Lender Notice of Default. In Texas there are no laws that require a lender to notify all parties on a construction project that the lender has decided to no longer fund the project. A lender should be required to give subcontractors and prime contractors notice of its decision to no longer fund the construction loan on a project. This notice will allow for work to be suspended until payment arrangements are made for future work.
Legislation to deal with this issue was filed in each of the last two sessions, but died in House and Senate committees. The legislation should require lenders to give immediate notice to a contractor when the lender suspends or ceases disbursement of the construction loan funds. The contractor would then be required to notify immediately the subcontractors on the project that the lender is suspending or ceasing to disburse payments on the construction loan. All parties on the construction project would have the opportunity to suspend work on the project until they receive assurances that they will be paid for their work on the project.
The Lender Notice of Default bill for the 84th Texas Legislature has been filed. Read HB 1208 for more information.
For Talking Points on Lender Notice of Default for communication with legislators and their staff, click HERE.
For the STATUS of Lender Notice of Default, visit http://www.capitol.state.tx.us/ Enter the bill number in the box.
For Issue Brief on Lender Notice of Default, click HERE.
Read 2013 Lender Notice Legislation.
Read 2011 Lender Notice Legislation.
Below is a link to an article on the Montgomery Plaza construction project in Fort Worth where the developer defaulted on the construction loan. The lender did not notify the construction team that it was no longer funding the project, leaving the contractor and subcontractors holding the bag for approximately $6.5 million in money owed them for the work they had performed and the materials they supplied on the project.
http://www.pahumphrey.com/blog/favorite-stories/condo-conundrum/