1-1                                   AN ACT

 1-2     relating to mechanics', contractors', and materialmen's liens;

 1-3     providing penalties.

 1-4           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

 1-5           SECTION 1.  Section 41.001(b), Property Code, is amended to

 1-6     read as follows:

 1-7           (b)  Encumbrances may be properly fixed on homestead property

 1-8     for:

 1-9                 (1)  purchase money;

1-10                 (2)  taxes on the property;

1-11                 (3)  work and material used in constructing

1-12     improvements on the property if contracted for in writing as

1-13     provided by Sections 53.254 [53.059](a), (b), and (c);

1-14                 (4)  an owelty of partition imposed against the

1-15     entirety of the property by a court order or by a written agreement

1-16     of the parties to the partition, including a debt of one spouse in

1-17     favor of the other spouse resulting from a division or an award of

1-18     a family homestead in a divorce proceeding; or

1-19                 (5)  the refinance of a lien against a homestead,

1-20     including a federal tax lien resulting from the tax debt of both

1-21     spouses, if the homestead is a family homestead, or from the tax

1-22     debt of the owner.

1-23           SECTION 2.  Section 53.001, Property Code, is amended to read

1-24     as follows:

 2-1           Sec. 53.001.  DEFINITIONS.  In this chapter:

 2-2                 (1)  "Contract price" means the cost to the owner for

 2-3     any part of construction or repair performed under an original

 2-4     contract.

 2-5                 (2)  "Improvement" includes:

 2-6                       (A)  abutting sidewalks and streets and utilities

 2-7     in or on those sidewalks and streets;

 2-8                       (B)  clearing, grubbing, draining, or fencing of

 2-9     land;

2-10                       (C)  wells, cisterns, tanks, reservoirs, or

2-11     artificial lakes or pools made for supplying or storing water;

2-12                       (D)  pumps, siphons, and windmills or other

2-13     machinery or apparatuses used for raising water for stock, domestic

2-14     use, or irrigation; and

2-15                       (E)  planting orchard trees, grubbing out

2-16     orchards and replacing trees, and pruning of orchard trees.

2-17                 (3)  "Labor" means labor used in the direct prosecution

2-18     of the work.

2-19                 (4)  "Material" means all or part of:

2-20                       (A)  the material, machinery, fixtures, or tools

2-21     incorporated into the work, consumed in the direct prosecution of

2-22     the work, or ordered and delivered for incorporation or

2-23     consumption;

2-24                       (B)  rent at a reasonable rate and actual running

2-25     repairs at a reasonable cost for construction equipment used or

2-26     reasonably required and delivered for use in the direct prosecution

2-27     of the work at the site of the construction or repair; or

 3-1                       (C)  power, water, fuel, and lubricants consumed

 3-2     or ordered and delivered for consumption in the direct prosecution

 3-3     of the work.

 3-4                 (5)  "Mechanic's lien" means the lien provided by this

 3-5     chapter.

 3-6                 (6)  "Original contract" means an agreement to which an

 3-7     owner is a party either directly or by implication of law.

 3-8                 (7)  "Original contractor" means a person contracting

 3-9     with an owner either directly or through the owner's agent.

3-10                 (8)  "Residence" means a single-family house, duplex,

3-11     triplex, or quadruplex or a unit in a multiunit structure used for

3-12     residential purposes that is:

3-13                       (A)  owned by one or more adult persons; and

3-14                       (B)  used or intended to be used as a dwelling by

3-15     one of the owners.

3-16                 (9)  "Residential construction contract" means a

3-17     contract between an owner and a contractor in which the contractor

3-18     agrees to construct or repair the owner's residence, including

3-19     improvements appurtenant to the residence.

3-20                 (10)  "Residential construction project" means a

3-21     project for the construction or repair of a new or existing

3-22     residence, including improvements appurtenant to the residence, as

3-23     provided by a residential construction contract.

3-24                 (11)  "Retainage" means an amount representing part of

3-25     a contract payment that is not required to be paid to the claimant

3-26     within the month following the month in which labor is performed,

3-27     material is furnished, or specially fabricated material is

 4-1     delivered.  The term does not include retainage under Subchapter E.

 4-2                 (12) [(9)]  "Specially fabricated material" means

 4-3     material fabricated for use as a component of the construction or

 4-4     repair so as to be reasonably unsuitable for use elsewhere.

 4-5                 (13) [(10)]  "Subcontractor" means a person who has

 4-6     furnished labor or materials to fulfill an obligation to an

 4-7     original contractor or to a subcontractor to perform all or part of

 4-8     the work required by an original contract.

 4-9                 (14) [(11)]  "Work" means any part of construction or

4-10     repair performed under an original contract.

4-11           SECTION 3.  Section 53.003(a), Property Code, is amended to

4-12     read as follows:

4-13           (a)  This section applies to notices required by Subchapters

4-14     B through G and K.

4-15           SECTION 4.  Section 53.026(a), Property Code, is amended to

4-16     read as follows:

4-17           (a)  A person who labors, specially fabricates materials, or

4-18     furnishes labor or materials under a direct contractual

4-19     relationship with another person is considered to be in direct

4-20     contractual relationship with the owner and has a lien as an

4-21     original contractor, if:

4-22                 (1)  the owner contracted with the other person for the

4-23     construction or repair of a house, building, or improvements and

4-24     the owner can effectively control that person through ownership of

4-25     voting stock, interlocking directorships, or otherwise;

4-26                 (2)  the owner contracted with the other person for the

4-27     construction or repair of a house, building, or improvements and

 5-1     that other person can effectively control the owner through

 5-2     ownership of voting stock, interlocking directorships, or

 5-3     otherwise; or

 5-4                 (3) [(2)]  the owner contracted with the other person

 5-5     for the construction or repair of a house, building, or

 5-6     improvements and the contract was made without good faith intention

 5-7     of the parties that the other person was to perform the contract.

 5-8           SECTION 5.  Section 53.052, Property Code, is amended to read

 5-9     as follows:

5-10           Sec. 53.052.  FILING OF AFFIDAVIT.  (a)  Except as provided

5-11     by Subsection (b), the [The] person claiming the lien must file an

5-12     affidavit with the county clerk of the county in which the property

5-13     is located or into which the railroad extends not later than the

5-14     15th day of the fourth calendar month after the day on which the

5-15     indebtedness accrues.

