S.B. No. 1173
AN ACT
relating to the regulation of a perpetual care cemetery and the sale
of interment rights in a mausoleum before completion of
construction and to the protection of cemetery property.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subsection (b), Section 712.001, Health and
Safety Code, is amended by amending Subdivision (1) and adding
Subdivisions (4-a), (4-b), and (6) to read as follows:
(1) "Banking department" or "department" means the
Banking Department of Texas.
(4-a) "Preconstruction trust" means a trust
established by a corporation under this chapter for the purpose of
administering proceeds from sales of undeveloped mausoleum spaces.
(4-b) "Preconstruction trustee" means the trustee of a
preconstruction trust.
(6) "Undeveloped mausoleum space" means a crypt or
niche in a mausoleum or mausoleum section that is designed to
contain at least 10 crypt or niche interments and that is not ready
for the interment of human remains or cremated remains on the date
an interment right pertaining to the mausoleum space is sold. The
term does not include a private mausoleum or mausoleum section in
which all mausoleum spaces are intended to be sold under a single
contract.
SECTION 2. Section 712.044, Health and Safety Code, is
amended to read as follows:
Sec. 712.044. EXAMINATION OF RECORDS; EXAMINATION FEES AND
EXPENSES. (a) The commissioner may examine, annually or more
often as the commissioner reasonably considers necessary or
appropriate to protect the interest of plot owners and efficiently
administer and enforce this chapter:
(1) the books and records of a corporation relating to
its fund, including deposits to or withdrawals from the fund,
income of the fund, and uses and expenditures of that income;
(2) the books and records of a corporation relating to
sales of undeveloped mausoleum spaces and any preconstruction trust
established by the corporation as provided by Section 712.063,
including deposits to or withdrawals from the preconstruction
trust, income of the preconstruction trust, and uses and
expenditures of principal and income of the preconstruction trust;
and
(3) the[, annually or more often as necessary to
protect the interest of plot owners. In addition, the commissioner
may examine] consumer complaint files of a corporation relating to
the fund, sales of undeveloped mausoleum spaces, a preconstruction
trust, or to discharge of the corporation's perpetual care
responsibilities, minutes of the corporation's board of directors,
cemetery dedication statements and plat maps, and mausoleum and
lawn crypt construction contracts and specifications.
(b) A corporation that is examined under this section shall
make the specified books and records available for examination by
the banking department upon reasonable notice to the corporation
and shall pay to the commissioner for the examination a reasonable
and necessary fee set by rules adopted by the Finance Commission of
Texas under Section 712.008 to defray:
(1) the cost of examination;
(2) the equitable or proportionate cost of maintenance
and operation of the department; and
(3) the cost of administering and enforcing this
chapter.
SECTION 3. Subsection (f), Section 712.0441, Health and
Safety Code, is amended to read as follows:
(f) The commissioner may issue an order requiring
restitution by a corporation to its fund or to a preconstruction
trust if, after notice and opportunity for hearing held in
accordance with the procedures for a contested case hearing under
the Administrative Procedure and Texas Register Act, the
commissioner finds that the corporation has not made a deposit in
the fund as required by Section 712.028 or in the preconstruction
trust as required by Section 712.063.
SECTION 4. Chapter 712, Health and Safety Code, is amended
by adding Subchapter D to read as follows:
SUBCHAPTER D. SALE OF UNDEVELOPED MAUSOLEUM SPACE
Sec. 712.061. OFFER AND SALE OF UNDEVELOPED MAUSOLEUM
SPACE. (a) A corporation may not directly or indirectly sell or
offer for sale an undeveloped mausoleum space unless before the
sale or offer the corporation:
(1) establishes a preconstruction trust as provided by
Section 712.063 or executes and submits a performance bond payable
to the commissioner as provided by Section 712.067; and
(2) submits a written notice to the commissioner as
required by Subsection (b).
