Unfortunately, too many of us have had experience with a home improvement contractor who requires ‘up-front’ money to be paid before work will be started. Sometimes you end up with a lot of
grief, and less than you expected. To help address this problem, for contracts in excess
of $5,000, where the contractor requires a deposit of $500 or more, Texas law requires the
contractor to maintain a Construction Trust Account.
In these situations, the deposit MUST go into the contractor’s Trust Account, and not the general
operating account.
For all funds that are deposited into the Trust Account, the contractor is required, for each
project, to maintain separate documentation of the direct expenses of the project,
(includes labor and materials), as well as “indirect expenses” (overhead). The contractor is
required to retain all invoices and other supporting evidence related to the funds
received and disbursed from the Trust Account.
A contractor who fails to maintain a required Trust Account commits a Class A
misdemeanor. A contractor who fails to maintain documentation of required deposits and
disbursements commits a Class A misdemeanor.
A contractor is considered a trustee of all monies deposited in a Trust Account. A
contractor commits a felony if he or she intentionally misapplies property that is required to be
deposited in a Trust Account, where the misapplied amount is $2,500 or more.
It is surprising how many contractors do not maintain a Trust Account with the required
documentation, and how many are not aware such a requirement even exists. Contractor referral
platforms such as Angie’s List, HomeAdvisor, or Crawford Contractor Connection advertise ‘approved’ lists of contractors. Though required by law, it is unknown whether these services even ask contractors whether they have a Trust Account.
When considering hiring a contractor, you must ask whether they maintain a Trust
Account. Do not be afraid to ask for a bank statement to verify that they indeed have one.
If they don’t, keep your money in your pocket and run, don’t walk, away.
If you are contemplating a construction project, prior to signing or putting your money down, call the Law Office of Elliott Klein, PLLC, for a consultation. If after the fact, you have been taken, contact this office to discuss your options.