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.