5-16           (b)  A person claiming a lien arising from a residential

5-17     construction project must file an affidavit with the county clerk

5-18     of the county in which the property is located not later than the

5-19     15th day of the third calendar month after the day on which the

5-20     indebtedness accrues.

5-21           (c)  The county clerk shall record the affidavit in records

5-22     kept for that purpose and shall index and cross-index the affidavit

5-23     in the names of the claimant, the original contractor, and the

5-24     owner.  Failure of the county clerk to properly record or index a

5-25     filed affidavit does not invalidate the lien.

5-26           SECTION 6.  Sections 53.054(a) and (b), Property Code, are

5-27     amended to read as follows:

 6-1           (a)  The affidavit must be signed by the person claiming the

 6-2     lien or by another person on the claimant's behalf and must contain

 6-3     substantially:

 6-4                 (1)  a sworn statement of the amount of the claim[,

 6-5     including the amount];

 6-6                 (2)  the name and last known address of the owner or

 6-7     reputed owner;

 6-8                 (3)  a general statement of the kind of work done and

 6-9     materials furnished by the claimant and, for a claimant other than

6-10     an original contractor, a statement of each month in which the work

6-11     was done and materials furnished for which payment is requested;

6-12                 (4)  the name and last known address of the person by

6-13     whom the claimant was employed or to whom the claimant furnished

6-14     the materials or labor;

6-15                 (5)  the name and last known address of the original

6-16     contractor;

6-17                 (6)  a description, legally sufficient for

6-18     identification, of the property sought to be charged with the lien;

6-19     [and]

6-20                 (7)  the claimant's name, mailing address, and, if

6-21     different, physical [business] address; and

6-22                 (8)  for a claimant other than an original contractor,

6-23     a statement identifying the date each notice of the claim was sent

6-24     to the owner and the method by which the notice was sent.

6-25           (b)  The claimant may attach to the affidavit a copy of any

6-26     applicable written agreement or contract and a copy of each notice

6-27     sent to the owner.

 7-1           SECTION 7.  Section 53.055(a), Property Code, is amended to

 7-2     read as follows:

 7-3           (a)  A person who files an affidavit must send a copy of the

 7-4     affidavit by registered or certified mail to the owner or reputed

 7-5     owner at the owner's last known business or residence address not

 7-6     later than one business day after the date the affidavit is filed

 7-7     with the county clerk [the earlier of:]

 7-8                 [(1)  the 10th business day after the date the person

 7-9     files the affidavit; or]

7-10                 [(2)  the date the affidavit is required to be filed].

7-11           SECTION 8.  Section 53.056(a), Property Code, is amended to

7-12     read as follows:

7-13           (a)  Except as provided by Subchapter K, a [A] claimant other

7-14     than an original contractor must give the notice prescribed by this

7-15     section for the lien to be valid.

7-16           SECTION 9.  Section 53.057(a), Property Code, is amended to

7-17     read as follows:

7-18           (a)  Except as provided by Subchapter K, a [A] claimant may

7-19     give notice under this section instead of or in addition to notice

7-20     under Section 53.056 if the claimant is to labor, furnish labor or

7-21     materials, or specially fabricate materials under an agreement with

7-22     an original contractor or a subcontractor providing for retainage.

7-23           SECTION 10.  Section 53.058(a), Property Code, is amended to

7-24     read as follows:

7-25           (a)  Except as provided by Subchapter K, a [A] claimant who

7-26     specially fabricates material must give notice under this section

7-27     for the lien to be valid.

 8-1           SECTION 11.  Sections 53.081(a), (b), and (d), Property Code,

 8-2     are amended to read as follows:

 8-3           (a)  If an owner receives notice under Section 53.056,

 8-4     53.057, [or] 53.058, 53.252, or 53.253, the owner may withhold from

 8-5     payments to the original contractor an amount necessary to pay the

 8-6     claim for which he receives notice.

 8-7           (b)  If notice is sent in a form that substantially complies

 8-8     with Section 53.056 or 53.252, the owner may withhold the funds

 8-9     immediately on receipt of the notice.

8-10           (d)  If notice is sent under Section 53.058, the owner may

8-11     withhold funds immediately on receipt of the notices sent under

8-12     Subsection (e) of that section.  If notice is sent as provided by

8-13     Section 53.253(b), the owner may withhold funds immediately on

8-14     receipt of the notice sent as required by Section 53.252.

8-15           SECTION 12.  Section 53.084(b), Property Code, is amended to

8-16     read as follows:

8-17           (b)  If the owner has received the notices required by

8-18     Subchapter C or K, if the lien has been secured, and if the claim

8-19     has been reduced to final judgment, the owner is liable and the

8-20     owner's property is subject to a claim for any money paid to the

8-21     original contractor after the owner was authorized to withhold

8-22     funds under this subchapter.  The owner is liable for that amount

8-23     in addition to any amount for which he is liable under Subchapter

8-24     E.

8-25           SECTION 13.  Section 53.085, Property Code, is amended to

8-26     read as follows:

8-27           Sec. 53.085.  AFFIDAVIT REQUIRED.  (a)  Any person who

 9-1     furnishes labor or materials for the construction of improvements

 9-2     on real property shall, if requested and as a condition of payment

 9-3     for such labor or materials, provide to the requesting party, or

 9-4     the party's [its] agent, an affidavit stating that the [such]

 9-5     person has paid each of the person's [his] subcontractors,

 9-6     laborers, or materialmen in full for all labor and materials

 9-7     provided to the person [him] for the construction.  In the event,

 9-8     however, that the person has not paid each of the person's [his]

 9-9     subcontractors, laborers, or materialmen in full, the person shall

9-10     state in the affidavit the amount owed and the name and, if known,

9-11     the address and telephone number of each subcontractor, laborer, or

9-12     materialman to whom the [such] payment is owed.

9-13           (b)  The seller of any real property shall, upon request by

9-14     the purchaser or the purchaser's [its] agent prior to closing of

9-15     the purchase of the [such] real property, provide to the [such]

9-16     purchaser or the purchaser's [its] agent, a written affidavit

9-17     stating that the seller has paid each of the seller's [his]

9-18     contractors, laborers, or materialmen in full for all labor and

9-19     materials provided to the seller through the date specified in the

9-20     affidavit for any construction of improvements on the real property

9-21     and that  the seller is not indebted to any person, firm, or

9-22     corporation by reason of any such construction through the date

9-23     specified in the affidavit.  In the event that the seller has not

9-24     paid each of the seller's [his] contractors, laborers, or

9-25     materialmen in full for labor and material provided through the

9-26     date specified in the affidavit, the seller shall state in the

9-27     affidavit the amount owed and the name and, if known, the address

 10-1    and telephone number of each  contractor, laborer, or materialman

 10-2    to whom the [such] payment is owed.

