HBA-NLM C.S.H.B. 1052 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 1052 By: Brimer Business & Industry 4/15/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Under current law, a real estate broker may not obtain 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 does not have security for the commission. C.S.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 add Subchapter H to Subtitle B to provide for owner 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 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 Lien on Commercial Real Estate Act. Sec. 62.002. APPLICABILITY. Applies this chapter only to real estate that is commercial real estate on the date the notice of lien is filed under this chapter. Provides that, to reduce the potential adverse impact on small businesses, this chapter does not apply to commercial property that: _is the property owner's primary place of business or contains fewer than five tenants; and _is less that 10,000 commercial square feet or less than 20,000 industrial square feet. Sec. 62.003. DEFINITIONS. Defines "broker," "commercial real estate," "commission," "commission agreement," "deferred commission," and "real estate." Sec. 62.004. PAYABLE COMMISSION AND EARNED COMMISSION. Provides that a commission is payable at the time provided by 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. Provides that a commission is earned, except as otherwise provided by this section, on the earlier of the date provided Provides that additional commission is earned under the conditions specified by this section. 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 in the manner provided by this section. 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 interest in commercial real estate that a prospective buyer purchases 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 prospective tenant's leasehold interest 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 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 that the lien is not available to an employee or independent contractor of the broker. (e) Provides that a 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. Establishes that a waiver of a broker's right to a lien under this chapter, or the release given for the purpose of releasing a broker's lien before the commission is satisfied or forgiven, is void, except as otherwise provided by this section. Requires a broker's entitlement to a lien on the interest of an owner or tenant in commercial real estate to be automatically waived in certain enumerated conditions. Provides that a lien under this chapter is discharged by a court order discharging the lien, by paying the commission to the broker named in the commission agreement, or by establishing an escrow account described by Subchapter F. Provides that unless an escrow account is established under Subchapter F or a bond is provided under Subchapter G, 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. Provides that this section does not affect the rights of a mortgagee who forecloses on commercial estate and does not assume the lease on which a commission agreement is based. Sec. 62.023. AFFIDAVIT IDENTIFYING BROKER. Requires the seller of commercial real estate and the broker representing the seller 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, if requested by the buyer, the buyer's authorized agent, or the escrow agent for the commercial real estate transaction. Sec. 62.024. FILING OF NOTICE OF LIEN. 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. 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. 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 has 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: _a sworn statement of the nature and amount of the claim, including the commission amount or the formula used to determine the commission, the type of commission at issue, and the month and year in which the commission was earned; _the name of the broker and the real estate license number of the broker; _the name as reflected in the broker's records of any person who the broker believes is obligated to pay the commission under the commission agreement; _the name as reflected in the broker's records of any person the broker believes to be an owner of the interest in the real estate on which the lien is claimed; _a description legally sufficient for identification of the interest in the commercial real estate sought to be charged with the lien; _the name of any broker or other person with whom the broker intends to share the commission and the dollar or percentage amount to be shared; and _a copy of the commission agreement. Sec. 62.026. NOTICE OF FILING. (a) Defines "business day" for the purposes of this section. (b) Requires the broker to mail a copy of the notice of lien by certified mail, return receipt requested, or registered mail, no later than one business day after the date the broker files a notice of lien, to the owner of record of the commercial real estate interest on which the lien is claimed or the owner's authorized agent, and the prospective buyer or tenant and any escrow agent named in a contract for the sale or lease of the commercial real estate interest on which the lien is claimed if: _a binding written contract for the sale or lease of the commercial real estate interest is in effect between the owner and the prospective buyer or tenant in a transaction that is the basis for the commission; and _the binding written contract was executed by the owner and the prospective buyer or tenant before the date the notice of lien is filed. (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) Requires the broker to deliver a file-stamped copy or transmit a facsimile of a filestamped copy of the notice of lien to each escrow agent, by the first business day before the date that the sale or lease is closed, at the agent's closing office for use during the closing of the sale or lease, 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 interest in the commercial real estate. (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 or the funds are held in escrow as provided by Subchapter F, or a bond is filed as provided by Subchapter G. (f) Provides that the notice of lien is void if the broker fails to comply with this section. Sec. 62.027. INCEPTION OF BROKER'S LIEN. 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 and the lien does not relate back to the date of the commission agreement. 