BILL ANALYSIS C.S.S.B. 558 By: West Economic Development 04-28-95 Committee Report (Substituted) BACKGROUND Current law does not prohibit building contractors from using funds from one contract to finance another contract. A problem occurs when builders lack the funds to complete projects which they have started, leaving homeowners with unfinished homes. PURPOSE As proposed, C.S.S.B. 558 requires construction contractors to document all direct and indirect costs and create separate construction accounts for trust funds received from each contract. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not 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 (c), as follows: (c) Provides that the fee paid to the contractor is not considered trust funds if a contractor and property owner have entered into a written 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 costs of construction and a reasonable fee specified in the contract payable to the contractor. SECTION 2. Amends Section 162.003, Property Code, to provide that an artisan, rather than an artist, among other professions, is a beneficiary of any trust funds paid or received in connection with the improvement. SECTION 3. Amends Section 162.005, Property Code, to redefine "intent to defraud." Defines "direct cost," "indirect cost," "financial institution," "construction account," and "draw schedule." SECTION 4. Amends Chapter 162A, Property Code, by adding Sections 162.006, 162.007, and 162.008, as follows: Sec. 162.006. DRAW SCHEDULE REQUIRED. Requires a contractor who agrees to construct improvements to a residential homestead to furnish a written draw schedule to the property owner before the commencement of construction. Sec. 162.007. CONSTRUCTION ACCOUNT REQUIRED IN CERTAIN CIRCUMSTANCES. (a) Requires a contractor who agrees with a property owner to construct improvements to a residential homestead for an amount exceeding $5,000 to deposit the trust funds received from the owner in a construction account in a financial institution. (b) Requires the periodic statement received from the financial institution to refer to the account as a "construction account." Sec. 162.008. MANAGEMENT OF CONSTRUCTION ACCOUNTS. (a) Requires a contractor required to maintain a construction account under this subchapter to maintain an account record for the construction account that provides certain information. (b) Requires the contractor to maintain an account record for each construction project that specifies the direct and indirect costs charged to the owner. (c) Requires the contractor to retain all invoices and other supporting documentation related to funds disbursed from the construction accounts. (d) Requires the contractor to ensure that all deposit and disbursement documentation includes the construction account number or information that provides a connection between the documentation and the account. (e) Prohibits the contractor from destroying information required to be maintained under this section before the first year after the improvement is completed. SECTION 5. Amends Section 162.032, Property Code, by adding Subsections (c) and (d), as follows: (c) Provides that a trustee who fails to establish or maintain a construction account or fails to establish or maintain an account record for the construction account commits a Class A misdemeanor. (d) Provides that a contractor who fails to furnish a draw schedule in violation of Section 162.006 commits a Class C misdemeanor. SECTION 6. Effective date: September 1, 1995. Makes application of this Act prospective. SECTION 7. Emergency clause.