(b) The written notice to the commissioner must set forth:
(1) the date the corporation anticipates that sales of
undeveloped mausoleum spaces will begin;
(2) a copy of the sales contract proposed for use that
complies with Section 712.066;
(3) if the corporation establishes a preconstruction
trust as provided by Section 712.063, a copy of the executed
preconstruction trust agreement that complies with this subchapter
and identifies the preconstruction trustee;
(4) if the corporation submits a performance bond
payable to the commissioner as provided by Section 712.067, the
executed, original performance bond in the amount required by
Section 712.067 and documentation supporting the corporation's
computation of that amount; and
(5) other information the commissioner reasonably
requires to properly administer and enforce this subchapter.
(c) At any time before beginning construction of the
mausoleum or mausoleum section in which undeveloped mausoleum
spaces are being sold, a corporation that has established a
preconstruction trust may substitute a performance bond that meets
the requirements of Section 712.067. On acceptance of the
performance bond by the commissioner, the corporation may terminate
and withdraw all proceeds deposited in the preconstruction trust.
Sec. 712.062. DEPOSITS TO FUND. This subchapter does not
affect the corporation's obligation to make deposits to its fund as
provided in Subchapter B.
Sec. 712.063. PRECONSTRUCTION TRUST. (a) Except as
provided by Section 712.067, a corporation that intends to directly
or indirectly sell or offer for sale undeveloped mausoleum spaces
shall establish a preconstruction trust by written declaration and
agreement appointing as preconstruction trustee a financial
institution with trust powers that is located in this state.
(b) The corporation shall deposit in the preconstruction
trust an amount equal to at least 40 percent of all proceeds
received directly or indirectly from the sale of undeveloped
mausoleum spaces, not including interest, finance charges, sales
taxes, credit life insurance premiums, or deposits to the
corporation's fund required by Section 712.029(c).
(c) On application, the commissioner may authorize a
corporation to deposit less than the amount required by Subsection
(b) if the corporation demonstrates to the reasonable satisfaction
of the commissioner that:
(1) the sales projections of the corporation are
prudent and based on reasonable assumptions;
(2) the projected cost of construction is objectively
determined based on documentation similar to that required by
Section 712.067(b); and
(3) the amount of money projected to be deposited in
the preconstruction trust under the proposed lesser amount will
equal or exceed 120 percent of the cost of constructing the
mausoleum or mausoleum section.
(d) The corporation shall deposit the required amount into
the preconstruction trust on or before the 30th day after the end of
the month in which payment is received. At the time of making a
deposit, the corporation shall furnish to the preconstruction
trustee the name of each payor and the amount of payment on each
account for which the deposit is being made. A contract between the
corporation and an agent or third party developer may not restrict
or waive the corporation's primary liability for making the
deposits required by this section.
(e) The preconstruction trustee may commingle deposits
received if the accounting records accurately establish a separate
account for each contract and reflect the amounts deposited and the
income and loss allocable to each contract.
(f) Money in a preconstruction trust may be invested only
in:
(1) demand deposits, savings accounts, certificates
of deposit, or other accounts in financial institutions if the
amounts deposited in those accounts are fully covered by federal
deposit insurance or otherwise fully secured by a separate fund of
securities in the manner provided by Section 184.301, Finance Code;
(2) marketable notes, bonds, evidences of
indebtedness, or obligations with a term to maturity of five years
or less and:
(A) issued by the United States or an
instrumentality of the United States; or
(B) the principal and interest of which are
guaranteed by the full faith and credit of the United States; and
(3) a mutual fund the portfolio of which consists
wholly of investments permitted by Subdivisions (1) and (2).
(g) The preconstruction trustee may withdraw money from
earnings on a preconstruction trust for the purpose of paying
reasonable and necessary costs of operation of the preconstruction
trust, including trustee or depository fees and expenses, and any
special examination fees due to the department related to an
examination of the preconstruction trust that is not incidental to
examination of the corporation's fund. With the department's prior
approval, the corporation may withdraw money from earnings on a
preconstruction trust to pay any tax incurred because of the
existence of the preconstruction trust.
