PROPERTY CODE
CHAPTER 162. CONSTRUCTION PAYMENTS, LOAN RECEIPTS, AND
MISAPPLICATION OF TRUST FUNDS
SUBCHAPTER A. CONSTRUCTION PAYMENTS AND LOAN RECEIPTS
§ 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) If a 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, the fee paid to the
contractor is not considered trust funds.
Acts 1983, 68th Leg., p. 3720, ch. 576, § 1, eff. Jan. 1, 1984.
Amended by Acts 1997, 75th Leg., ch. 1018, § 1, eff. Sept. 1,
1997.
§ 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, § 1, eff. Jan. 1, 1984.
§ 162.003. BENEFICIARIES OF TRUST FUNDS. 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.
Acts 1983, 68th Leg., p. 3721, ch. 576, § 1, eff. Jan. 1, 1984.
Amended by Acts 1997, 75th Leg., ch. 1018, § 2, eff. Sept. 1,
1997.
§ 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.
Acts 1983, 68th Leg., p. 3721, ch. 576, § 1, eff. Jan. 1, 1984.
Amended by Acts 1987, 70th Leg., ch. 578, § 2, eff. Aug. 31,
1987.
§ 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, § 3, eff. Aug. 31, 1987.
Amended by Acts 1997, 75th Leg., ch. 1018, § 3, eff. Sept. 1,
1997.
§ 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, § 4, eff. Sept. 1, 1997.
§ 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, § 4, eff. Sept. 1, 1997.
SUBCHAPTER B. MISAPPLICATION OF TRUST FUNDS
§ 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.
Acts 1983, 68th Leg., p. 3721, ch. 576, § 1, eff. Jan. 1, 1984.
Amended by Acts 1987, 70th Leg., ch. 578, § 4, eff. Aug. 31,
1987.
§ 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, § 1, eff. Jan. 1, 1984.
Amended by Acts 1987, 70th Leg., ch. 578, § 5, eff. Aug. 31,
1987; Acts 1997, 75th Leg., ch. 1018, § 5, eff. Sept. 1, 1997.
§ 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, § 1, eff. Jan. 1, 1984.
