By: Keffer H.B. No. 3316

A BILL TO BE ENTITLED

AN ACT

relating to an account for construction retainage; providing a civil penalty.

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

SECTION 1. Section 162.001, Property Code, is amended to read as follows:

Sec. 162.001. CONSTRUCTION PAYMENTS AND LOAN RECEIPTS AS TRUST FUNDS. (a) Construction payments are trust funds under this chapter if the payments are made to a contractor or subcontractor or to an officer, director, or agent of a contractor or subcontractor, under a construction contract for the improvement of specific real property in this state.

(b) Loan receipts are trust funds under this chapter if the funds are borrowed by a contractor, subcontractor, or owner or by an officer, director, or agent of a contractor, subcontractor, or owner for the purpose of improving specific real property in this state, and the loan is secured in whole or in part by a lien on the property.

(c) Funds required under this chapter to be deposited into a construction trust fund account are trust funds.

(d[c]) A fee payable to a contractor is not considered trust funds if:

(1) the 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; and

(2) the fee is earned as provided by the contract and paid to the contractor or disbursed from a construction account described by Section 162.006, if applicable.

(e[d]) Trust funds paid to a creditor under this chapter are not property or an interest in property of a debtor who is trustee described by Section 162.002.

SECTION 2. Section 162.003(a), Property Code, is amended to read as follows:

(a) 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 this state is a beneficiary of any trust funds paid, [or] received, withheld as retainage, or required to be deposited into a construction trust fund account under this chapter in connection with the improvement.

SECTION 3. Section 162.005, Property Code, is amended by adding Subdivisions (7) and (8) to read as follows:

(7) "Construction trust fund account" means an account in a federally insured financial institution into which are deposited only funds required by Section 162.0061(a) to be deposited in a construction trust fund account and other funds deposited by the property owner that are necessary to pay charges imposed on the account by the financial institution.

(8) "Retainage" is an amount or agreed percentage of money in a construction contract between an owner and a contractor that is withheld from a payment and not due to be paid until completion of the contract or on an agreed date.

SECTION 4. Chapter 162, Property Code, is amended by adding Sections 162.0061-162.0064 to read as follows:

Sec. 162.0061. CONSTRUCTION TRUST FUND ACCOUNT REQUIRED IN CERTAIN CIRCUMSTANCES. (a) Except as provided by this section, a property owner who enters into a construction loan or financing agreement to pay toward the improvement of real property that is secured wholly or partly by a lien on the property or improvement shall deposit in a construction trust fund account not later than contemporaneously with payment to a contractor any money withheld from the payment as retainage and the deposited funds shall be held in trust for the benefit of a person described by Section 162.003(a). Trust funds deposited in a construction trust fund account under this section shall be used first to satisfy the owner's obligations and liabilities for retainage and a claimant's rights under Chapter 53, Property Code. Trust funds remaining in the construction trust fund account after the satisfaction of those obligations, liabilities, and rights may be used by the owner for other construction payments under this chapter or direct costs of the owner. Trust funds under this section are not subject to seizure, offset, or taking by the financial institution or a creditor of the owner. This subsection does not alter the owner's obligation or liability under any other law.

(b) This section does not apply to a property owner who enters into a construction loan or financing agreement to pay toward the construction, remodeling, or repair of a single-family house or duplex used for residential purposes, or for land development related thereto.

(c) This section does not apply to a property owner improving real property if the value of the improvement to be made is $500,000 or less.

Sec. 162.0062. BOND IN LIEU OF TRUST FUND ACCOUNT. (a) In lieu of complying with Section 162.0061(a), a property owner may obtain a bond described in Subsections (b), (c) or (d).

(b) A bond furnished by the contractor that meets the requirements of Section 162.0063 and the following requirements:

(1) be in a penal sum at least equal to the total of the original contract amount between the owner and the contractor;

(2) be conditioned on prompt payment for all labor, subcontracts, materials, specially fabricated materials, and normal and usual extras not exceeding 15 percent of the contract price; and

(3) be for the protection and use of all persons that are due prompt payment under Subsection 162.0062(b)(2).

(c) A bond furnished by the owner that meets the requirements of Section 162.0063 and the following requirements:

(1) be in a penal sum at least equal to 10 percent of the value of the total of the original contract amount between the owner and the contractor including 10 percent of normal and usual extras not exceeding 15 percent of the original contract amount;

(2) be conditioned on prompt payment for retainage owed to a contractor by an owner; and

(3) be for the protection and use of all persons that are due prompt payment under Subsection 162.0062(c)(2).

