BILL ANALYSIS

H.B. 1963

By: Leach

Business & Industry

Committee Report (Unamended)

BACKGROUND AND PURPOSE

Under the Property Code, non-public property owners are required to reserve 10 percent of the contract price until the completion of a construction project. These funds, known as "reserved funds," secure the payment of the contractors and suppliers. Each payment application submitted by a contractor includes a 10 percent reduction associated with those reserved funds and the funds are held back to ensure the contractors and the suppliers get paid at the completion of the project.

The Texas Legislature previously granted contractors and suppliers a right to file a mechanic's and materialman's lien against the property. If the contractor or supplier never receives the payment of reserved funds, they can sue to foreclose on the 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.

The Construction Trust Fund Act, also in the 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 criminal penalties. The act currently does not include reserved funds--therefore, only 90 percent of the funds for any given project are protected by the act.

H.B. 1963 seeks to apply the protections of the act to the 10 percent reserved funds and ensure that all of the funds for the project, no matter at which point they are paid, are protected.

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

H.B. 1963 amends the Property Code to classify funds reserved or required to be reserved for the benefit of claimants of a mechanic's, contractor's, or materialman's lien as trust funds and to include 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 such trust funds. The bill requires a court to award costs and reasonable attorney's fees to a beneficiary who prevails in an action brought against a trustee under state law governing construction payments, loan receipts, and misapplication of trust funds. The bill's provisions apply only to a construction contract entered into on or after the bill's effective date and only to an applicable action that is commenced on or after that effective date.

EFFECTIVE DATE

September 1, 2023.