adequate liability and workers compensation insurance for all jobs without exception, and licensees should also be required to prove financial solvency. 

Currently, per the Staff Report, 28 states require homebuilders to have a license.  These include three of Texas’ neighboring states, Louisiana, Arkansas and New Mexico, and eight additional southern states:  Mississippi, Alabama, Georgia, Florida, Tennessee, South Carolina, North Carolina and Virginia.  In addition 11 of these 28 states have a state resolution mechanism, including Florida and Tennessee. Homeowners of Texas believes that the new Texas regulatory agency should definitely include a dispute resolution mechanism to provide a separate administrative complaint process to resolve disputes more quickly and efficiently than through litigation.  Finally, all records of regulatory agencies issuing licenses must be public, including consumer complaints against licensees.

To protect Texas homeowners’ rights as the residential construction process proceeds, all contracts for residential construction and third-party home warranty contracts must be on a State-approved form.  Residential construction contracts are rarely negotiated by Texas consumers, and builder-approved form construction contracts place Texas consumers at an overwhelming disadvantage under the present system.   Also, many home warranty contracts in use today are illusory, providing consumers with little or no coverage while releasing the builder from warranty responsibility. 

All new and remodeled light frame buildings and structures must also be required to support safely all loads as prescribed by the minimum standards of the International Residential Code (IRC), and each stage of construction must be inspected.   When the structural elements exceed the limits of the IRC, they must be designed in accordance with accepted engineering practice.  Each stage of construction of those elements must be inspected, documented and approved by a professional engineer licensed by the State of Texas. 

Surface drainage and geotechnical evaluation of all lots shall, at a minimum, comply with the IRC, except when an individual lot is likely to contain expansive, compressible, shifting or other unknown soil characteristics.  In those cases a geotechnical engineer licensed by the State of Texas shall conduct geotechnical testing and provide a professional engineer-sealed report of soil properties, groundwater locations and other design parameters required for proper design of the foundation.  In all subdivisions consisting of two or more proposed residential lots, a professional engineer must approve and seal all proposed subdivision plans as to the existence of flooding, expansive clays, groundwater and proper drainage diversion, with a listing of lots and a statement that all lots listed are suitable for construction of residences.

All residential construction projects in excess of $10,000.00 must be inspected by a licensed inspector or building official and must meet all applicable building codes, with inspections performed, at a minimum, on the foundation, framing, roofing and finish stage.  Trusses must be engineered trusses and be accompanied to the jobsite per the IRC.  If construction is outside of a municipal jurisdiction, the most current International Residential Code will apply.

Finally, criminal and civil penalties for misuse of construction trust funds must be strengthened.  Under the present system homebuilders are rarely held accountable when they fail to pay a subcontractor the amount due after the builder has been paid by the financial institution or homeowner.  The end result in such cases is that the subcontractor files a mechanic’s lien against the homeowner’s property.