BILL ANALYSIS

C.S.H.B. 1864

By: Slawson

Business & Industry

Committee Report (Substituted)

BACKGROUND AND PURPOSE

Under current law, a trustee who, intentionally or knowingly or with intent to defraud, directly or indirectly retains, uses, disburses, or otherwise diverts construction trust funds without first fully paying all current or past due obligations incurred by the trustee to the beneficiaries of the trust funds is considered to have misapplied the trust funds. Certain general contractors have reported instances in which a subcontractor or supplier on a construction project takes payment from the general contractor but then pockets that money without in turn paying any money owed to additional subcontractors or suppliers. Currently, however, general contractors cannot pursue these stolen funds through the courts as only the parties who were not paid have that legal remedy available to them. C.S.H.B. 1864 seeks to make this legal remedy available also to any assignee of the party that did not receive payment by classifying an assignee as a beneficiary of any trust funds paid or received.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

C.S.H.B. 1864 amends the Property Code to include a person who is the assignee of 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 Texas among the beneficiaries of any trust funds paid or received in connection with the improvement.

C.S.H.B. 1864 prohibits an assignment by a beneficiary of the beneficiary's interest in unpaid trust funds from being enforced unless the following conditions are satisfied:

· the assignment is made in writing not earlier than the date the assignee has paid the beneficiary in good and sufficient funds for the assignment and not made as part of the beneficiary's construction contract; and

· the assignee is a beneficiary, trustee, or property owner under the contract for the construction or repair of an improvement on real property in connection with which the payment of trust funds is made.

EFFECTIVE DATE

September 1, 2023.

COMPARISON OF INTRODUCED AND SUBSTITUTE

While C.S.H.B. 1864 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.

The substitute includes a provision absent from the introduced establishing conditions that must be satisfied before a beneficiary's assignment of interest in unpaid trust funds may be enforced.