Texas Construction Fund Act
The Texas Construction Trust Fund Act (Chapter 162): What Is It? And Why It Is Imperative to Comply with the Act.
The Texas Construction Trust Fund Act protects those furnishing labor or materials for the construction or repair of a property by requiring that funds be held in trust for all parties in the construction chain.
Who is a Trustee?
A Trustee under the Texas Construction Trust Fund Act (Chapter 162) is a contractor, subcontractor, or owner (or any officer, director, or agent thereof) who receives trust funds or who has control or direction of trust funds.
Who is a Beneficiary?
A Beneficiary under the Texas Construction Trust Fund Act is an artisan, laborer, mechanic, contractor, subcontractor, or materialman who labors or who furnishes labor or material for construction or repair of an improvement on real property. A Beneficiary under is also a Property Owner for a residential construction contract (this includes funds that are deposited into a construction account). Banks, title companies, and corporate sureties are not trustees and/or beneficiaries.
Requirements for a Contractor
Under the Texas Construction Trust Fund Act, a contractor shall retain all invoices and other supporting documentation received relating to funds that were disbursed from the construction account. The contractor shall also ensure all deposit and disbursement documentation including the construction account number or information that provides direct connection between documentation and the account. The contractor may not destroy information required to be maintained under the Act.
Penalties for Non-Compliance
A trustee who, intentionally or with intent to defraud directly or indirectly retains, uses, disburses, trust funds without first fully paying all current or past due obligations incurred by trustee to beneficiaries of the trust funds, has misapplied the trust funds. An owner of a company can be personally liable even if the work was done by a corporation. A trustee who misapplies trust funds amounting to $500 or more in violation of the Act commits a Class A Misdemeanor. A trustee who misapplies trust funds amounting to $500 or more in violation of the Act, with intent to defraud, commits a felony of the third degree.
Defenses
Defenses may include: (1) the funds were used to pay actual expenses related to the property; (2) Trustee has a reasonable belief that the beneficiary is not entitled to funds or funds have been retained as required by Texas Chapter 53; (3) Trustee pays all funds a beneficiary is entitled to no later than 30 days following written notice of criminal complaint or other notice of pending criminal investigation.