(h) The preconstruction trust and the preconstruction
trustee are governed by Subtitle B, Title 9, Property Code.
Sec. 712.064. CONSTRUCTION; DEFAULT. (a) The corporation
shall start construction of the mausoleum or mausoleum section in
which sales or reservations for sale of undeveloped mausoleum
spaces are being made on or before a date that is 48 months after the
date of the first of those sales or reservations and shall complete
construction on or before a date that is 60 months after the date of
the first of those sales or reservations. The commissioner may
grant extensions for good cause shown.
(b) If construction of a mausoleum or mausoleum section
related to an undeveloped mausoleum space has not begun or been
completely constructed by the applicable time specified by
Subsection (a), on the written request of the buyer, the
corporation and the preconstruction trustee shall, on or before the
30th day after the date of the buyer's request, refund the entire
amount paid for the undeveloped mausoleum space plus, if the
corporation established a preconstruction trust, net income earned
on that portion of the money deposited in the preconstruction
trust. The corporation is liable to a buyer for any portion of the
purchase price paid for undeveloped mausoleum spaces that was not
deposited in the preconstruction trust.
Sec. 712.065. RELEASE OF TRUST FUNDS TO CORPORATION.
(a) On completion of construction of a mausoleum or mausoleum
section subject to this subchapter, the corporation may withdraw
all money deposited in the preconstruction trust and the net income
earned on the money after submitting to the preconstruction trustee
a sworn affidavit of completion executed by an officer or agent of
the corporation on a form prescribed by the department.
(b) During construction of the mausoleum or mausoleum
section containing the undeveloped mausoleum spaces, the
corporation may periodically withdraw from the preconstruction
trust an amount equal to the previously unreimbursed cost of
performed labor or delivered materials after submitting to the
preconstruction trustee a sworn affidavit of expenditures for
construction cost executed by an officer or agent of the
corporation on a form prescribed by the department.
(c) If the corporation delivers a completed mausoleum space
acceptable to the buyer in lieu of the undeveloped mausoleum space
purchased, the corporation may withdraw all money deposited to the
preconstruction trust for that buyer and related income earned on
the money after submitting to the preconstruction trustee a sworn
affidavit of performance executed by an officer or agent of the
corporation on a form prescribed by the department.
(d) The corporation shall maintain copies of the affidavits
required by this section for examination by the department.
Sec. 712.066. CONTRACT DISCLOSURES. (a) A sales contract
for an undeveloped mausoleum space, whether in English or Spanish,
must inform the buyer:
(1) that the buyer by written notice may cancel the
contract for the failure of the corporation or its agent or
contractor to construct the mausoleum or mausoleum section
containing the undeveloped mausoleum space within the time limits
specified by Section 712.064(a) and receive a refund of the entire
amount paid under the contract for the undeveloped mausoleum space
plus, if the corporation established a preconstruction trust, net
income earned on that portion of the money deposited in the
preconstruction trust, as provided by Section 712.064(b);
(2) of the options available under a fully paid
contract in the event that the person to be interred in the
undeveloped mausoleum space dies before completion of the related
mausoleum or mausoleum section, which may include an option to:
(A) select a replacement mausoleum space or other
interment that is acceptable to the buyer or buyer's
representative; or
(B) elect temporary interment of the human
remains or cremated remains in an existing mausoleum space until
the undeveloped mausoleum space is completed, at which time the
corporation shall disinter and reinter the human remains or
cremated remains at no additional charge; and
(3) if the corporation does not offer a temporary
interment option and the buyer does not accept a replacement
mausoleum space or other interment, that the buyer or the buyer's
representative by written notice may cancel the contract and
receive a refund of the entire amount paid under the contract for
the undeveloped mausoleum space plus, if the corporation
established a preconstruction trust, net income earned on that
portion of the money deposited in the preconstruction trust, as
provided by Section 712.064(b).
