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