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A BILL TO BE ENTITLED
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AN ACT
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relating to lender notice of default to contractors regarding a |
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construction loan or financing agreement for an improvement to real |
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property and related procedures for suspending contractors' |
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performance. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Chapter 28, Property Code, is amended by adding |
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Section 28.0091 to read as follows: |
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Sec. 28.0091. LENDER NOTICE OF DEFAULT TO CONTRACTORS; |
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SUSPENSION OF PERFORMANCE PENDING CURE. (a) This section applies |
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only to a lender that provides financing through a construction |
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loan or under a financing agreement for an improvement to the |
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borrower's real property for which the real property or improvement |
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is collateral. |
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(b) On the earliest date a lender takes an action for which |
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notice is required by this subsection in response to a particular |
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default by the borrower, the lender must give written notice of the |
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action to each contractor and subcontractor known to the lender to |
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be providing labor, materials, equipment, or services for the |
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improvement. Notice under this subsection is required if the |
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lender: |
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(1) exercises a default remedy provided by statute or |
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the loan or financing agreement; |
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(2) gives a notice of default to the borrower; or |
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(3) fails to fund, in whole or in substantial part, a |
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draw request submitted in proper form by a contractor. |
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(c) Not later than the third day after the date a contractor |
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receives a notice from a lender under Subsection (b), the |
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contractor shall give written notice to each of the contractor's |
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subcontractors of the action taken by the lender. |
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(d) After the sixth day after the earliest date on which the |
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lender takes an action for which notice is required by Subsection |
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(b), a contractor or subcontractor may suspend contractually |
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required performance without penalty on sending to the lender |
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written notice of the contractor's or subcontractor's intent to |
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suspend performance and, if the notice is given by a subcontractor, |
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to the subcontractor's contractor. The contractor or subcontractor |
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may suspend performance under this subsection until: |
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(1) the contractor and subcontractor receive a notice |
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of cure from the lender under Subsection (e); or |
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(2) the lender or the borrower provides the contractor |
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and subcontractor a written payment guarantee acceptable to the |
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contractor and subcontractor for all labor, materials, equipment, |
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or services provided or to be provided for the improvement to real |
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property after the action is taken. |
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(e) If the default in response to which the action for which |
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notice is required by Subsection (b) is taken is cured, the lender |
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shall give written notice of the cure to each contractor and |
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subcontractor known to the lender. |
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(f) Not later than the third day after the date a contractor |
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receives a notice of cure under Subsection (e), the contractor |
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shall give written notice of the cure to each of the contractor's |
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subcontractors. |
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(g) If a lender does not give a contractor or subcontractor |
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notice as required by Subsection (b), the lender's security |
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interest in the project is subordinate to the value of all labor, |
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materials, equipment, or services provided by that contractor or |
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subcontractor after the date on which the notice should have been |
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given. |
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SECTION 2. The change in law made by this Act applies only |
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to a construction loan or financing agreement entered into on or |
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after the effective date of this Act. A construction loan or |
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financing agreement entered into before the effective date of this |
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Act is governed by the law in effect immediately before the |
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effective date of this Act, and that law is continued in effect for |
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that purpose. |
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SECTION 3. This Act takes effect September 1, 2011. |