HBA-DMD, NLM H.B. 1052 76(R)BILL ANALYSIS Office of House Bill AnalysisH.B. 1052 By: Brimer Business & Industry 8/2/1999 Enrolled BACKGROUND AND PURPOSE Prior to the 76th Legislature, a real estate broker was prohibited from obtaining a lien on real property to secure the payment of the broker's commission from a commercial real estate transaction. Therefore, a commercial real estate broker did not have security for the commission. H.B. 1052 adds a chapter to Subtitle B (Liens), Property Code, to permit a real estate broker to secure the payment of the broker's commission arising from a commercial real estate transaction by obtaining a lien on the property involved. In addition, this bill provides for owner's or tenant's remedies against a broker. This bill sets out procedures to entitle a broker to a lien under certain conditions, and a specified statute of limitations. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Subtitle B, Title 5, Property Code, by adding Chapter 62, as follows: CHAPTER 62. BROKER'S AND APPRAISER'S LIEN ON COMMERCIAL REAL ESTATE SUBCHAPTER A. GENERAL PROVISIONS Sec. 62.001. SHORT TITLE. Provides that this chapter may be cited as the Broker's and Appraiser's Lien on Commercial Real Estate Act. Sec. 62.002. APPLICABILITY. (a) Provides that this chapter applies only to real estate that is commercial real estate on the date the notice of lien is filed under this chapter. (b) Provides that this chapter does not apply to a transaction involving a claim for a commission of $2,500 or less in the aggregate or a transaction for the sale of commercial real estate involving a claim for a commission of $5,000 or less in the aggregate if the commercial real estate meets certain criteria. Sec. 62.003. DEFINITIONS. Defines "broker," "commercial real estate," "commission," "commission agreement," "deferred commission," and "real estate" in this chapter. Sec. 62.004. PAYABLE COMMISSION AND EARNED COMMISSION. (a) Provides that a commission is payable at the time provided in the commission agreement. Provides that the person obligated to pay the commission is not required to pay the commission, if payment of the commission is conditioned on the occurrence of an event and that event does not occur. (b) Provides that except as provided by Subsection (c), a commission is earned on a certain specified date. (c) Specifies the conditions under which an additional commission is earned, if a broker has earned the commission under a commission agreement relating to a lease transaction and the commission agreement provides that the broker may receive an additional commission when the lease is modified to expand the lease space or renewed. Sec. 62.005. BROKER'S ADDRESS FOR RECEIPT OF NOTICE. Requires a seller, lessor, buyer, or tenant to send any notice required to be sent to the broker under this chapter to the broker at the broker's address as reflected in the records of the Texas Real Estate Commission and at the broker's last address that the broker furnished the seller, lessor, buyer, or tenant by certified mail, return receipt requested, if the broker's license is expired. SUBCHAPTER B. BROKER'S LIEN Sec. 62.021. PERSON ENTITLED TO LIEN. (a) Provides that a broker has a lien on a seller's or lessor's commercial real estate interest in the amount specified by the commission agreement if the broker has earned a commission under a commission agreement signed by the seller or lessor of the commercial real estate interest or the seller's or lessor's authorized agent and a notice of lien is recorded and indexed as provided by Section 62.024. (b) Provides that a broker has a lien on the commercial real estate interest purchased by a prospective buyer in the amount specified by the commission agreement if the broker has earned a commission under a commission agreement signed by the prospective buyer of the commercial real estate interest or the prospective buyer's authorized agent and a notice of lien is recorded and indexed as provided by Section 62.024. (c) Provides that a broker has a lien on the leasehold interest in the commercial real estate that a prospective tenant leases in the amount specified by the commission agreement if the broker has earned a commission under a commission agreement signed by the prospective tenant of the commercial real estate interest or the prospective tenant's authorized agent and a notice of lien is recorded and indexed as provided by Section 62.024. (d) Provides that a lien described by this section is available only to the broker named in the commission agreement and the lien is not available to an employee or independent contractor of the broker. (e) Provides that the broker's right to claim a lien based on the commission agreement must be disclosed in the commission agreement. Sec. 62.022. WAIVER, RELEASE, OR DISCHARGE OF LIEN; ASSUMPTION OF COMMISSION OBLIGATION. (a) Provides that except as provided by Subsection (b), the