 10-3          (c)  The affidavit may include:

 10-4                (1)  a waiver or release of lien rights by the affiant

 10-5    that is conditioned on the receipt of actual payment or collection

 10-6    of funds when payment is made by check or draft;

 10-7                (2)  a warranty or representation that certain bills or

 10-8    classes of bills will be paid by the affiant from funds paid in

 10-9    reliance on the affidavit; and

10-10                (3)  an indemnification by the affiant for any loss or

10-11    expense resulting from false or incorrect information in the

10-12    affidavit.

10-13          (d)  A person, including a seller, commits an offense if the

10-14    person intentionally, knowingly, or recklessly makes a false or

10-15    misleading statement in an affidavit under this section.  An

10-16    offense under this section is a [Class A] misdemeanor.  A person

10-17    adjudged guilty of an offense under this section shall be punished

10-18    by a fine not to exceed $4,000 or confinement in jail for a term

10-19    not to exceed one year or both a fine and confinement.  A person

10-20    may not receive community supervision for the offense.

10-21          (e)  A person signing an affidavit under this section is

10-22    personally liable for any loss or damage resulting from any false

10-23    or incorrect information in the affidavit.

10-24          SECTION 14.  Sections 53.106(b), (c), and (d), Property Code,

10-25    are amended to read as follows:

10-26          (b)  A copy of the affidavit must be sent by certified or

10-27    registered mail to the original contractor not later than the [10th

 11-1    day after the] date the affidavit is filed and to each claimant who

 11-2    sends a notice of lien liability to the owner under Section 53.056,

 11-3    53.057, [or] 53.058, 53.252, or 53.253 not later than the date the

 11-4    affidavit is filed or the 10th day after the date the owner

 11-5    receives the notice of lien liability [or after the date the

 11-6    affidavit is filed], whichever is later.

 11-7          (c)  A copy of the affidavit must also be sent to each person

 11-8    who furnishes labor or materials for the property and who furnishes

 11-9    the owner with a written request for the copy.  The owner must

11-10    furnish the copy to the person not later than the date the

11-11    affidavit is filed or the 10th day after the date the request is

11-12    received [or after the date the affidavit is filed], whichever is

11-13    later.

11-14          (d)  Except as provided by this subsection, an [An] affidavit

11-15    filed under this section on or before the 10th day after the date

11-16    of completion of the improvements is prima facie evidence of the

11-17    date the work under the original contract is completed for purposes

11-18    of this subchapter.  If the affidavit is filed after the 10th day

11-19    after the date of completion, the date of completion for purposes

11-20    of this subchapter is the date the affidavit is filed.  This

11-21    subsection does not apply to a person to whom the affidavit was not

11-22    sent as required by this section.

11-23          SECTION 15.  Section 53.157, Property Code, is amended to

11-24    read as follows:

11-25          Sec. 53.157.  DISCHARGE OF LIEN.  A mechanic's lien or

11-26    affidavit claiming a mechanic's lien filed under Section 53.052 may

11-27    be discharged of record by:

 12-1                (1)  recording a lien release signed by the claimant

 12-2    under Section 53.152;

 12-3                (2)  failing to institute suit to foreclose the lien in

 12-4    the county in which the property is located within the period

 12-5    prescribed by Section 53.158, 53.175, or 53.208;

 12-6                (3)  recording the original or certified copy of a

 12-7    final judgment or decree of a court of competent jurisdiction

 12-8    providing for the discharge;

 12-9                (4)  filing the bond and[,] notice[, and return] in

12-10    compliance with Subchapter H; [or]

12-11                (5)  filing the bond in compliance with Subchapter I;

12-12    or

12-13                (6)  recording a certified copy of the order removing

12-14    the lien under Section 53.160 and a certificate from the clerk of

12-15    the court that states that no bond or deposit as described by

12-16    Section 53.161 was filed by the claimant within 30 days after the

12-17    date the order was entered.

12-18          SECTION 16.  Section 53.158, Property Code, is amended to

12-19    read as follows:

12-20          Sec. 53.158.  PERIOD FOR BRINGING SUIT TO FORECLOSE LIEN.

12-21    (a) Except as provided by Subsection (b), suit [Suit] must be

12-22    brought to foreclose the lien within two years after the date of

12-23    filing the lien affidavit under Section 53.052 or within one year

12-24    after completion of the work under the original contract under

12-25    which the lien is claimed, whichever is later.

12-26          (b)  For a claim arising from a residential construction

12-27    project, suit must be brought to foreclose the lien not later than

 13-1    the first anniversary of the date the lien affidavit is filed under

 13-2    Section 53.052.

 13-3          SECTION 17.  Subchapter G, Chapter 53, Property Code, is

 13-4    amended by adding Sections 53.160, 53.161, and 53.162 to read as

 13-5    follows:

 13-6          Sec. 53.160.  SUMMARY MOTION TO REMOVE INVALID OR

 13-7    UNENFORCEABLE LIEN.  (a)  In a suit brought to foreclose a lien or

 13-8    to declare a claim or lien invalid or unenforceable, a party

 13-9    objecting to the validity or enforceability of the claim or lien

13-10    may file a motion to remove the claim or lien.  The motion must be

13-11    verified and state the legal and factual basis for objecting to the

13-12    validity or enforceability of the claim or lien.  The motion may be

13-13    accompanied by supporting affidavits.

