CHAPTER 162. CONSTRUCTION PAYMENTS, LOAN RECEIPTS, AND MISAPPLICATION OF TRUST FUNDS - Texas Statutes

PROPERTY CODE

TITLE 10. MISCELLANEOUS BENEFICIAL PROPERTY INTERESTS

SUBTITLE B. FIDUCIARIES

CHAPTER 162. CONSTRUCTION PAYMENTS, LOAN RECEIPTS, AND

MISAPPLICATION OF TRUST FUNDS

SUBCHAPTER A. CONSTRUCTION PAYMENTS AND LOAN RECEIPTS

Sec. 162.001. CONSTRUCTION PAYMENTS AND LOAN RECEIPTS AS TRUST

FUNDS. (a) Construction payments are trust funds under this

chapter if the payments are made to a contractor or subcontractor

or to an officer, director, or agent of a contractor or

subcontractor, under a construction contract for the improvement

of specific real property in this state.

(b) Loan receipts are trust funds under this chapter if the

funds are borrowed by a contractor, subcontractor, or owner or by

an officer, director, or agent of a contractor, subcontractor, or

owner for the purpose of improving specific real property in this

state, and the loan is secured in whole or in part by a lien on

the property.

(c) A fee payable to a contractor is not considered trust funds

if:

(1) the contractor and property owner have entered into a

written construction contract for the improvement of specific

real property in this state before the commencement of

construction of the improvement and the contract provides for the

payment by the owner of the costs of construction and a

reasonable fee specified in the contract payable to the

contractor; and

(2) the fee is earned as provided by the contract and paid to

the contractor or disbursed from a construction account described

by Section 162.006, if applicable.

(d) Trust funds paid to a creditor under this chapter are not

property or an interest in property of a debtor who is a trustee

described by Section 162.002.

Acts 1983, 68th Leg., p. 3720, ch. 576, Sec. 1, eff. Jan. 1,

1984. Amended by Acts 1997, 75th Leg., ch. 1018, Sec. 1, eff.

Sept. 1, 1997.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

1277, Sec. 1, eff. September 1, 2009.

Acts 2009, 81st Leg., R.S., Ch.

1277, Sec. 2, eff. September 1, 2009.

Sec. 162.002. CONTRACTORS AS TRUSTEES. A contractor,

subcontractor, or owner or an officer, director, or agent of a

contractor, subcontractor, or owner, who receives trust funds or

who has control or direction of trust funds, is a trustee of the

trust funds.

Acts 1983, 68th Leg., p. 3721, ch. 576, Sec. 1, eff. Jan. 1,

1984.

Sec. 162.003. BENEFICIARIES OF TRUST FUNDS. (a) An artisan,

laborer, mechanic, contractor, subcontractor, or materialman who

labors or who furnishes labor or material for the construction or

repair of an improvement on specific real property in this state

is a beneficiary of any trust funds paid or received in

connection with the improvement.

(b) A property owner is a beneficiary of trust funds described

by Section 162.001 in connection with a residential construction

contract, including funds deposited into a construction account

described by Section 162.006.

Acts 1983, 68th Leg., p. 3721, ch. 576, Sec. 1, eff. Jan. 1,

1984. Amended by Acts 1997, 75th Leg., ch. 1018, Sec. 2, eff.

Sept. 1, 1997.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

1277, Sec. 3, eff. September 1, 2009.

Sec. 162.004. APPLICATION. (a) This chapter does not apply to:

(1) a bank, savings and loan, or other lender;

(2) a title company or other closing agent; or

(3) a corporate surety who issues a payment bond covering the

contract for the construction or repair of the improvement.

(b) The Texas Trust Act (Chapters 111 through 115) does not

apply to any trust created under this chapter, nor does this

chapter affect any provision of the Texas Trust Act.

(c) Regardless of whether a construction contract is covered by

a statutory or common law payment bond, this chapter applies to a

public or private construction contract for the improvement of

specific real property in this state.

Acts 1983, 68th Leg., p. 3721, ch. 576, Sec. 1, eff. Jan. 1,

1984. Amended by Acts 1987, 70th Leg., ch. 578, Sec. 2, eff. Aug.

31, 1987.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

1277, Sec. 4, eff. September 1, 2009.

Sec. 162.005. DEFINITIONS. In this chapter:

(1) A trustee acts with "intent to defraud" when the trustee:

(A) retains, uses, disburses, or diverts trust funds with the

intent to deprive the beneficiaries of the trust funds;

(B) retains, uses, disburses, or diverts trust funds and fails

to establish or maintain a construction account as required by

Section 162.006 or fails to establish or maintain an account

record for the construction account as required by Section

162.007; or

(C) uses, disburses, or diverts trust funds that were paid to

the trustee in reliance on an affidavit furnished by the trustee

under Section 53.085 if the affidavit contains false information

relating to the trustee's payment of current or past due

obligations.

(2) "Current or past due obligations" are those obligations

incurred or owed by the trustee for labor or materials furnished

in the direct prosecution of the work under the construction

contract prior to the receipt of the trust funds and which are

due and payable by the trustee no later than 30 days following

receipt of the trust funds.