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 if a deed, lease, or instrument transferring interest is recorded before the notice of the broker's lien is recorded, 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. (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 against the prospective buyer for the commission owed by that 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 interest in the commercial real estate, the broker's lien is subordinate to a recorded purchase-money first lien authorized by the buyer if the buyer: (1) executes and files with the county clerk of the county in which the broker's lien is filed a memorandum that evidences the buyer's ratification of the broker's lien and the buyer's assumption of the obligation to pay the broker the commission as provided by the commission agreement that is the basis for the lien; and (2) sends the broker, by certified mail, return receipt requested, or registered mail, a copy of the recorded memorandum required by this subsection. (b) Provides that if the person obligated to pay the commission refinances a recorded first lien secured by that person's interest in the commercial real estate, 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: (1) executes and files with the county clerk of the county in which the broker's lien is filed a memorandum that evidences the person's ratification of the broker's lien and the person's obligation to pay the broker the commission as provided by the commission agreement that is the basis for the lien; and (2) sends the broker, by certified mail, return receipt requested, or registered mail, a copy of the recorded memorandum required by this subsection. (c) Provides that if the person obligated to pay the commission obtains an extension of credit secured by that person's interest in the commercial real estate, the broker's lien is subordinate to the lien securing the extension of credit if, according to the lien documents, the extension of credit is made only for the purpose of: (1) repairing or renovating the commercial real estate; or (2) 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: (1) execute and acknowledge the subordination agreement before a notary public; and (2) return the subordination agreement to the person by the seventh day after the date the broker receives the subordination agreement and other requested documents in order to determine that the subordination agreement complies with this section. Sec. 62.030. MIXED-USE REAL ESTATE. Provides that if real estate is zoned or restricted for more than one use, the broker's lien attaches only to the portions of the real estate zoned or restricted for commercial use. Sec. 62.031. CHANGE IN USE OF REAL ESTATE. Provides that 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. Provides an exception under Subsection(b). Establishes that the broker's lien is extinguished if: _no later than the 360th day after the date on which the broker's commission is payable, the commercial real estate on which a broker claims a lien is zoned or restricted for single-family use under recorded restrictive covenants; and _the zoning ordinances or restrictive covenants for single-family use are in effect until at least the second anniversary of the date the commission is payable. SUBCHAPTER C. TIME FOR FILING NOTICE OF LIEN Sec. 62.041. TIME TO FILE. (a) Provides that a broker must record notice of lien after the commission is earned and before the conveyance of the interest in the commercial real estate on which the broker is claiming a lien if a broker has earned a commission under a commission agreement signed by a seller or the seller's authorized agent. (b) Provides that a broker must record 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 if a broker has earned a commission under a commission agreement signed by a prospective buyer or a prospective buyer's authorized agent. (c) Provides that a broker must record a notice of lien, if the lien is based on a lease transaction, after the commission is earned and before the earlier of the 91st day after the date the event for which the commission becomes payable occurs or the date the person obligated to pay the commission records a conveyance of that person's interest in the commercial real estate after executing the lease agreement relating to the lease transaction for which the lien is claimed. (d) Provides that the lien is void if a notice of lien is not filed within the time required by this section. SUBCHAPTER D. ENFORCEMENT OF LIEN Sec. 62.061. SUIT TO FORECLOSE LIEN. Prohibits a broker from bringing a suit to foreclose a lien under this chapter unless the lien is earned and payable. Authorizes a broker to bring 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. Provides that a complaint in a suit filed under this section must contain a brief description of the commission agreement that is the basis for the lien, including: _a description of the disclosure of the broker's right to the lien contained in the commission agreement; _the date of the execution of the commission agreement; _the event for which a commission is considered to be earned; and _the event for which a commission is considered to be payable. Provides that a complaint must also contain a description of the services performed by the broker, the amount of the payable commission that is unpaid, a description of the commercial real estate to which the lien attaches and other facts necessary for a full understanding of the right of the parties. Provides that a 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. Provides that the broker's lien remains valid 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. Provides that any suit to foreclose the lien is stayed until an alternative dispute resolution process is completed. Sec. 62.062. STATUTE OF LIMITATIONS. (a) Provides that a broker claiming a lien under this chapter must bring suit to foreclose the lien by the second anniversary of the date the notice of lien is recorded, except as provided by this section. (b) Provides that a broker claiming a lien to collect a deferred commission must bring a suit to foreclose the lien by the earlier of the second anniversary of the date on which the commission is payable, or whichever is the later date of the 10th anniversary of the date the lien is recorded or the 10th anniversary of the date the broker records a subsequent notice of the lien as a renewal of the broker's right to the lien. (c) Specifies that a renewal of a notice of lien must state that it is a renewal of the broker's lien. Provides that the renewal of notice 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 not later than the 30th day after the date the broker receives a written demand to bring a suit to foreclose the lien from the owner of the interest in the commercial real estate on which the lien is claimed. (e) Provides that the lien is void if a suit to foreclose the lien is not brought within the time required by this section. 