By: Keffer H.B. No. 3316
A BILL TO BE ENTITLED
AN ACT
relating to an account for construction retainage; providing a
civil penalty.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 162.001, Property Code, is amended to
read as follows:
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) Funds required under this chapter to be deposited into a
construction trust fund account are trust funds.
(d[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.
(e[d]) Trust funds paid to a creditor under this chapter are
not property or an interest in property of a debtor who is trustee
described by Section 162.002.
SECTION 2. Section 162.003(a), Property Code, is amended to
read as follows:
(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, withheld as retainage, or required to be
deposited into a construction trust fund account under this chapter
in connection with the improvement.
SECTION 3. Section 162.005, Property Code, is amended by
adding Subdivisions (7) and (8) to read as follows:
(7) "Construction trust fund account" means an
account in a federally insured financial institution into which are
deposited only funds required by Section 162.0061(a) to be
deposited in a construction trust fund account and other funds
deposited by the property owner that are necessary to pay charges
imposed on the account by the financial institution.
(8) "Retainage" is an amount or agreed percentage of
money in a construction contract between an owner and a contractor
that is withheld from a payment and not due to be paid until
completion of the contract or on an agreed date.
SECTION 4. Chapter 162, Property Code, is amended by adding
Sections 162.0061-162.0064 to read as follows:
Sec. 162.0061. CONSTRUCTION TRUST FUND ACCOUNT REQUIRED IN
CERTAIN CIRCUMSTANCES. (a) Except as provided by this section, a
property owner who enters into a construction loan or financing
agreement to pay toward the improvement of real property that is
secured wholly or partly by a lien on the property or improvement
shall deposit in a construction trust fund account not later than
contemporaneously with payment to a contractor any money withheld
from the payment as retainage and the deposited funds shall be held
in trust for the benefit of a person described by Section
162.003(a). Trust funds deposited in a construction trust fund
account under this section shall be used first to satisfy the
owner's obligations and liabilities for retainage and a claimant's
rights under Chapter 53, Property Code. Trust funds remaining in
the construction trust fund account after the satisfaction of those
obligations, liabilities, and rights may be used by the owner for
other construction payments under this chapter or direct costs of
the owner. Trust funds under this section are not subject to
seizure, offset, or taking by the financial institution or a
creditor of the owner. This subsection does not alter the owner's
obligation or liability under any other law.
(b) This section does not apply to a property owner who
enters into a construction loan or financing agreement to pay
toward the construction, remodeling, or repair of a single-family
house or duplex used for residential purposes, or for land
development related thereto.
(c) This section does not apply to a property owner
improving real property if the value of the improvement to be made
is $500,000 or less.
Sec. 162.0062. BOND IN LIEU OF TRUST FUND ACCOUNT. (a) In
lieu of complying with Section 162.0061(a), a property owner may
obtain a bond described in Subsections (b), (c) or (d).
(b) A bond furnished by the contractor that meets the
requirements of Section 162.0063 and the following requirements:
(1) be in a penal sum at least equal to the total of the
original contract amount between the owner and the contractor;
(2) be conditioned on prompt payment for all labor,
subcontracts, materials, specially fabricated materials, and
normal and usual extras not exceeding 15 percent of the contract
price; and
(3) be for the protection and use of all persons that
are due prompt payment under Subsection 162.0062(b)(2).
(c) A bond furnished by the owner that meets the
requirements of Section 162.0063 and the following requirements:
(1) be in a penal sum at least equal to 10 percent of
the value of the total of the original contract amount between the
owner and the contractor including 10 percent of normal and usual
extras not exceeding 15 percent of the original contract amount;
(2) be conditioned on prompt payment for retainage
owed to a contractor by an owner; and
(3) be for the protection and use of all persons that
are due prompt payment under Subsection 162.0062(c)(2).
(d) a bond furnished by the contractor that meets the
requirements of Section 162.0063 and the following requirements:
(1) be in a penal sum at least equal to 10 percent of
the value of the total of the contract amount between the owner and
the contractor including 10 percent of normal and usual extras not
exceeding 15 percent of the original contract amount;
(2) be conditioned on prompt payment for contractual
retainage owed for all labor, subcontracts, materials, specially
fabricated materials, furnished by any person to a contractor or to
accomplish work owed by a contractor under a contract between a
contractor and an owner; and
(3) be for the protection and use of all persons that
are due prompt payment under Subsection 162.0062(d)(2).