waiver of a broker's right to a lien under this chapter, or a release given for the purpose of releasing the broker's lien before the commission is satisfied or forgiven, is void. (b) Requires a broker's entitlement to a lien on the interest of an owner or tenant in commercial real estate to be automatically waived if the commission is earned and payable for services provided relating to a lease transaction and the commission agreement is included as a provision of the lease agreement. (c) Provides that a lien under this chapter is discharged by a court order discharging the lien, paying the commission to the broker named in the commission agreement, or establishing an escrow account described by Subchapter F. (d) Provides that a person who assumes an owner's or tenant's commercial real estate interest is bound by a commission agreement included in a lease agreement unless an escrow account is established under Subchapter F or a bond is provided under Subchapter G. (e) Provides that this section does not affect the rights of a mortgagee who forecloses on commercial real estate and does not assume the lease on which a commission agreement is based. Sec. 62.023. AFFIDAVIT IDENTIFYING BROKER. Requires the buyer's authorized agent, or the escrow agent for the commercial real estate transaction, the seller of commercial real estate and the broker representing the seller, if requested by the buyer, to provide to the requesting party before the closing of the transaction a written affidavit identifying each broker with whom the affiant knows or believes the seller or the seller's authorized agent has signed a commission agreement under which a commission is claimed or earned and has not been paid. Sec. 62.024. FILING OF NOTICE OF LIEN. (a) Prohibits a broker claiming a lien under this chapter from filing a notice of lien unless the commission on which the lien is based is earned. (b) Provides that a broker claiming a lien under this chapter must file a notice of lien as provided by Subchapter C with the county clerk of the county in which the commercial real estate is located. (c) Requires the county clerk to record the notice of lien in records kept for that purpose and to index and cross-index the notice of lien in the names of the broker, each person obligated to pay the commission under the commission agreement, and each person who owns an interest in the commercial real estate if the broker claims a lien on that interest. Sec. 62.025. CONTENTS OF NOTICE OF LIEN. Provides that the notice of lien must be signed by the broker or by a person authorized to sign on behalf of the broker and must contain certain specified information. Sec. 62.026. NOTICE OF FILING. (a) Defines "business day" in this section. (b) Requires the broker, no later than one business day after the broker files a notice of lien, to mail a copy of the notice of lien by certified mail, return receipt requested, or registered mail to certain persons. (c) Provides that service of the notice under Subsection (b) is complete when the notice is deposited in the United States mail, postage prepaid, and addressed to the persons entitled to receive the notice under this section. (d) Provides that if the broker has actual knowledge of the identity of the escrow agent named in the contract for the sale or lease of the commercial real estate interest on which the broker claims a lien or of the escrow agent otherwise closing the sale or lease of the commercial real estate interest, the broker, before the first business day before the date that the sale or lease is closed on commercial real estate for which a notice of lien is filed, is required to deliver a file-stamped copy or transmit a facsimile of a file-stamped copy of the notice of lien to each escrow agent at the office in which the closing of the sale or lease will occur for use during the closing of the sale or lease. Requires the broker to deliver the copy or transmit the facsimile directly to the individual escrow agent responsible for closing the sale or lease if the broker knows that person's name. (e) Provides that if the escrow agent receives the notice of lien, the escrow agent and other parties to the sale or lease are prohibited from closing the transaction unless the lien is released, the prospective buyer or tenant purchases or leases the property subject to the lien, the funds are held in escrow as provided by Subchapter F, or a bond is filed as provided by Subchapter G. (f) Provides that if the broker fails to comply with this section, the notice of lien is void. Sec. 62.027. INCEPTION OF BROKER'S LIEN. (a) Provides that a broker's lien attaches to the commercial real estate interest owned by the person obligated to pay the commission on the date the notice of lien is recorded as provided by this chapter. Provides that the lien does not relate back to the date of the commission agreement. (b) Provides that a notice of lien for amounts