82R6172 TJS-F

By: Deshotel H.B. No. 1428

A BILL TO BE ENTITLED

AN ACT

relating to trust fund protection for retainage for the benefit of certain claimants under a construction loan or financing agreement.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 162.001, Property Code, is amended by adding Subsections (e) and (f) to read as follows:

(e) Except as provided by Subsection (f), funds retained under a retainage agreement or statutory retainage obligation by a financial institution or other lender that provides a loan or financing for improvements to specific real property in this state wholly or partly secured by a lien on the property are trust funds and the lender is the trustee.

(f) Subsection (e) does not apply to a loan or financing agreement of less than $500,000 for the construction of a single-family house or duplex used for residential purposes that is:

(1) owned by one or more adult persons;

(2) used or intended to be used as a dwelling by one of the owners; and

(3) wholly or partly secured by a lien on the property.

SECTION 2. Section 162.004(a), Property Code, is amended to read as follows:

(a) This chapter does not apply to:

(1) a bank, savings and loan, or other lender, other than a trustee under Section 162.001(e);

(2) a title company or other closing agent; or

(3) a corporate surety who issues a payment bond covering the contract for the construction or repair of the improvement.

SECTION 3. Section 162.005, Property Code, is amended by adding Subdivision (7) to read as follows:

(7) "Retainage" means an amount representing part of a construction contract payment that is not required to be paid to the claimant within the month following the month in which labor is performed, material is furnished, or specially fabricated material is delivered.

SECTION 4. Section 162.031, Property Code, is amended by amending Subsection (b) and adding Subsection (e) to read as follows:

(b) Except for a trustee under Section 162.001(e), it [It] is an affirmative defense to prosecution or other action brought under Subsection (a) that the trust funds not paid to the beneficiaries of the trust were used by the trustee to pay the trustee's actual expenses directly related to the construction or repair of the improvement or have been retained by the trustee, after notice to the beneficiary who has made a request for payment, as a result of the trustee's reasonable belief that the beneficiary is not entitled to such funds or have been retained as authorized or required by Chapter 53.

(e) It is not a misapplication of trust funds under this chapter for a trustee under Section 162.001(e) to:

(1) make a payment of retainage funds to the property owner or a contractor providing labor or materials to the real property improvement that is security for the loan or financing agreement; or

(2) interplead the funds into a court of competent jurisdiction.

SECTION 5. The change in law made by this Act applies only to funds retained under a loan or financing agreement made on or after the effective date of this Act. Funds retained under a loan or financing agreement made before the effective date of this Act are governed by the law applicable to the funds immediately before that date, and that law is continued in effect for that purpose.

SECTION 6. This Act takes effect September 1, 2011.