13-14          (b)  The grounds for objecting to the validity or

13-15    enforceability of the claim or lien for purposes of the motion are

13-16    limited to the following:

13-17                (1)  notice of claim was not furnished to the owner or

13-18    original contractor as required by Section 53.056, 53.057, 53.058,

13-19    53.252, or 53.253;

13-20                (2)  an affidavit claiming a lien failed to comply with

13-21    Section 53.054 or was not filed as required by Section 53.052;

13-22                (3)  notice of the filed affidavit was not furnished to

13-23    the owner or original contractor as required by Section 53.055;

13-24                (4)  the owner complied with the requirements of

13-25    Section 53.101 and paid the retainage and all other funds owed to

13-26    the original contractor before:

13-27                      (A)  the claimant perfected the lien claim; and

 14-1                      (B)  the owner received a notice of the claim as

 14-2    required by this chapter;

 14-3                (5)  all funds subject to the notice of a claim to the

 14-4    owner and the perfection of a claim against the statutory retainage

 14-5    have been deposited in the registry of the court and the owner has

 14-6    no additional liability to the claimant;

 14-7                (6)  when the lien affidavit was filed on homestead

 14-8    property:

 14-9                      (A)  no contract was executed or filed as

14-10    required by Section 53.254;

14-11                      (B)  the affidavit claiming a lien failed to

14-12    contain the notice as required by Section 53.254; or

14-13                      (C)  the notice of the claim failed to include

14-14    the statement required by Section 53.254; and

14-15                (7)  the claimant executed a valid and enforceable

14-16    waiver or release of the claim or lien claimed in the affidavit.

14-17          (c)  The claimant is not required to file a response.  The

14-18    claimant and any other party that has appeared in the proceeding

14-19    must be notified by at least 21 days before the date of the hearing

14-20    on the motion.  A motion may not be heard before the 21st day after

14-21    the date the claimant answers or appears in the proceeding.

14-22          (d)  At the hearing on the motion, the burden is on:

14-23                (1)  the claimant to prove that the notice of claim and

14-24    affidavit of lien were furnished to the owner and original

14-25    contractor as required by this chapter; and

14-26                (2)  the movant to establish that the lien should be

14-27    removed for any other ground authorized by this section.

 15-1          (e)  The court shall promptly determine a motion to remove a

 15-2    claim or lien under this section.  If the court determines that the

 15-3    movant is not entitled to remove the lien, the court shall enter an

 15-4    order denying the motion.  If the court determines that the movant

 15-5    is entitled to remove the lien, the court shall enter an order

 15-6    removing the lien claimed in the lien affidavit.   A party to the

 15-7    proceeding may not file an interlocutory appeal from the court's

 15-8    order.

 15-9          (f)  Any admissible evidence offered at the hearing may be

15-10    admitted in the trial of the case.  The court's order under

15-11    Subsection (e) is not admissible as evidence in determining the

15-12    validity and enforceability of the claim or lien.

15-13          Sec. 53.161.  BOND REQUIREMENTS AFTER ORDER TO REMOVE.  (a)

15-14    In the order removing a lien, the court shall set the amount of

15-15    security that the claimant may provide in order to stay the removal

15-16    of the claim or lien.  The sum must be an amount that the court

15-17    determines is a reasonable estimate of the costs and attorney's

15-18    fees the movant is likely to incur in the proceeding to determine

15-19    the validity or enforceability of the lien.  The sum may not exceed

15-20    the amount of the lien claim.

15-21          (b)  The court shall stay the order removing the lien if the

15-22    claimant files a bond or a deposit in lieu of a bond in the amount

15-23    set in the order with the clerk of the court not later than the

15-24    30th day after the date the order is entered by the court unless,

15-25    for good cause, the court orders a later date for filing the bond

15-26    or the deposit in lieu of a bond.  If the court fails to set the

15-27    amount of the security required, the amount required is the amount

 16-1    of the lien claim.

 16-2          (c)  The bond must be:

 16-3                (1)  executed by a corporate surety authorized to do

 16-4    business in this state and licensed by this state to execute bonds

 16-5    as surety; and

 16-6                (2)  conditioned on the claimant's payment of any final

 16-7    judgment rendered against the claimant in the proceeding for

 16-8    attorney's fees and costs to the movant under Section 53.156.

 16-9          (d)  In lieu of filing a bond, the claimant may deposit in

16-10    the amount set by the court for the surety bond:

16-11                (1)  cash;

16-12                (2)  a negotiable obligation of the federal government

16-13    or a federal agency; or

16-14                (3)  a negotiable obligation of a financial institution

16-15    chartered by the federal or state government that is insured by the

16-16    federal government or a federal agency.

16-17          (e)  A deposit made under Subsection (d) must be conditioned

16-18    in the same manner as a surety bond.  Any interest accrued on the

16-19    deposit amount is a part of the deposit.

16-20          (f)  If the claimant fails to file the bond or the deposit in

16-21    lieu of the bond in compliance with this section, the owner may

16-22    file:

16-23                (1)  a certified copy of the order; and

16-24                (2)  a certificate from the clerk of the court stating

16-25    that:

16-26                      (A)  no bond or deposit in lieu of the bond was

16-27    filed within 30 days after the date the order was entered by the

 17-1    court; and

 17-2                      (B)  no order staying the order to remove the

 17-3    lien was entered by the court.

 17-4          (g)  The claim or lien is removed and extinguished as to a

 17-5    creditor or subsequent purchaser for valuable consideration who

 17-6    obtains an interest in the property after the certified copy of the

 17-7    order and certificate of the clerk of the court are filed with the

 17-8    county clerk.  The removal of the lien does not constitute a

 17-9    release of the liability of the owner, if any, to the claimant.

17-10          Sec. 53.162.  REVIVAL OF REMOVED LIEN.  (a)  If an order

17-11    removing the lien is not stayed as provided by Section 53.161 and

17-12    the claimant later obtains a final judgment in the suit

17-13    establishing the validity and ordering the foreclosure of the lien,

17-14    the claimant may file a certified copy of the final judgment with

17-15    the county clerk.

17-16          (b)  The filed judgment revives the lien, and the claimant

17-17    may foreclose the lien.

17-18          (c)  A lien revived under this section is void as to a

17-19    creditor or subsequent purchaser for valuable consideration who

17-20    obtained an interest in the property:

17-21                (1)  after the order removing the lien and the

17-22    certificate from the clerk of the court was filed with the county

17-23    clerk; and

17-24                (2)  before the final judgment reviving the lien was

17-25    filed with the county clerk.

17-26          SECTION 18.  Section 53.171, Property Code, is amended by

17-27    adding Subsection (c) to read as follows:

 18-1          (c)  A mechanic's lien claim against an owner's property is

 18-2    discharged after:

 18-3                (1)  a bond that complies with Section 53.172 is filed;

 18-4                (2)  the notice of the bond is issued as provided by

 18-5    Section 53.173; and

 18-6                (3)  the bond and notice are recorded as provided by

 18-7    Section 53.174.

