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Each city or county has their own building ordinance about grading of land, but all of them require the party grading their land to obtain a permit and submit a survey
for the grading and French drain. They all require a civil engineer report and the approval of the building/planning commission and supervision by them with a building permit.
He will require a building permit, which will mean the building inspector and someone from department of environmental quality will have to make a site inspection.
Again, the setbacks where construction must be back from your property are set by your local building ordinances, not the Texas law and the building inspector when coming out to give the permit would be the one who has to determine if it complies with the local setback requirements for your area.
You need to go to your building and planning commission about this situation.
Texas uses the common law rule about diverting or changing flow of water from your land to another person's land and it says that if your neighbor is changing the natural flow of water from his land to your land, that he is liable for protecting your property from damage from that changed water flow.