Bill Text: TX SB1173 | 2011-2012 | 82nd Legislature | Introduced
Bill Title: 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.
Spectrum: Partisan Bill (Republican 1-0)
Status: (Introduced - Dead) 2011-03-16 - Referred to Business & Commerce [SB1173 Detail]
Download: Texas-2011-SB1173-Introduced.html
82R2833 AJA-F | ||
By: Deuell | S.B. No. 1173 |
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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. |