Payment of Trapped Funds

Payment of Trapped Funds

A claimant who has trapped funds in the hands of the owner may obtain payment from the owner when the following conditions are met:

1. Notice has been given to the owner that all, or part of the claim has either accrued under Section 53.053 or is past due, according to an agreement between the claimant and the contractor.

2. A written demand has been made on the owner, with a copy to the contractor, for payment on the claim.

3. The general contractor consents to the payment. The contractor is considered to consent to the demand if the contractor does not notify the owner that the claim is disputed within 30 days after the demand is received by the contractor. A general contractor who disputes a claim must defend an ensuing action [Tex. Prop. Code ? 53.153(a)].

The demand may accompany the notice. It may be stamped or written on the notice. The demand may also be given separately from the notice, but the demand must either follow the perfection of the lien, or it must be made before the time for securing a lien has passed.

A subcontractor or other derivative claimant seeking to trap funds in the hands of the owner may do so only as to funds that are owed by the owner on the original contract through which the subcontractor performed its work. Accordingly, if an original contract is terminated or abandoned, and the owner hires a substitute contractor to complete the work, a fund-trapping notice provided by the subcontractor is ineffective to trap funds with respect to payments that the owner owes to the substitute contractor.