Sec. 162.0063. REQUIREMENTS FOR BOND. A bond under Section
162.0062 must meet the following requirements:
(a) be executed by:
(1) the contractor as principal if furnished under
Section 162.0062(b) or (d) or by the owner as principal if furnished
under Section 162.0062(c); and
(2) a corporate surety authorized and admitted to do
business in this state and licensed by this state to execute bonds
as surety subject to Sections 3503.001-3503.005, Insurance Code;
and
(b) not be subject to any notice or perfection obligation
other than as may be required by Chapter 53, Property Code.
Sec. 162.0064. NONPAYMENT NOT A DEFENSE. Nonpayment by the
owner is not a defense for the surety under a bond furnished under
Section 162.0062(d).
SECTION 5. Chapter 162, Property Code, is amended by adding
Section 162.008 to read as follows:
Sec. 162.008. MANAGEMENT OF CONSTRUCTION TRUST FUND
ACCOUNTS. (a) If a property owner required to maintain a
construction trust fund account under Section 162.0061 opens and
maintains a separate construction trust fund account with the
financial institution for each project subject to this subchapter,
the periodic statement received from the financial institution
must:
(1) refer to the account as a "construction trust
fund" account; and
(2) identify the project for which the construction
trust fund account is maintained.
(b) If a property owner required to maintain a construction
trust fund account opens and maintains a construction trust fund
account with the financial institution into which funds for two or
more projects subject to this subchapter are deposited:
(1) the periodic statement received from the financial
institution must refer to the account as a "construction trust
fund" account; and
(2) the owner shall maintain an account record for the
construction trust fund account that provides information relating
to:
(A) the amount of the funds in the account for
each project and the date the funds were deposited;
(B) the date and amount of each disbursement from
the account and the person to whom the funds were disbursed; and
(C) the current balance of the account.
(c) For each construction trust fund account maintained by
the property owner under Subsection (b), the owner shall maintain
the account record for each construction project for which trust
funds have been deposited.
(d) Not later than the 14th day after a property owner
receives a written request from a person who is a beneficiary of
trust funds the property owner shall provide the beneficiary with:
(1) a copy of the periodic statement received from the
financial institution regarding the construction trust fund
account into which the trust funds of which the person is a
beneficiary have been deposited or the original of an executed
authorization sufficient to allow the requesting person to obtain
the periodic statement; and
(2) the account record required to be maintained by
the owner with respect to the construction project for which the
trust funds have been deposited.
(e) If a property owner does not provide the notice in the
time required by Subsection (d), or if the statement or record
furnished does not demonstrate that the owner has complied with the
obligations of Section 162.0061 or 162.0062, a beneficiary may
suspend contractually required performance the 10th day after the
date the beneficiary gives the owner written notice that states the
intent of the beneficiary to suspend performance and the reason for
suspending performance.
(f) An owner may cure any grounds for suspension as provided
by Subsection (e) by complying with the requirements of Sections
162.0061 or 162.0062-162.0063 and furnishing proof of such
compliance to a beneficiary who has given notice under Subsection
(d) or (e).
(g) A beneficiary that has suspended performance as
provided by Subsection (e) is not:
(1) required to supply further labor, services, or
materials until the owner has cured as provided by Subsection (f)
and paid the beneficiary its costs for demobilization and
remobilization; or
(2) responsible for damages resulting from suspending
work unless the beneficiary continues to suspend performance after
the 10th day after the owner has cured under Subsections (f) and
(g)(1).
SECTION 6. Section 162.031 (b), (c) and (d), Property Code,
is amended to read as follows:
(b) It is an affirmative defense to prosecution or other
action brought under Subsection (a) that the trust funds described
in Section 162.001(a) and (b) not paid to the beneficiaries of the
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]
(c) It is an affirmative defense to prosecution or other
action brought under Subsection (a) that the trust funds described
in Section 162.001(c) 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.
(d[c]) It is also an affirmative defense to prosecution or
other action bought 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.
(e[d]) A trustee who commingles trust funds with other funds
in the trustee's possession does not defeat a trust created by this
chapter.
SECTION 7. The change in law made by this Act applies only
to an amount retained under a contract between an owner and
contractor entered into on or after the effective date of this Act.
An amount retained under a contract between an owner and contractor
entered into before the effective date of this Act is governed by
the law as it existed immediately before that date, and that law is
continued in effect for that purpose.
SECTION 8. This Act takes effect September 1, 2013.