 18-8          SECTION 19.  Sections 53.173(c) and (d), Property Code, are

 18-9    amended to read as follows:

18-10          (c)  The notice must [may] be served on each obligee by

18-11    mailing [having] a copy of the notice and the bond [delivered] to

18-12    the obligee by certified United States mail, return receipt

18-13    requested, addressed to the claimant at the address stated in the

18-14    lien affidavit for the obligee [any means authorized for the

18-15    service of an original petition under the Texas Rules of Civil

18-16    Procedure].

18-17          (d)  If the claimant's lien affidavit does not state the

18-18    claimant's address, the notice is not required to be mailed to the

18-19    claimant [The original notice shall be returned to the office of

18-20    the county clerk, and the person making service of copies shall

18-21    make an oath on the back of the copies showing on whom and on what

18-22    date the copies were served].

18-23          SECTION 20.  Section 53.174, Property Code, is amended to

18-24    read as follows:

18-25          Sec. 53.174.  RECORDING OF BOND AND NOTICE.  (a)  The county

18-26    clerk shall record the bond, the notice, and a certificate of

18-27    mailing [return] in the real property records.

 19-1          (b)  In acquiring an interest in or insuring title to real

 19-2    property, a purchaser, insurer of title, or lender may rely on and

 19-3    is absolutely protected by the record of the bond and the[,]

 19-4    notice[, and return] to the same extent as if the lien claimant had

 19-5    filed a release of lien in the real property records.

 19-6          SECTION 21.  Section 53.175(b), Property Code, is amended to

 19-7    read as follows:

 19-8          (b)  The bond is not exhausted by one action against it.

 19-9    Each named obligee or assignee of an obligee may maintain a

19-10    separate suit on the bond in any court of jurisdiction in the

19-11    county in which the real property is located.

19-12          SECTION 22.  Section 53.201(a), Property Code, is amended to

19-13    read as follows:

19-14          (a)  An original contractor who has a written contract with

19-15    the owner may furnish at any time a bond for the benefit of

19-16    claimants.

19-17          SECTION 23.  Chapter 53, Property Code, is amended by adding

19-18    Subchapter K to read as follows:

19-19              SUBCHAPTER K. RESIDENTIAL CONSTRUCTION PROJECTS

19-20          Sec. 53.251.  PROCEDURES FOR RESIDENTIAL CONSTRUCTION

19-21    PROJECTS.  (a)  This subchapter applies only to residential

19-22    construction projects.

19-23          (b)  A person must comply with this subchapter in addition to

19-24    the other applicable provisions of this chapter to perfect a lien

19-25    that arises from a claim resulting from a residential construction

19-26    project.

19-27          Sec. 53.252.  DERIVATIVE CLAIMANT: NOTICE TO OWNER OR

 20-1    ORIGINAL CONTRACTOR.  (a)  A claimant other than an original

 20-2    contractor must give the notice prescribed by this section for the

 20-3    lien to be valid.  If the property that is the subject of the lien

 20-4    is a homestead, the notice must also comply with Section 53.254.

 20-5          (b)  The claimant must give to the owner or reputed owner and

 20-6    the original contractor written notice of the unpaid balance.  The

 20-7    claimant must give the notice not later than the 15th day of the

 20-8    second month following each month in which all or part of the

 20-9    claimant's labor was performed or material or specially fabricated

20-10    material was delivered.

20-11          (c)  To authorize the owner to withhold funds under

20-12    Subchapter D, the notice to the owner must state that if the claim

20-13    remains unpaid, the owner may be personally liable and the owner's

20-14    property may be subjected to a lien unless:

20-15                (1)  the owner withholds payments from the contractor

20-16    for payment of the claim; or

20-17                (2)  the claim is otherwise paid or settled.

20-18          (d)  The notice must be sent by registered or certified mail

20-19    and must be addressed to the owner or reputed owner and the

20-20    original contractor, as applicable, at the person's last known

20-21    business or residence address.

20-22          (e)  A copy of the statement or billing in the usual and

20-23    customary form is sufficient as notice under this section.

20-24          Sec. 53.253.  DERIVATIVE CLAIMANT:  NOTICE FOR SPECIALLY

20-25    FABRICATED ITEMS.  (a)   If specially fabricated materials have not

20-26    been delivered to the property or incorporated in the residential

20-27    construction project, the claimant who specially fabricates

 21-1    material for incorporation in the residential construction project

 21-2    must give notice under this section for the lien to be valid.

 21-3          (b)  Once the specially fabricated materials have been

 21-4    delivered, the claimant must give notice under Section 53.252.

 21-5          (c)  The claimant must give the owner or reputed owner notice

 21-6    not later than the 15th day of the second month after the month in

 21-7    which the claimant receives and accepts the order for the material.

 21-8    If the indebtedness is incurred by a person other than the original

 21-9    contractor, the claimant must also give notice within that time to

21-10    the original contractor.

21-11          (d)  The notice must contain:

21-12                (1)  a statement that the order has been received and

21-13    accepted; and

21-14                (2)  the price of the order.

21-15          (e)  The notice must be sent by registered or certified mail

21-16    to the last known business or residence address of the owner or the

21-17    reputed owner or the original contractor, as applicable.

21-18          (f)  The lien of a claimant who accepts an order but fails to

21-19    give notice under this section is valid as to delivered items if

21-20    the claimant has given notice under Section 53.252.

21-21          Sec. 53.254.  HOMESTEAD.  (a)  To fix a lien on a homestead,

21-22    the person who is to furnish material or perform labor and the

21-23    owner must execute a written contract setting forth the terms of

21-24    the agreement.

21-25          (b)  The contract must be executed before the material is

21-26    furnished or the labor is performed.

21-27          (c)  If the owner is married, the contract must be signed by

 22-1    both spouses.

 22-2          (d)  If the contract is made by an original contractor, the

 22-3    contract inures to the benefit of all persons who labor or furnish

 22-4    material for the original contractor.

 22-5          (e)  The contract must be filed with the county clerk of the

 22-6    county in which the homestead is located.  The county clerk shall

 22-7    record the contract in records kept for that purpose.

