Texas law requires any contractor who enters into a construction contract for over $5,000.00 to deposit contract proceeds including loan funds into a construction trust account for the benefit of the subcontractors. [TPC § 162.006] It is good policy for Banks which fund construction loans to a builder who maintains an account with the Bank to require the account to be styled “construction trust account.” The Bank should fund all draw proceeds into the account, but has no obligation to monitor the contractor’s compliance.
An owner is required to pay for properly performed work no later than 35 days after receipt of an invoice. If an owner fails to pay the contractor an undisputed amount within 35 days of receipt of an invoice, a contractor or subcontractor may suspend performance 10 days after giving the owner and lender written notice pursuant to the statute. If a Bank is involved, the contractor’s right to suspend performance does not arise unless the owner fails to pay contractor within 5 days of receipt of loan proceeds. The Bank has no statutory liability under this statute. However, if a Bank posts a notice at the project, gives its name, address and person to contact, the Bank is entitled to notices under the statute. [TPC §§ 28.002, 28.003, 28.008, 28.009 and 28.010]]