83R507 AJA-F

By: Deuell S.B. No. 295

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), the contractor shall provide to the lender:

(1) the contractor's name, physical and mailing addresses and e-mail address, if available, and telephone number; and

(2) the name of the person to whom any notice under this section should be delivered.

(c) Except as provided by Subsection (f), each contractor and subcontractor providing labor, materials, equipment, or services for an improvement described by this section is entitled to suspend contractually required performance without penalty or liability for damages if the lender suspends a disbursement of loan proceeds or ceases disbursements of loan proceeds to a borrower or property owner under the loan or financing agreement to which this section applies.

(d) Except as provided by Subsection (f), a lender shall immediately notify the contractor identified under Subsection (b) of a suspension of a disbursement of loan proceeds or cessation of disbursements of loan proceeds described by Subsection (c).

(e) On receipt of notice under Subsection (d), a contractor shall immediately notify each of the contractor's subcontractors of the suspension of the disbursement of loan proceeds or cessation of disbursements of loan proceeds and of the subcontractor's right under this section to suspend contractually required performance without penalty or liability for damages as a result of the suspension of the disbursement of loan proceeds or cessation of disbursements of loan proceeds.

(f) A lender is not required to give notice to a contractor under Subsection (d) with respect to a suspension of a disbursement of loan proceeds or cessation of disbursements of loan proceeds described by Subsection (c) if, before the lender suspends the disbursement of loan proceeds or ceases the disbursements of loan proceeds, a written agreement exists between the lender and the contractor that:

(1) provides for the continued performance by the contractor and for payment to the contractor in the event of a default by the borrower or property owner under the loan or financing agreement;

(2) provides for notice from the lender to the contractor that the borrower or property owner is in default under the loan or financing agreement;

(3) requires that, on the receipt of notice under Subdivision (2), the contractor shall immediately notify the contractor's subcontractors of the borrower's or property owner's default under the loan or financing agreement; and

(4) specifically states that subcontractors of the contractor are third-party beneficiaries of the lender's obligations under the agreement.

(g) A subcontractor is a third-party beneficiary of a lender's obligations under Subsection (d) 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, 2013.