 22-8          (f)  An affidavit for lien filed under this subchapter that

 22-9    relates to a homestead must contain the following notice

22-10    conspicuously printed, stamped, or typed in a size equal to at

22-11    least 10-point boldface or the computer equivalent, at the top of

22-12    the page:

22-13          "NOTICE:  THIS IS NOT A LIEN.  THIS IS ONLY AN AFFIDAVIT

22-14    CLAIMING A LIEN."

22-15          (g)  For the lien on a homestead to be valid, the notice

22-16    required to be given to the owner under Section 53.252 must include

22-17    or have attached the following statement:

22-18          "If a subcontractor or supplier who furnishes materials or

22-19    performs labor for construction of improvements on your property is

22-20    not paid, your property may be subject to a lien for the unpaid

22-21    amount if:

22-22                (1)  after receiving notice of the unpaid claim from

22-23    the claimant, you fail to withhold payment to your contractor that

22-24    is sufficient to cover the unpaid claim until the dispute is

22-25    resolved; or

22-26                (2)  during construction and for 30 days after

22-27    completion of construction, you fail to retain 10 percent of the

 23-1    contract price or 10 percent of the value of the work performed by

 23-2    your contractor.

 23-3          "If you have complied with the law regarding the 10 percent

 23-4    retainage and you have withheld payment to the contractor

 23-5    sufficient to cover any written notice of claim and have paid that

 23-6    amount, if any, to the claimant, any lien claim filed on your

 23-7    property by a subcontractor or supplier, other than a person who

 23-8    contracted directly with you, will not be a valid lien on your

 23-9    property.  In addition, except for the required 10 percent

23-10    retainage, you are not liable to a subcontractor or supplier for

23-11    any amount paid to your contractor before you received written

23-12    notice of the claim."

23-13          Sec. 53.255.  DISCLOSURE STATEMENT REQUIRED FOR RESIDENTIAL

23-14    CONSTRUCTION CONTRACT.  (a)  Before a residential construction

23-15    contract is executed by the owner, the original contractor shall

23-16    deliver to the owner a disclosure statement described by this

23-17    section.

23-18          (b)  The disclosure statement must read substantially similar

23-19    to the following:

23-20          "KNOW YOUR RIGHTS AND RESPONSIBILITIES UNDER THE LAW.  You

23-21    are about to enter into a transaction to build a new home or

23-22    remodel existing residential property.  Texas law requires your

23-23    contractor to provide you with this brief overview of some of your

23-24    rights, responsibilities, and risks in this transaction.

23-25          "CONVEYANCE TO CONTRACTOR PROHIBITED.  Your contractor may

23-26    not require you to convey your real property to your contractor as

23-27    a condition to the agreement for the construction of improvements

 24-1    on your property.

 24-2          "KNOW YOUR CONTRACTOR.  Before you enter into your agreement

 24-3    for the construction of improvements to your real property, make

 24-4    sure that you have investigated your contractor.  Obtain and verify

 24-5    references from other people who have used the contractor for the

 24-6    type and size of construction project on your property.

 24-7          "GET IT IN WRITING.  Make sure that you have a written

 24-8    agreement with your contractor that includes:  (1) a description of

 24-9    the work the contractor is to perform; (2) the required or

24-10    estimated time for completion of the work; (3) the cost of the work

24-11    or how the cost will be determined; and (4) the procedure and

24-12    method of payment, including provisions for statutory retainage and

24-13    conditions for final payment.  If your contractor made a promise,

24-14    warranty, or representation to you concerning the work the

24-15    contractor is to perform, make sure that promise, warranty, or

24-16    representation is specified in the written agreement.  An oral

24-17    promise that is not included in the written agreement may not be

24-18    enforceable under Texas law.

24-19          "READ BEFORE YOU SIGN.  Do not sign any document before you

24-20    have read and understood it.  NEVER SIGN A DOCUMENT THAT INCLUDES

24-21    AN UNTRUE STATEMENT.  Take your time in reviewing documents.  If

24-22    you borrow money from a lender to pay for the improvements, you are

24-23    entitled to have the loan closing documents furnished to you for

24-24    review at least one business day before the closing.  Do not waive

24-25    this requirement unless a bona fide emergency or another good cause

24-26    exists, and make sure you understand the documents before you sign

24-27    them.  If you fail to comply with the terms of the documents, you

 25-1    could lose your property.  You are entitled to have your own

 25-2    attorney review any documents.  If you have any question about the

 25-3    meaning of a document, consult an attorney.

 25-4          "GET A LIST OF SUBCONTRACTORS AND SUPPLIERS.  Before

 25-5    construction commences, your contractor is required to provide you

 25-6    with a list of the subcontractors and suppliers the contractor

 25-7    intends to use on your project.  Your contractor is required to

 25-8    supply updated information on any subcontractors and suppliers

 25-9    added after the list is provided.

25-10          "MONITOR THE WORK.  Lenders and governmental authorities may

25-11    inspect the work in progress from time to time for their own

25-12    purposes.  These inspections are not intended as quality control

25-13    inspections.  Quality control is a matter for you and your

25-14    contractor.  To ensure that your home is being constructed in

25-15    accordance with your wishes and specifications, you should inspect

25-16    the work yourself or have your own independent inspector review the

25-17    work in progress.

25-18          "MONITOR PAYMENTS.  If you use a lender, your lender is

25-19    required to provide you with a periodic statement showing the money

25-20    disbursed by the lender from the proceeds of your loan.  Your

25-21    contractor is also required to furnish you with a statement at

25-22    least once each month of money disbursed to subcontractors and

25-23    suppliers for this project.  Review these statements and make sure

25-24    that the money is being properly disbursed.

25-25          "CLAIMS BY SUBCONTRACTORS AND SUPPLIERS.  Under Texas law, if

25-26    a subcontractor or supplier who furnishes labor or materials for

25-27    the construction of improvements on your property is not paid, you

 26-1    may become liable and your property may be subject to a lien for

 26-2    the unpaid amount, even if you have not contracted directly with

 26-3    the subcontractor or supplier.  To avoid liability, you should take

 26-4    the following actions:

 26-5                (1)  If you receive a written notice from a

 26-6    subcontractor or supplier, you should  withhold payment from your

 26-7    contractor for the amount of the claim stated in the notice until

 26-8    the dispute between your contractor and the subcontractor or

 26-9    supplier is resolved.  If your lender is disbursing money directly

26-10    to your contractor, you should immediately provide a copy of the

26-11    notice to your lender and instruct the lender to withhold payment

26-12    in the amount of the claim stated in the notice.  If you continue

26-13    to pay the contractor after receiving the written notice without

26-14    withholding the amount of the claim, you may be liable and your

26-15    property may be subject to a lien for the amount you failed to

26-16    withhold.

