82R19560 AJA-F
By: Chisum H.B. No. 3040
Substitute the following for H.B. No. 3040:
By: Quintanilla C.S.H.B. No. 3040
A BILL TO BE ENTITLED
AN ACT
relating to lender notice to contractors regarding a construction
loan or financing agreement for the improvement of real property
and related procedures for suspending contractors' and
subcontractors' 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 real
property for which the real property or improvement is collateral.
(b) For an improvement to real property for which financing
is provided as described by Subsection (a), not later than the 30th
day after the date a contractor begins work to improve the real
property or otherwise provides construction services for the
improvement, the contractor shall provide to the lender the
contractor's name and address and the name of the person to whom any
notice under this section should be sent.
(c) Except as provided by Subsection (e), not later than the
seventh day after the date a lender takes an action for which notice
is required by this subsection in response to a particular event
described by this subsection, the lender must give written notice
of the action, including the date of the action, to the property
owner and to each contractor 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 timely fund, wholly or partly, a payment
request submitted in proper form by the borrower or a contractor.
(d) Notice to a contractor under Subsection (c) must be sent
by certified mail to the person identified under Subsection (b) and
state that the lender has provided notice to the owner under
Subsection (c) and that the contractor is required by this section
to provide a copy of the notice to each of the contractor's
subcontractors for the purpose of notifying each subcontractor of
the subcontractor's right under this section to suspend
contractually required performance without penalty or liability
for damages until the default is cured or the requested payment is
fully or substantially funded, as applicable.
(e) A lender is not required to give notice under Subsection
(c) with respect to an event described by that subsection if, on or
before the seventh day after the date of the occurrence of the
event:
(1) the default is cured; or
(2) the payment request is fully or substantially
funded.
(f) Not later than the third day after the date a contractor
receives a notice from a lender under Subsection (c), the
contractor shall give a copy of the written notice to each of the
contractor's subcontractors of the action taken by the lender.
(g) Not later than the third day after the date a
subcontractor receives a notice from a contractor under Subsection
(f), the subcontractor shall give a copy of the notice to each of
the subcontractor's subcontractors.
(h) If the default for which notice is required by
Subsection (c) is cured or the requested payment described by
Subsection (c) is fully or substantially funded, the lender shall,
not later than the third day after the date the default is cured or
the payment is funded, as applicable, give written notice of the
cure or payment to each contractor.
(i) Not later than the third day after the date a contractor
receives a notice of cure or payment under Subsection (h), the
contractor shall give written notice of the cure or payment to each
of the contractor's subcontractors.
(j) Not later than the third day after the date a
subcontractor receives a notice of cure or payment under Subsection
(i), the subcontractor shall give written notice of the cure or
payment to each of the subcontractor's subcontractors.
(k) After the 10th day after the earliest date on which the
lender takes an action for which notice is required by Subsection
(c), a contractor or subcontractor may suspend contractually
required performance without penalty or liability for damages on
giving the owner 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 or payment under Subsection (h), (i), or (j); 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.
(l) A contractor or subcontractor that has suspended
performance in accordance with this section is entitled to a
reasonable period without penalty to remobilize and recommence
performance after receipt of a notice or payment guarantee
described by Subsection (k).
(m) A subcontractor is a third-party beneficiary of a
lender's obligations under Subsection (c) with equal standing to a
contractor to enforce remedies.
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.