(3) "Direct cost" means a cost included under a construction

contract that is specific to the construction of the improvement

that is the subject of the contract.

(4) "Indirect cost" means a cost included under a construction

contract that is not specific to the construction of the

improvement that is the subject of the contract.

(5) "Financial institution" means a bank, savings association,

savings bank, credit union, or savings and loan association

authorized to do business in the state.

(6) "Construction account" means an account in a financial

institution into which only trust funds and funds deposited by

the contractor that are necessary to pay charges imposed on the

account by the financial institution may be maintained.

Added by Acts 1987, 70th Leg., ch. 578, Sec. 3, eff. Aug. 31,

1987. Amended by Acts 1997, 75th Leg., ch. 1018, Sec. 3, eff.

Sept. 1, 1997.

Sec. 162.006. CONSTRUCTION ACCOUNT REQUIRED IN CERTAIN

CIRCUMSTANCES. (a) A contractor who enters into a written

contract with a property owner to construct improvements to a

residential homestead for an amount exceeding $5,000 shall

deposit the trust funds in a construction account in a financial

institution.

(b) The periodic statement received from the financial

institution must refer to the account as a "construction account"

to satisfy the requirements of this section.

Added by Acts 1997, 75th Leg., ch. 1018, Sec. 4, eff. Sept. 1,

1997.

Sec. 162.007. MANAGEMENT OF CONSTRUCTION ACCOUNTS. (a) A

contractor required to maintain a construction account under this

subchapter shall maintain an account record for the construction

account that provides information relating to:

(1) the source and amount of the funds in the account and the

date the funds were deposited;

(2) the date and amount of each disbursement from the account

and the person to whom the funds were disbursed; and

(3) the current balance of the account.

(b) The contractor shall maintain an account record for each

construction project that specifies the direct costs and indirect

costs charged to the owner.

(c) The contractor shall retain all invoices and other

supporting documentation received relating to funds that were

disbursed from the construction account.

(d) The contractor shall ensure that all deposit and

disbursement documentation includes the construction account

number or information that provides a direct connection between

the documentation and the account.

(e) The contractor may not destroy information required to be

maintained under this section before the first anniversary of the

date the improvement that is the subject of the contract is

completed.

Added by Acts 1997, 75th Leg., ch. 1018, Sec. 4, eff. Sept. 1,

1997.

SUBCHAPTER B. MISAPPLICATION OF TRUST FUNDS

Sec. 162.031. MISAPPLICATION OF TRUST FUNDS. (a) A trustee

who, intentionally or knowingly or with intent to defraud,

directly or indirectly retains, uses, disburses, or otherwise

diverts trust funds without first fully paying all current or

past due obligations incurred by the trustee to the beneficiaries

of the trust funds, has misapplied the trust funds.

(b) It is an affirmative defense to prosecution or other action

brought under Subsection (a) that the trust funds not paid to the

beneficiaries of the trust were used by the trustee to pay the

trustee's actual expenses directly related to the construction or

repair of the improvement or have been retained by the trustee,

after notice to the beneficiary who has made a request for

payment, as a result of the trustee's reasonable belief that the

beneficiary is not entitled to such funds or have been retained

as authorized or required by Chapter 53.

(c) It is also an affirmative defense to prosecution or other

action brought under Subsection (a) that the trustee paid the

beneficiaries all trust funds which they are entitled to receive

no later than 30 days following written notice to the trustee of

the filing of a criminal complaint or other notice of a pending

criminal investigation.

(d) A trustee who commingles trust funds with other funds in the

trustee's possession does not defeat a trust created by this

chapter.

Acts 1983, 68th Leg., p. 3721, ch. 576, Sec. 1, eff. Jan. 1,

1984. Amended by Acts 1987, 70th Leg., ch. 578, Sec. 4, eff. Aug.

31, 1987.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

1277, Sec. 5, eff. September 1, 2009.

Sec. 162.032. PENALTIES. (a) A trustee who misapplies trust

funds amounting to $500 or more in violation of this chapter

commits a Class A misdemeanor.

(b) A trustee who misapplies trust funds amounting to $500 or

more in violation of this chapter, with intent to defraud,

commits a felony of the third degree.

(c) A trustee who fails to establish or maintain a construction

account in violation of Section 162.006 or fails to establish or

maintain an account record for the construction account in

violation of Section 162.007 commits a Class A misdemeanor.

Acts 1983, 68th Leg., p. 3722, ch. 576, Sec. 1, eff. Jan. 1,

1984. Amended by Acts 1987, 70th Leg., ch. 578, Sec. 5, eff. Aug.

31, 1987; Acts 1997, 75th Leg., ch. 1018, Sec. 5, eff. Sept. 1,

1997.

Sec. 162.033. ELECTION OF OFFENSES. If the misapplication of

trust funds by a trustee constitutes another offense punishable

under the laws of this state, the state may elect the offense for

which it will prosecute the trustee.

Acts 1983, 68th Leg., p. 3722, ch. 576, Sec. 1, eff. Jan. 1,

1984.