26-17                (2)  During construction and for 30 days after final

26-18    completion, termination, or abandonment of the contract by the

26-19    contractor, you should withhold or cause your lender to withhold 10

26-20    percent of the amount of payments made for the work performed by

26-21    your contractor.  This is sometimes referred to as 'statutory

26-22    retainage.'  If you fail to withhold the 10 percent for at least 30

26-23    days after final completion, termination, or abandonment of the

26-24    contract by the contractor and if a valid claim is timely made by a

26-25    claimant, you may be personally liable and your property may be

26-26    subject to a lien up to the amount that you failed to withhold.

26-27          "If a claim is not paid within a certain time period, the

 27-1    claimant is required to file a mechanic's lien affidavit in the

 27-2    real property records in the county where the property is located.

 27-3    A mechanic's lien affidavit is not a lien on your property, but the

 27-4    filing of the affidavit could result in a court imposing a lien on

 27-5    your property if the claimant is successful in litigation to

 27-6    enforce the lien claim.

 27-7          "SOME CLAIMS MAY NOT BE VALID.  When you receive a written

 27-8    notice of a claim or when a mechanic's lien affidavit is filed on

 27-9    your property, you should know your legal rights and

27-10    responsibilities regarding the claim.  Not all claims are valid.  A

27-11    notice of a claim by a subcontractor or supplier is required to be

27-12    sent, and the mechanic's lien affidavit is required to be filed,

27-13    within strict time periods.  The notice and the affidavit must

27-14    contain certain information.  All claimants may not fully comply

27-15    with the legal requirements to collect on a claim.   If you have

27-16    paid the contractor in full before receiving a notice of a claim

27-17    and have fully complied with the law regarding statutory retainage,

27-18    you may not be liable for that claim.  Accordingly, you should

27-19    consult your attorney when you receive a written notice of a claim

27-20    to determine the true extent of your liability or potential

27-21    liability for that claim.

27-22          "OBTAIN A LIEN RELEASE AND A BILLS-PAID AFFIDAVIT.  When you

27-23    receive a notice of claim, do not release withheld funds without

27-24    obtaining a signed and notarized release of lien and claim from the

27-25    claimant.  You can also reduce the risk of having a claim filed by

27-26    a subcontractor or supplier by requiring as a condition of each

27-27    payment made by you or your lender that your contractor furnish you

 28-1    with an affidavit stating that all bills have been paid.  Under

 28-2    Texas law, on final completion of the work and before final

 28-3    payment, the contractor is required to furnish you with an

 28-4    affidavit stating that all bills have been paid.  If the contractor

 28-5    discloses any unpaid bill in the affidavit, you should withhold

 28-6    payment in the amount of the unpaid bill until you receive a waiver

 28-7    of lien or release from that subcontractor or supplier.

 28-8          "OBTAIN TITLE INSURANCE PROTECTION.  You may be able to

 28-9    obtain a title insurance policy to insure that the title to your

28-10    property and the existing improvements on your property are free

28-11    from liens claimed by subcontractors and suppliers.  If your policy

28-12    is issued before the improvements are completed and covers the

28-13    value of the improvements to be completed, you should obtain, on

28-14    the completion of the improvements and as a condition of your final

28-15    payment, a 'completion of improvements' policy endorsement.  This

28-16    endorsement will protect your property from liens claimed by

28-17    subcontractors and suppliers that may arise from the date the

28-18    original title policy is issued to the date of the endorsement."

28-19          (c)  The failure of a contractor to comply with this section

28-20    does not invalidate a lien under this chapter, a contract lien, or

28-21    a deed of trust.

28-22          Sec. 53.256.  LIST OF SUBCONTRACTORS AND SUPPLIERS.  (a)  For

28-23    the construction of improvements under a residential construction

28-24    contract, the original contractor must attach to the disclosure

28-25    statement required by Section 53.255 or furnish to the owner before

28-26    the commencement of construction a written list that identifies by

28-27    name, address, and telephone number each subcontractor and supplier

 29-1    the contractor intends to use in the work to be performed.  The

 29-2    contractor shall provide the owner with an updated list of

 29-3    subcontractors and suppliers not later than the 15th day after the

 29-4    date a subcontractor or supplier is added or deleted.

 29-5          (b)  The list must contain the following notice conspicuously

 29-6    printed, stamped, or typed in a size equal to at least 10-point

 29-7    boldface or the computer equivalent:

 29-8          "NOTICE:  THIS LIST OF SUBCONTRACTORS AND SUPPLIERS MAY NOT

 29-9    BE A FINAL LISTING.  THE CONTRACTOR IS REQUIRED BY LAW TO SUPPLY

29-10    UPDATED INFORMATION, AS THE INFORMATION BECOMES AVAILABLE, FOR EACH

29-11    SUBCONTRACTOR OR SUPPLIER USED IN THE WORK PERFORMED ON YOUR

29-12    RESIDENCE."

29-13          (c)  The failure of a contractor to comply with this section

29-14    does not invalidate a lien under this chapter, a contract lien, or

29-15    a deed of trust.

29-16          Sec. 53.257.  PROVISIONS RELATED TO CLOSING OF LOAN FOR

29-17    CONSTRUCTION OF IMPROVEMENTS.  (a)  If the owner is obtaining

29-18    third-party financing for the construction of improvements under a

29-19    residential construction contract, the lender shall deliver to the

29-20    owner all documentation relating to the closing of the loan not

29-21    later than one business day before the date of the closing. If a

29-22    bona fide emergency or another good cause exists and the lender

29-23    obtains the written consent of the owner, the lender may provide

29-24    the documentation to the owner or the lender may modify previously

29-25    provided documentation on the date of closing.

29-26          (b)  The lender shall provide to the owner the disclosure

29-27    statement described by Section 53.255(b).  The disclosure statement

 30-1    must be provided to the owner before the date of closing.  If a

 30-2    bona fide emergency or another good cause exists and the lender

 30-3    obtains the written consent of the owner, the lender may provide

 30-4    the disclosure statement at the closing.  The lender shall retain a

 30-5    signed and dated copy of the disclosure statement with the closing

 30-6    documents.