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. SUBCHAPTER E. RELEASE OF LIEN Sec. 62.081. RELEASE OF LIEN. Requires the broker to furnish to the owner a release of indebtedness and any lien claimed by the fifth day after the date the broker receives a written request from the owner of a commercial real estate interest on which a lien is claimed, if the debt that is the basis for a lien is satisfied, or the lien is discharged under Section 62.022, rendered void under Section 62.026 or 62.062, or extinguished under Section 62.031. Requires the broker to furnish to the owner a release of indebtedness and any lien claimed by the 10th day after the date the broker receives a written request from the owner of the interest in the commercial real estate on which the lien is claimed, when a condition occurs that would preclude the broker from receiving compensation under the terms of the commission agreement that is the basis for the lien. 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 to, before closing: _establish an escrow account from the 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; 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 subject to the lien and would prevent the closing of the transaction or conveyance. Sec. 62.102. NAMED ESCROW AGENT. Requires that the escrow account be established with the named escrow agent in the contract on which the transaction or conveyance is based. Sec. 62.103. COSTS OF INTERPLEADER. Authorizes the person maintaining the escrow account to deduct related costs for any interpleader action. Sec. 62.104. REFUSAL TO ESTABLISH AN ESCROW ACCOUNT OR BOND. Prohibits a party from refusing to close a transaction because of the requirement to establish an escrow account as provided by Section 62.101 if: (1) the broker provides a copy of the notice of lien that complies with Sections 62.025 and 62.026; (2) sufficient proceeds exist in the proposed transaction for the payment of the commission and costs of the interpleader; and (3) the broker executes and delivers a full release of the broker's lien in a recordable form. 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 escrow amount to be held until: (1) 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; (2) the broker's lien is no longer enforceable; or (3) 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 the broker's lien against the commercial real estate is extinguished and becomes a lien on the proceeds in the escrow account when the escrow account is established under this section. SUBCHAPTER G. BOND TO INDEMNIFY AGAINST LIEN Sec. 62.121. BOND. Provides that any person may file a bond to indemnify against the lien if a lien is fixed or is attempted to be fixed by a recorded instrument under this chapter. 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. Provides that the bonds must: (1) describe the commercial real estate on which the lien is claimed; (2) refer to the lien claimed in a manner sufficient to identify it; (3) be in an amount that is double the amount of the lien referred to in the bond as of the date of execution of the bond by the surety, unless the total amount claimed in the lien exceeds $40,000, in which case the bond must be in an amount that is 1-1/2 times the amount of the lien; (4) be payable to the party claiming the lien; (5) be executed by the party filing the bond as principal and a state licensed corporate surety to execute the bond as surety; (6) be conditioned substantially that the principal and sureties will pay the named obligees or their assignees the amount that the named obligees would have been entitled to recover if their claim had been proved to be valid and enforceable liens on the commercial real estate; and (7) identify the last known mailing address of the person claiming the lien. Sec. 62.123. NOTICE OF BOND. Requires the county clerk to issue notice of the bond to all named obligees after the bond is filed. 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. Provides that a buyer, insurer of title, or lender, in acquiring an interest in or insuring title to the commercial real estate, may rely on and is 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 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 OR TENANT'S REMEDIES. (a) Authorizes an owner or tenant to file suit against a broker under this chapter. (b) Requires a court to discharge a broker's lien under specified conditions described by this section. (c) Provides that a broker is liable to an owner or tenant for damages as provided by this section if: _the broker recorded a lien on the commercial real estate interest of the owner or tenant; _the broker failed to perform certain procedures; _the owner or tenant mailed to the broker a copy of this section and a notice requesting the owner to execute, acknowledge, and return the subordination agreement or release the lien not later than the 10th day after the date the broker receives the notice; and _the broker failed to comply with the owner's or tenant's written notice within the prescribed period. (d) Authorizes a court to award the owner or tenant, if the court finds that a broker is liable to an owner or tenant under Subsection (c), actual damages and a civil penalty, described by this subsection. (e) Provides that an individual broker who was the designated officer of a corporate or partnership broker that violated this chapter is liable for an unsatisfied damages or civil penalties awarded under Subsection (d) if the individual broker was named as a defendant in an action filed under this section. (f) Specified 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. Authorizes a broker to file suit against an owner or tenant to enforce a commission agreement. Authorizes the court to award to the broker, 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, actual damages and a civil penalty, described by this section. SECTION 2. Effective date: September 1, 1999. Makes application of this Act prospective. SECTION 3. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 1052 modifies the original in SECTION 1 (proposed Section 62.003, Property Code) by narrowing the definition of "commercial real estate" to exclude real estate that is primarily used for and will continue to be used for farming or ranching. This substitute makes a nonsubstantive change. C.S.H.B. 1052 modifies the original in SECTION 1 (proposed Section 62.022(b), Property Code) to require a broker's entitlement to a lien on the interest of an owner or tenant in commercial real estate to be automatically waived in certain enumerated conditions. The substitute deletes proposed text requiring the broker, on the written request of an owner or tenant of commercial real estate subject to a commission agreement, to sign a written agreement waiving the broker's right to a lien under this chapter under certain enumerated conditions. Makes conforming change with respect to the deletion of the written agreement.