earned by the broker under an installment contract or under a commission agreement for a deferred commission is enforceable only to the extent that the installment or commission has become payable. Sec. 62.028. PRIORITY. (a) Provides that a recorded lien, mortgage, or other encumbrance on commercial real estate, including a recorded lien securing revolving credit and future advances for a loan, recorded before the date a broker's lien is recorded has priority over the broker's lien. (b) Provides that a broker's lien on the commercial real estate interest of a person obligated to pay a commission is not valid or enforceable against a grantee, buyer, lessee, or transferee of the interest of the person obligated to pay the commission if the deed, lease, or instrument transferring the interest is recorded before the notice of the broker's lien is recorded. (c) Provides that a purchase-money mortgage lien executed by the buyer of the commercial real estate interest has priority over a broker's lien claimed for the commission owed by the buyer against the commercial real estate interest purchased by the buyer. (d) Provides that a mechanic's lien that is recorded after a broker's lien and that relates back to a date before the date the broker's lien is recorded has priority over the broker's lien. Sec. 62.029. SUBORDINATION. (a) Provides that if the person obligated to pay the commission sells that person's commercial real estate interest, the broker's lien is subordinate to a recorded purchase-money first lien authorized by the buyer if the buyer meets certain conditions. (b) Provides that if the person obligated to pay the commission refinances a recorded first lien secured by that person's commercial real estate interest, the broker's lien is subordinate to the recorded refinanced first lien, regardless of the amount of the first lien after refinancing, if the person obligated to pay the commission meets certain conditions. (c) Provides that if the person obligated to pay the commission obtains an extension of credit secured by that person's commercial real estate interest, the broker's lien is subordinate to the lien securing the extension of credit if, according to the loan documents, the extension of credit is made only for the purpose of repairing or renovating the commercial real estate or completing construction or providing additional improvements on the commercial real estate. (d) Provides that if the person obligated to pay the commission furnishes a subordination agreement as provided by this section to be executed by the broker, the broker must execute and acknowledge the subordination agreement before a notary public and return the subordination agreement to the person no later than seven days after the broker receives the subordination agreement and other documents the broker reasonably requests in order to determine that the subordination agreement complies with this section. Sec. 62.030. MIXED-USE REAL ESTATE. Provides that the broker's lien attaches only to the portions of the real estate that constitute commercial real estate, if real estate is zoned or restricted for more than one use. Sec. 62.031. CHANGE IN USE OF REAL ESTATE. (a) Provides that except as provided by Subsection (b), any change in the use of the real estate does not affect a broker's lien if the notice of the lien was filed when the real estate was commercial real estate. (b) Provides circumstances under which the broker's lien is extinguished. SUBCHAPTER C. TIME FOR FILING NOTICE OF LIEN Sec. 62.041. TIME TO FILE. (a) Provides that if a broker has earned a commission under a commission agreement signed by a seller or the seller's authorized agent, a broker must record a notice of lien after the commission is earned and before the conveyance of the commercial real estate interest on which the broker is claiming a lien. (b) Provides that if a broker has earned a commission under a commission agreement signed by a prospective buyer or a prospective buyer's authorized agent, the broker must record a notice of lien after the buyer acquires legal title to the commercial real estate interest on which the broker is claiming a lien and before the buyer conveys the buyer's commercial real estate interest on which the broker is claiming a lien. (c) Provides that if the lien is based on a lease transaction, the broker must record a notice of lien after the commission is earned and before a certain specified date. (d) Provides that if a notice of lien is not filed within the time required by this section, the lien is void. SUBCHAPTER D. ENFORCEMENT OF LIEN Sec. 62.061. SUIT TO FORECLOSE LIEN. (a) Prohibits a broker from bringing a suit to foreclose a lien under this chapter unless the commission is earned and payable. Authorizes a broker to bring a suit to foreclose a lien in any district court for the county in which the commercial real estate is located by filing a sworn complaint stating that