(b) A corporation's sales contract for undeveloped
mausoleum space must comply with applicable regulations of the
Federal Trade Commission, including 16 C.F.R. Section 433.2, with
respect to a contract payable in installments.
(c) Required notices to buyers must be written in plain
language designed to be easily understood by the average consumer
and be printed in an easily readable font and type size.
Sec. 712.067. BOND IN LIEU OF PRECONSTRUCTION TRUST.
(a) In lieu of establishing the preconstruction trust required by
Section 712.063, a corporation may execute and submit a bond issued
by a surety company authorized to do business in this state and
reasonably acceptable to the commissioner. The bond must be
payable to the commissioner and conditioned on the faithful
performance of the contracts for sale of undeveloped mausoleum
spaces.
(b) The amount of the bond must equal or exceed 120 percent
of the cost of construction of the related mausoleum or mausoleum
section. The cost of construction of the mausoleum or mausoleum
section must be based on:
(1) estimates of the design architect and two or more
bids for the construction from qualified contractors authorized to
do business in this state;
(2) the actual cost of construction set forth in an
executed contract with a qualified contractor authorized to do
business in this state; or
(3) if the corporation intends to construct the
mausoleum itself, an amount equal to 120 percent of the estimated
cost of construction, including both direct and allocated labor and
material costs.
(c) At any time before beginning construction of the
mausoleum or mausoleum section in which undeveloped mausoleum
spaces are being sold, a corporation that has submitted a
performance bond may establish a preconstruction trust that meets
the requirements of Section 712.063. On acceptance of the
substituted preconstruction trust by the commissioner, the
corporation may terminate and withdraw the previously submitted
performance bond.
Sec. 712.068. REPORTS. On or before the date the
corporation's annual statement of funds is due as required by
Section 712.041, the corporation shall cause the preconstruction
trustee to file with the department, in the form prescribed by the
department, a full and true statement regarding the activities of
any preconstruction trust that was subject to this subchapter at
any time during the preceding calendar year.
SECTION 5. Section 711.009, Health and Safety Code, is
amended by adding Subsection (c) to read as follows:
(c) This section applies only to a cemetery located in a
municipality with a popluation of 40,000 or more or in a county with
a population of 290,000 or more.
SECTION 6. (a) Except as provided in Subsection (b) of
this section, this Act applies to a contract for the sale of an
undeveloped mausoleum space that is executed on or after the
effective date of this Act. A contract for the sale of an
undeveloped mausoleum space that is executed before the effective
date of this Act is governed by the law as it existed immediately
before the effective date of this Act, and that law is continued in
effect for that purpose.
(b) This Act does not apply to a sale of undeveloped
mausoleum space in an existing mausoleum project if at least 20
percent of the available, undeveloped mausoleum spaces have been
sold under contracts executed before the effective date of this
Act. On request, the banking commissioner of Texas may otherwise
exempt an existing mausoleum project based on a determination that
application of this Act to the subject mausoleum project would be
capricious, arbitrary, or unfair in light of the degree to which the
corporation has demonstrated detrimental reliance on the prior law.
The sale of an undeveloped mausoleum space in a mausoleum project
that is exempt under this subsection is governed by the law as it
existed immediately before the effective date of this Act, and that
law is continued in effect for that purpose.
SECTION 7. This Act takes effect September 1, 2005.
______________________________ ______________________________
President of the Senate Speaker of the House
I hereby certify that S.B. No. 1173 passed the Senate on
April 28, 2005, by the following vote: Yeas 31, Nays 0; and that
the Senate concurred in House amendment on May 28, 2005, by the
following vote: Yeas 31, Nays 0.
______________________________
Secretary of the Senate
I hereby certify that S.B. No. 1173 passed the House, with
amendment, on May 25, 2005, by a non-record vote.
______________________________
Chief Clerk of the House
Approved:
______________________________
Date
______________________________
Governor