SRC-JFA S.B. 241 75(R)    BILL ANALYSIS


Senate Research CenterS.B. 241
By: West
Jurisprudence
2-14-97
As Filed


DIGEST 

Currently, Texas law does not prohibit building home contractors from
using funds obtained for the purpose of building one project to finance a
totally separate project.  Upon declaring bankruptcy, these builders,
often, leave homes unfinished and do not repay their customers, or do not
compensate suppliers and subcontractors for services rendered.  This bill
would require the creation and maintenance of a construction account trust
fund by a contractor when a contract is made between a contractor and
property owner to construct improvements costing in excess of $5,000 to a
residential homestead.  

PURPOSE

As proposed, S.B. 241 sets forth the conditions and guidelines for the
creation and maintenance of a construction account trust fund by a
contractor when a contract is made between a contractor and property owner
to construct improvements costing in excess of $5,000 to a residential
homestead.  

RULEMAKING AUTHORITY

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), to provide that 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.   

SECTION 2. Amends Section 162.003, Property Code, to make a nonsubstantive
change.  

SECTION 3. Amends Section 162.005, Property Code, to redefine "intent to
defraud."  Defines "direct cost," "indirect cost," "financial
institution," and "construction account."  Makes conforming changes.   

SECTION 4. Amends Chapter 162A, Property Code, by adding Sections 162.006
and 162.007, as follows: 

Sec. 162.006. CONSTRUCTION ACCOUNT REQUIRED IN CERTAIN CIRCUMSTANCES.
Requires trust funds to be deposited in a construction account in a
financial institution by a contractor when a contract is made between a
contractor and property owner to construct improvements costing in excess
of $5,000 to a residential homestead.  Requires the financial institution
to refer to the account as a "construction account."    

Sec. 162.007. MANAGEMENT OF CONSTRUCTION ACCOUNTS.  Sets forth the
required record-keeping guidelines for a construction account required to
be maintained by a contractor under this subchapter.  
 
SECTION 5. Amends Section 162.032, Property Code, by adding Subsection
(c), to provide that a trustee commits a Class A misdemeanor if the
trustee violates Section 162.006 or 162.007 of this subchapter.   

SECTION 6. Effective date: September 1, 1997.
  Makes application of this Act prospective.

SECTION 7. Emergency clause.