(d) a bond furnished by the contractor that meets the requirements of Section 162.0063 and the following requirements:

(1) be in a penal sum at least equal to 10 percent of the value of the total of the contract amount between the owner and the contractor including 10 percent of normal and usual extras not exceeding 15 percent of the original contract amount;

(2) be conditioned on prompt payment for contractual retainage owed for all labor, subcontracts, materials, specially fabricated materials, furnished by any person to a contractor or to accomplish work owed by a contractor under a contract between a contractor and an owner; and

(3) be for the protection and use of all persons that are due prompt payment under Subsection 162.0062(d)(2).

Sec. 162.0063. REQUIREMENTS FOR BOND. A bond under Section 162.0062 must meet the following requirements:

(a) be executed by:

(1) the contractor as principal if furnished under Section 162.0062(b) or (d) or by the owner as principal if furnished under Section 162.0062(c); and

(2) a corporate surety authorized and admitted to do business in this state and licensed by this state to execute bonds as surety subject to Sections 3503.001-3503.005, Insurance Code; and

(b) not be subject to any notice or perfection obligation

other than as may be required by Chapter 53, Property Code.

Sec. 162.0064. NONPAYMENT NOT A DEFENSE. Nonpayment by the owner is not a defense for the surety under a bond furnished under Section 162.0062(d).

SECTION 5. Chapter 162, Property Code, is amended by adding Section 162.008 to read as follows:

Sec. 162.008. MANAGEMENT OF CONSTRUCTION TRUST FUND ACCOUNTS. (a) If a property owner required to maintain a construction trust fund account under Section 162.0061 opens and maintains a separate construction trust fund account with the financial institution for each project subject to this subchapter, the periodic statement received from the financial institution must:

(1) refer to the account as a "construction trust fund" account; and

(2) identify the project for which the construction trust fund account is maintained.

(b) If a property owner required to maintain a construction trust fund account opens and maintains a construction trust fund account with the financial institution into which funds for two or more projects subject to this subchapter are deposited:

(1) the periodic statement received from the financial institution must refer to the account as a "construction trust fund" account; and

(2) the owner shall maintain an account record for the construction trust fund account that provides information relating to:

(A) the amount of the funds in the account for each project and the date the funds were deposited;

(B) the date and amount of each disbursement from the account and the person to whom the funds were disbursed; and

(C) the current balance of the account.

(c) For each construction trust fund account maintained by the property owner under Subsection (b), the owner shall maintain the account record for each construction project for which trust funds have been deposited.

(d) Not later than the 14th day after a property owner receives a written request from a person who is a beneficiary of trust funds the property owner shall provide the beneficiary with:

(1) a copy of the periodic statement received from the financial institution regarding the construction trust fund account into which the trust funds of which the person is a beneficiary have been deposited or the original of an executed authorization sufficient to allow the requesting person to obtain the periodic statement; and

(2) the account record required to be maintained by the owner with respect to the construction project for which the trust funds have been deposited.

(e) If a property owner does not provide the notice in the time required by Subsection (d), or if the statement or record furnished does not demonstrate that the owner has complied with the obligations of Section 162.0061 or 162.0062, a beneficiary may suspend contractually required performance the 10th day after the date the beneficiary gives the owner written notice that states the intent of the beneficiary to suspend performance and the reason for suspending performance.

(f) An owner may cure any grounds for suspension as provided by Subsection (e) by complying with the requirements of Sections 162.0061 or 162.0062-162.0063 and furnishing proof of such compliance to a beneficiary who has given notice under Subsection (d) or (e).

(g) A beneficiary that has suspended performance as provided by Subsection (e) is not:

(1) required to supply further labor, services, or materials until the owner has cured as provided by Subsection (f) and paid the beneficiary its costs for demobilization and remobilization; or

(2) responsible for damages resulting from suspending work unless the beneficiary continues to suspend performance after the 10th day after the owner has cured under Subsections (f) and (g)(1).

SECTION 6. Section 162.031 (b), (c) and (d), Property Code, is amended to read as follows:

(b) It is an affirmative defense to prosecution or other action brought under Subsection (a) that the trust funds described in Section 162.001(a) and (b) not paid to the beneficiaries of the 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]

(c) It is an affirmative defense to prosecution or other action brought under Subsection (a) that the trust funds described in Section 162.001(c) 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.

(d[c]) It is also an affirmative defense to prosecution or other action bought under Subsection (a) that the trustee paid the beneficiaries all trust funds which they are entitled to receive no later than 30 days following written notice to the trustee of the filing of a criminal complaint or other notice of a pending criminal investigation.

(e[d]) A trustee who commingles trust funds with other funds in the trustee's possession does not defeat a trust created by this chapter.

SECTION 7. The change in law made by this Act applies only to an amount retained under a contract between an owner and contractor entered into on or after the effective date of this Act. An amount retained under a contract between an owner and contractor entered into before the effective date of this Act is governed by the law as it existed immediately before that date, and that law is continued in effect for that purpose.

SECTION 8. This Act takes effect September 1, 2013.