the notice of lien has been recorded. (b) Sets forth the contents that a complaint in a suit filed under this section must contain. (c) Provides that the broker must include as a defendant in a suit brought under this subchapter each person the broker believes to have an interest in the commercial real estate that is subordinate to or encumbered by the broker's lien. (d) Provides that if the broker and a person against whom the broker claims a commission use alternative dispute resolution procedures to resolve a dispute concerning entitlement to the broker's commission, the broker's lien remains valid, and any suit to foreclose the lien is stayed until the alternative dispute resolution process is completed. Sec. 62.062. STATUTE OF LIMITATIONS. (a) Provides that except as provided by this section, a broker claiming a lien under this chapter must bring a suit to foreclose the lien on or before the second anniversary of the date the notice of lien is recorded. (b) Provides that a broker claiming a lien to collect a deferred commission must bring a suit to foreclose the lien by a certain specified date. (c) Provides that a renewal of a notice of lien must state that it is a renewal of the broker's lien and must be recorded after the ninth anniversary after the date the original notice of lien or last renewal notice is recorded and on or before the 10th anniversary of the date the original notice of lien or last renewal notice is recorded. (d) Provides that a broker claiming a lien for a commission that is payable must bring a suit to foreclose the lien no later than 30 days after the broker receives a written demand to bring a suit to foreclose the lien from the owner of the commercial real estate interest on which the lien is claimed. (e) Provides that if a suit to foreclose the lien is not brought within the period prescribed by this section, the lien is void. Sec. 62.063. ASSESSMENT OF COSTS, FEES, AND INTEREST. Entitles the prevailing party in a suit brought under this subchapter to court costs, reasonable attorney's fees, and prejudgment interest from the date the commission becomes payable or the date the damage accrues. SUBCHAPTER E. RELEASE OF LIEN Sec. 62.081. RELEASE OF LIEN. (a) Requires the broker, under certain conditions, to furnish to the owner a release of indebtedness and any lien claimed, not later than five days after a broker receives a written request from the owner of a commercial real estate interest on which a lien is claimed. (b) Requires the broker, when a condition occurs that would preclude the broker from receiving a commission under the terms of the commission agreement that is the basis for the lien, no later than 10 days after the broker receives a written request from the owner of the commercial real estate interest on which the lien is claimed, to furnish to the owner a release of indebtedness and any lien claimed. (c) Requires the broker, under certain conditions, to furnish to the escrow agent a release of indebtedness and any lien claimed, no later than 10 days after a broker receives a written request for the release of the broker's lien from the escrow agent responsible for closing the purchase and sale of a commercial real estate interest on which the lien is claimed. (d) Provides that a release of lien must be in a form that permits the instrument to be filed of record. SUBCHAPTER F. ESCROW OF DISPUTED AMOUNTS Sec. 62.101. ESCROW ACCOUNT. Requires any person named in the notice of lien as obligated to pay the commission, if a claim for a lien under a recorded notice of lien is not paid or assumed at the closing of a sale, lease, or mortgage of the commercial real estate interest subject to the lien and would prevent the closing of the transaction or conveyance or if a claim for a lien under a recorded notice of lien does not survive the closing, to establish an escrow account from any net proceeds of the transaction or conveyance in an amount equal to the amount sufficient to satisfy the lien plus 15 percent of that amount or file a bond to indemnify against the lien as provided by Subchapter G, on the day of closing. Sec. 62.102. NAMED ESCROW AGENT. Requires the escrow account to be established with the named escrow agent, if an escrow agent is named in the contract on which the transaction or conveyance is based. Sec. 62.103. COSTS OF INTERPLEADER. Provides that related costs for any interpleader action may be deducted from the escrow account by the person maintaining the escrow account. Sec. 62.104. REFUSAL TO ESTABLISH ESCROW ACCOUNT OR BOND. (a) Prohibits a party from refusing to close a transaction because of the requirement to establish an escrow account or bond as provided by Section 62.101 under certain conditions. (b) Prohibits a prospective buyer of a commercial real estate interest from refusing to close the purchase solely because a broker's lien is filed after the date a title commitment or abstract of title