BILL ANALYSIS Senate Research Center S.B. 1612 89R4650 SCR-F By: Johnson Business & Commerce 4/4/2025 As Filed AUTHOR'S / SPONSOR'S STATEMENT OF INTENT Under the Texas Property Code, non-public property owners are required to reserve 10 percent of the contract price until the completion of a construction project. Known as reserved funds, each payment application submitted by a contractor includes this 10 percent reduction. The reserved funds are withheld to guarantee compensation for subcontractors in the event a general contractor fails to remit payment. The legislature previously granted contractors a right to file a mechanic's and materialman's lien against the property if they are not paid. To recoup the funds owed, a contractor can sue to foreclose on their lien. However, if an owner defaults on their construction loan and the lender forecloses, all mechanic's or materialman's liens are null and void, leaving the contractor without the ability to recover funds owed. The Construction Trust Fund Act, also in the Texas Property Code, provides protections for construction funds outside of lien rights. It sets standards and practices for how owners, contractors, subcontractors, and suppliers manage project funds, and any misapplication or misappropriation of funds may be subject to civil liability and/or criminal penalties. The Act currently does not include reserved funds, therefore, only 90 percent of the funds for any given project are protected by this Act. S.B. 1612 would apply the protections of the Construction Trust Fund Act to the remaining 10 percent of reserved funds. The state has required the reservation of 10 percent of the contract since 1909, however the protections provided under the Construction Trust Fund Act for 90 percent of the contract do not include the reserved funds. This bill would make certain that all funds for the project, no matter at which point they are paid, are protected. As proposed, S.B. 1612 amends current law relating to construction contract trust funds. RULEMAKING AUTHORITY This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 162.001, Property Code, by adding Subsection (a-1), as follows: (a-1) Provides that, except as provided by this subsection, funds reserved or required to be reserved under Section 53.101 (Funds Required to be Reserved) are trust funds under Chapter 162 (Construction Payments, Loan Receipts, and Misapplication of Trust Funds). Provides that funds reserved or required to be reserved under Section 53.101 for the construction or repair of a new or existing single-family house, duplex, triplex, or quadruplex, to be used for residential purposes, including improvements appurtenant to the residence, are not trust funds under this chapter. SECTION 2. Amends Section 162.003(a), Property Code, as follows: (a) Provides that 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 reserved or required to be reserved under Section 53.101 in connection with the improvement. Makes nonsubstantive changes. SECTION 3. Amends Subchapter B, Chapter 162, Property Code, by adding Section 162.034, to require the court to award costs and reasonable attorney's fees to a beneficiary who prevails in an action brought against a trustee under this chapter. SECTION 4. (a) Makes application of this Act, except as provided by Subsection (b) of this section, prospective. (b) Makes application of Section 162.034 (Attorney's Fees and Costs), Property Code, as added by this Act, prospective. SECTION 5. Effective date: September 1, 2025.
BILL ANALYSIS
Senate Research Center S.B. 1612
89R4650 SCR-F By: Johnson
Business & Commerce
4/4/2025
As Filed
Senate Research Center
S.B. 1612
89R4650 SCR-F
By: Johnson
Business & Commerce
4/4/2025
As Filed
AUTHOR'S / SPONSOR'S STATEMENT OF INTENT
Under the Texas Property Code, non-public property owners are required to reserve 10 percent of the contract price until the completion of a construction project. Known as reserved funds, each payment application submitted by a contractor includes this 10 percent reduction. The reserved funds are withheld to guarantee compensation for subcontractors in the event a general contractor fails to remit payment.
The legislature previously granted contractors a right to file a mechanic's and materialman's lien against the property if they are not paid. To recoup the funds owed, a contractor can sue to foreclose on their lien. However, if an owner defaults on their construction loan and the lender forecloses, all mechanic's or materialman's liens are null and void, leaving the contractor without the ability to recover funds owed.
The Construction Trust Fund Act, also in the Texas Property Code, provides protections for construction funds outside of lien rights. It sets standards and practices for how owners, contractors, subcontractors, and suppliers manage project funds, and any misapplication or misappropriation of funds may be subject to civil liability and/or criminal penalties. The Act currently does not include reserved funds, therefore, only 90 percent of the funds for any given project are protected by this Act.
S.B. 1612 would apply the protections of the Construction Trust Fund Act to the remaining 10 percent of reserved funds. The state has required the reservation of 10 percent of the contract since 1909, however the protections provided under the Construction Trust Fund Act for 90 percent of the contract do not include the reserved funds. This bill would make certain that all funds for the project, no matter at which point they are paid, are protected.
As proposed, S.B. 1612 amends current law relating to construction contract trust funds.
RULEMAKING AUTHORITY
This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Section 162.001, Property Code, by adding Subsection (a-1), as follows:
(a-1) Provides that, except as provided by this subsection, funds reserved or required to be reserved under Section 53.101 (Funds Required to be Reserved) are trust funds under Chapter 162 (Construction Payments, Loan Receipts, and Misapplication of Trust Funds). Provides that funds reserved or required to be reserved under Section 53.101 for the construction or repair of a new or existing single-family house, duplex, triplex, or quadruplex, to be used for residential purposes, including improvements appurtenant to the residence, are not trust funds under this chapter.
SECTION 2. Amends Section 162.003(a), Property Code, as follows:
(a) Provides that 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 reserved or required to be reserved under Section 53.101 in connection with the improvement. Makes nonsubstantive changes.
SECTION 3. Amends Subchapter B, Chapter 162, Property Code, by adding Section 162.034, to require the court to award costs and reasonable attorney's fees to a beneficiary who prevails in an action brought against a trustee under this chapter.
SECTION 4. (a) Makes application of this Act, except as provided by Subsection (b) of this section, prospective.
(b) Makes application of Section 162.034 (Attorney's Fees and Costs), Property Code, as added by this Act, prospective.
SECTION 5. Effective date: September 1, 2025.