82R2833 AJA-F
By: Chisum H.B. No. 3040
A BILL TO BE ENTITLED
AN ACT
relating to lender notice of default to contractors regarding a
construction loan or financing agreement for an improvement to real
property and related procedures for suspending contractors'
performance.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Chapter 28, Property Code, is amended by adding
Section 28.0091 to read as follows:
Sec. 28.0091. LENDER NOTICE OF DEFAULT TO CONTRACTORS;
SUSPENSION OF PERFORMANCE PENDING CURE. (a) This section applies
only to a lender that provides financing through a construction
loan or under a financing agreement for an improvement to the
borrower's real property for which the real property or improvement
is collateral.
(b) On the earliest date a lender takes an action for which
notice is required by this subsection in response to a particular
default by the borrower, the lender must give written notice of the
action to each contractor and subcontractor known to the lender to
be providing labor, materials, equipment, or services for the
improvement. Notice under this subsection is required if the
lender:
(1) exercises a default remedy provided by statute or
the loan or financing agreement;
(2) gives a notice of default to the borrower; or
(3) fails to fund, in whole or in substantial part, a
draw request submitted in proper form by a contractor.
(c) Not later than the third day after the date a contractor
receives a notice from a lender under Subsection (b), the
contractor shall give written notice to each of the contractor's
subcontractors of the action taken by the lender.
(d) After the sixth day after the earliest date on which the
lender takes an action for which notice is required by Subsection
(b), a contractor or subcontractor may suspend contractually
required performance without penalty on sending to the lender
written notice of the contractor's or subcontractor's intent to
suspend performance and, if the notice is given by a subcontractor,
to the subcontractor's contractor. The contractor or subcontractor
may suspend performance under this subsection until:
(1) the contractor and subcontractor receive a notice
of cure from the lender under Subsection (e); or
(2) the lender or the borrower provides the contractor
and subcontractor a written payment guarantee acceptable to the
contractor and subcontractor for all labor, materials, equipment,
or services provided or to be provided for the improvement to real
property after the action is taken.
(e) If the default in response to which the action for which
notice is required by Subsection (b) is taken is cured, the lender
shall give written notice of the cure to each contractor and
subcontractor known to the lender.
(f) Not later than the third day after the date a contractor
receives a notice of cure under Subsection (e), the contractor
shall give written notice of the cure to each of the contractor's
subcontractors.
(g) If a lender does not give a contractor or subcontractor
notice as required by Subsection (b), the lender's security
interest in the project is subordinate to the value of all labor,
materials, equipment, or services provided by that contractor or
subcontractor after the date on which the notice should have been
given.
SECTION 2. The change in law made by this Act applies only
to a construction loan or financing agreement entered into on or
after the effective date of this Act. A construction loan or
financing agreement entered into before the effective date of this
Act is governed by the law in effect immediately before the
effective date of this Act, and that law is continued in effect for
that purpose.
SECTION 3. This Act takes effect September 1, 2011.