2005 Texas Property Code CHAPTER 162. CONSTRUCTION PAYMENTS, LOAN RECEIPTS, AND MISAPPLICATION OF TRUST FUNDS

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.