 30-7          (c)  The failure of a lender to comply with this section does

 30-8    not invalidate a lien under this chapter, a contract lien, or a

 30-9    deed of trust.

30-10          Sec. 53.258.  DISBURSEMENTS OF FUNDS.  (a)  For the

30-11    construction of improvements under a residential construction

30-12    contract, the original contractor shall provide to the owner a

30-13    signed periodic statement that lists the bills or expenses that the

30-14    original contractor represents will be paid or that have been paid

30-15    and for which the original contractor is requesting payment.  The

30-16    original contractor is not required to include in the statement the

30-17    bills or expenses for which the original contractor has obtained a

30-18    valid lien release or waiver from the subcontractor or supplier to

30-19    whom the bills or expenses are owed if the statement includes a

30-20    written representation that the balance of any funds that are not

30-21    itemized in the statement will be paid to:

30-22                (1)  the subcontractor or supplier who provided the

30-23    lien release or waiver; or

30-24                (2)  the original contractor as reimbursement for

30-25    expenses incurred, profit, or overhead.

30-26          (b)  If the owner finances the construction of improvements

30-27    through a third party that advances loan proceeds directly to the

 31-1    original contractor, the lender shall:

 31-2                (1)  obtain from the original contractor the signed

 31-3    periodic statement required by Subsection (a) that covers the funds

 31-4    for which the original contractor is requesting payment; and

 31-5                (2)  provide to the owner a statement of funds

 31-6    disbursed by the lender since the last statement was provided to

 31-7    the owner.

 31-8          (c)  The lender shall provide to the owner the lender's

 31-9    disbursement statement and the disbursement statement the lender

31-10    obtained from the contractor before the lender disburses the funds

31-11    to the original contractor.  The disbursement statements may be

31-12    provided in any manner agreed to by the lender and the owner.

31-13          (d)  The lender is not responsible for the accuracy of the

31-14    information contained in the disbursement statement obtained from

31-15    the original contractor.

31-16          (e)  The failure of a lender to comply with this section does

31-17    not invalidate a lien under this chapter, a contract lien, or a

31-18    deed of trust.

31-19          (f)  A person commits an offense if the person intentionally,

31-20    knowingly, or recklessly provides false or misleading information

31-21    in a disbursement statement required under this section.  An

31-22    offense under this section is a misdemeanor.  A person adjudged

31-23    guilty of an offense under this section shall be punished by a fine

31-24    not to exceed $4,000 or confinement in jail for a term not to

31-25    exceed one year or both a fine and confinement.  A person may not

31-26    receive community supervision for the offense.

31-27          Sec. 53.259.  FINAL BILLS-PAID AFFIDAVIT REQUIRED.  (a)  As a

 32-1    condition of final payment under a residential construction

 32-2    contract, the original contractor shall, at the time the final

 32-3    payment is tendered, execute and deliver to the owner, or the

 32-4    owner's agent, an affidavit stating that the original contractor

 32-5    has paid each person in full for all labor and materials used in

 32-6    the construction of improvements on the real property.  If the

 32-7    original contractor has not paid each person in full, the original

 32-8    contractor shall state in the affidavit the amount owed and the

 32-9    name and, if known, the address and telephone number of each person

32-10    to whom a payment is owed.

32-11          (b)  The seller of any real property on which a structure of

32-12    not more than four units is constructed and that is intended as the

32-13    principal place of residence for the purchaser shall, at the

32-14    closing of the purchase of the real property, execute and deliver

32-15    to the purchaser, or the purchaser's agent, an affidavit stating

32-16    that the seller has paid each person in full for all labor and

32-17    materials used in the construction of improvements on the real

32-18    property and that the seller is not indebted to any person by

32-19    reason of any construction.  In the event that the seller has not

32-20    paid each person in full, the seller shall state in the affidavit

32-21    the amount owed and the name and, if known, the address and

32-22    telephone number of each person to whom a payment is owed.

32-23          (c)  A person commits an offense if the person intentionally,

32-24    knowingly, or recklessly makes a false or misleading statement in

32-25    an affidavit under this section.  An offense under this section is

32-26    a misdemeanor.  A person adjudged guilty of an offense under this

32-27    section shall be punished by a fine not to exceed $4,000 or

 33-1    confinement in jail for a term not to exceed one year or both a

 33-2    fine and confinement.  A person may not receive community

 33-3    supervision for the offense.

 33-4          (d)  A person signing an affidavit under this section is

 33-5    personally liable for any loss or damage resulting from any false

 33-6    or incorrect information in the affidavit.

 33-7          Sec. 53.260.  CONVEYANCE TO CONTRACTOR PROHIBITED.  An

 33-8    original contractor may not require an owner of real property to

 33-9    convey the real property to the original contractor or an entity

33-10    controlled by the original contractor as a condition to the

33-11    performance of the residential construction contract for

33-12    improvements to the real property.

33-13          SECTION 24.  Section 53.059, Property Code, is repealed.

33-14          SECTION 25.  (a)  This Act takes effect September 1, 1997.

33-15          (b)  The changes in law made by this Act apply only to

33-16    matters relating to or claims arising under an original contract,

33-17    as that term is defined by Section 53.001, Property Code, that is

33-18    entered into on or after September 1, 1997.  Matters relating to or

33-19    claims arising under an original contract, as that term is defined

33-20    by Section 53.001, Property Code, that was entered into before

33-21    September 1, 1997, are governed by the law as it existed on the

33-22    date the original contract was entered into, and the former law is

33-23    continued in effect for that purpose.

33-24          SECTION 26.  The importance of this legislation and the

33-25    crowded condition of the calendars in both houses create an

33-26    emergency and an imperative public necessity that the

33-27    constitutional rule requiring bills to be read on three several

 34-1    days in each house be suspended, and this rule is hereby suspended.

         _______________________________     _______________________________

             President of the Senate              Speaker of the House

               I certify that H.B. No. 740 was passed by the House on April

         30, 1997, by a non-record vote.

                                             _______________________________

                                                 Chief Clerk of the House

               I certify that H.B. No. 740 was passed by the Senate on May

         19, 1997, by the following vote:  Yeas 31, Nays 0.

                                             _______________________________

                                                 Secretary of the Senate

         APPROVED:  _____________________

                            Date

                    _____________________

                          Governor