84R23793 AJA-F

By: Bell, Leach, Simmons, Kacal, Romero, Jr. H.B. No. 1208

Substitute the following for H.B. No. 1208:

By: Simmons C.S.H.B. No. 1208

A BILL TO BE ENTITLED

AN ACT

relating to lender notice of default to contractors regarding certain construction loans or financing agreements 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. (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) This section does not apply with respect to a loan or financing agreement used primarily for:

(1) the construction or remodeling of an individual's single-family home, townhouse, or duplex; or

(2) land development directly related to the construction or remodeling of an individual's single-family home, townhouse, or duplex.

(c) For an improvement to real property for which financing is provided as described by Subsection (a), each contractor, not later than the 30th day after the date the contractor sends the contractor's first written pay request, shall provide a notice of contractor identification that complies with Subsection (d) to the lender and the borrower and, if the borrower is not the owner of the real property, to the property owner.

(d) A notice of contractor identification provided under Subsection (c) must:

(1) be sent certified mail, return receipt requested;

(2) be identified by the heading "Notice of Contractor Identification" or words of similar meaning; and

(3) contain:

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

(B) the street address or project name or other information sufficient to describe the location of the property being improved; and

(C) the name of each person to whom the notice is being given.

(e) If the lender's name, a mailing address, a name of a particular individual, and a reference to this section are provided in the contract between the property owner and the contractor, notice to the lender under Subsection (c) must be sent to that mailing address and to the attention of the particular individual.

(f) Except as provided by Subsection (j), each contractor and subcontractor providing labor, materials, equipment, or services for an improvement to real property for which financing is provided as described by Subsection (a) is entitled to suspend contractually required performance without penalty or liability for damages for suspending contractually required performance if a contractor receives notice under Subsection (g).

(g) Except as provided by Subsection (j), a lender shall notify each contractor identified under Subsection (c) not later than the second business day after the date on which the lender sends to the borrower one of the following notices in connection with a particular default under the loan or financing agreement:

(1) a notice of acceleration;

(2) a notice of set-off; or

(3) a notice of foreclosure.

(h) A lender and a contractor may devise and agree on an effective, efficient, and economical method for delivering any notice required under Subsection (g). If the lender and the contractor do not devise or agree on the method by which the notice will be delivered, the notice must be delivered by certified mail, return receipt requested.

(i) Not later than the second business day after the date a contractor receives notice under Subsection (g), the contractor shall notify each of the contractor's subcontractors of the contractor's receipt of the notice and of the subcontractor's right under this section as a result of the notice to suspend contractually required performance without penalty or liability for damages for suspending contractually required performance.

(j) A lender is not required to notify a contractor under Subsection (g) and the contractor and the contractor's subcontractors are not entitled to suspend performance under this section if, before the lender sends a notice described by Subsection (g) to the borrower, a written agreement exists between the lender and the contractor that provides for the continued performance by the contractor and for payment to the contractor in the event of an acceleration, set-off, or foreclosure under the loan or financing agreement.

(k) A lender that provides timely notice to a contractor under Subsection (g) is not liable for damages to the contractor or any of the contractor's subcontractors for any costs incurred to provide labor, materials, equipment, or services contemplated under the loan or financing agreement, except for those costs for which the lender has expressly agreed to be obligated to pay.

(l) A notice provided by a lender to a contractor under this section does not create a cause of action by the borrower or property owner against the lender.

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.

SECTION 3. This Act takes effect September 1, 2015.