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Senate Committee Hears Lender Notice Bill

A fight between some construction companies and Texas bankers may have to wait until the next legislative session to be resolved. That was the tone of a hearing this week in the Texas Senate where bankers made the case that even though it sounds like a simple concept, it is a tough issue when you “get into the weeds” of it.

Construction trade groups, chiefly the Texas Construction Association, support a bill by Senator Bob Deuell, R-Greenville, which would require lenders to give notice when funding is being pulled from a project. Deuell said that he felt all the stakeholders had negotiated in good faith to try to craft legislation that solves the problem. Testimony was offered Tuesday morning to the effect that when a lender decides there will be no more disbursement of funds on a project, they are not required to notify any of the companies doing the work. Sometimes weeks or months go by before the construction companies on a project realize they are not going to be paid for that work.

Rich Thomas, a construction lawyer in Dallas, testified before the Senate Business and Commerce Committee stating, "The problem is in the rare situation whenever there's a default.” He said in the event a lender makes the decision to stop funding a project, construction companies get the short end of the stick. "When the lender does not tell the general contractor, that's wrong," he said.

John Heasley, with the Texas Bankers Association, said that while it seems like a simple concept, the reality is much more complicated. Among other things, he said that a requirement to give notice would invite lawsuits against the lenders for disclosing sensitive information. "The solution to this problem is this bill," he said. He said bankers have been meeting with subcontractors to try to work out a compromise on SB 295. Heasley said the only due diligence being done is by the lenders who have a lot on the line. "We would like to work with the construction industry," he said. He also argued it was unfair to paint bankers as somehow profiting from the practice of not notifying construction companies – he said lenders always lose money on stop-projects or foreclosures.

Business and Commerce Chairman Senator John Carona, R-Dallas, seemed to sympathize with the construction industry but also said the bankers made “compelling” arguments. “I know it's a point of great frustration," Carona said. "I don't know if, in the waning days of the session, we're going to be able to untangle the last of the problems in this." He said that it's an issue that needs further study between now and the next legislative session in two years.

Senator Deuell pushed back on the arguments from the bankers and hoped for a vote this session, which now has less than a month to go. "To oppose the bill on speculation of litigation, I think, is a pretty weak argument," Deuell said.

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