relating to the interest is issued if an escrow account is established as provided by this subchapter or a bond is filed as provided by Subchapter G. Sec. 62.105. TERM OF ESCROW ACCOUNT. Requires the amount held in escrow to be held in escrow until the rights of the parties claiming the amount in escrow are determined by a written agreement of the parties, a court order, or an alternative dispute resolution process agreed to by the parties; the broker's lien is no longer enforceable; or the funds are interpled into a district court for the county in which the commercial real estate is located. Sec. 62.106. EXTINGUISHMENT OF LIEN UPON ESCROW. Provides that when the escrow account is established under this subchapter, the broker's lien against the commercial real estate is extinguished and becomes a lien on the proceeds in the escrow account. SUBCHAPTER G. BOND TO INDEMNIFY AGAINST LIEN Sec. 62.121. BOND. Authorizes any person, if a lien is fixed or is attempted to be fixed by a recorded instrument under this chapter, to file a bond to indemnify against the lien. Requires the bond to be filed with the county clerk of the county in which the commercial real estate subject to the lien is located. Sec. 62.122. BOND REQUIREMENTS. Specifies requirements for the bond. Sec. 62.123. NOTICE OF BOND. Requires the county clerk, after the bond is filed, to issue notice of the bond to all named obligees. Provides that a copy of the bond must be attached to the notice. Provides that the notice must be served on each obligee by mailing a copy of the notice and the bond to the obligee by certified mail, return receipt requested, addressed to the claimant at the address stated in the bond for the obligee. Sec. 62.124. RECORDING OF BOND AND NOTICE. Requires the county clerk to record the bond, the notice, and a certificate of mailing in the real property records. Authorizes a buyer, insurer of title, or lender, in acquiring an interest in or insuring title to the commercial real estate, to rely on and be absolutely protected by the record of the bond and the notice to the same extent as if the lien claimant had filed a release of lien in the real property records. Sec. 62.125. ACTION ON BOND. Prohibits a party making or holding a lien claim from suing on the bond later than the last date on which a person may bring a suit to foreclose the lien under Section 62.062. Provides that the bond is not exhausted by one action against it. Authorizes each named obligee or assignee of an obligee to maintain a separate suit on the bond in any district court for the county in which the commercial real estate is located. SUBCHAPTER H. REMEDIES Sec. 62.141. OWNER'S OR TENANT'S REMEDIES. (a) Authorizes an owner or tenant to file suit against a broker under this chapter. (b) Provides that in an action filed under this section, the court is required to discharge a broker's lien if the broker meets certain conditions. (c) Provides that a broker is liable to an owner or tenant for damages as provided by Subsection (d) if certain conditions are met. (d) Authorizes the court, if the court finds that a broker is liable to an owner or tenant under Subsection (c), to award the owner or tenant actual damages, including attorney's fees and court costs, incurred by the owner or tenant that are proximately caused by the broker's failure to execute, acknowledge, and return the subordination agreement or release the lien; and a civil penalty in an amount not to exceed three times the amount of the claimed commission if the court finds that the broker acted with gross negligence or acted in bad faith in violation of The Real Estate License Act (Article 6573a, V.T.C.S.). (e) Provides that this section does not prevent a person from filing a complaint with the Texas Real Estate Commission (commission) against a broker who fails to comply with this chapter or the commission at any time from investigating or initiating a disciplinary proceeding against a broker who fails to comply with this chapter. Sec. 62.142. BROKER'S REMEDIES. (a) Authorizes a broker to file suit against an owner or tenant to enforce a commission agreement. (b) Authorizes the court, if the court finds that the broker waived the right to file a lien under Section 62.022 and that the owner or tenant violated the commission agreement, to award to the broker actual damages, including attorney's fees and court costs, that are proximately caused by the owner's or tenant's failure to comply with the commission agreement; and a civil penalty in an amount not to exceed three times the amount of the claimed commission if the court finds that the owner or tenant acted with gross negligence or in bad faith. SECTION 2. Provides that the change in law made by Chapter 62, Property Code, as added by this Act, applies only to an agreement to compensate a licensed real estate broker or appraiser that is entered into on or after the effective date of this Act.