The Texas Construction Trust Fund Act (the “Act”) imposes fiduciary responsibilities on contractors to ensure that their subcontractors and suppliers are paid for their labor and materials.
Construction payments are considered trust funds if they are made to a contractor, subcontractor, or to their agent under a construction contract for the improvement of specific realty in Texas. In this scenario, the contractor, subcontractor, owner, or their agent who receives or has control of the trust funds is deemed to be a trustee. And the subcontractors or suppliers who furnished labor or materials for the construction or repair of an improvement on the property are the beneficiaries of any trust funds paid or received in connection with the improvement.
“Any trustee who, intentionally or knowingly or with intent to defraud, directly or indirectly retains, uses, disburses, or otherwise diverts trust funds without first fully paying all current or past due obligations incurred by the trustee to the beneficiaries of the trust funds, has misapplied the trust funds.”
A trustee who misapplies trust funds amounting to $500 or more, or who fails to establish or maintain a separate construction account when required, may be criminally prosecuted and the subject of a civil lawsuit. Criminal violations are class A misdemeanors or third degree felonies.
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