Trapping funds is an important part of life as a sub contractor. Many of our sub contractor clients came to see us with collections problems and those problems were very quickly remedied once they understood the law regarding funds trapping.
A sub contractor may gain an additional measure of protection under the provisions of Property Code Section 53.081, which provides for trapping funds due the general contractor while they are still in the hands of the owner. As with retainage liens, however, fund-trapping liens must be asserted in conjunction with the individual original contract under which the work was performed. Accordingly, if an original contract is terminated or abandoned, and the owner hires a substitute contractor to complete the work, any notice provided by a sub contractor in order to trap funds in the owner’s hands must relate to payments owed by the owner to the original contractor, and not to payments that the owner owes to any substitute contractor.
When funds are trapped in the hands of the owner, the owner must retain the funds until the time for securing a lien has passed. If a lien affidavit has been filed, the funds must be retained until the lien claim has been satisfied or released. The funds may be released sooner if the claim is settled, discharged, indemnified against, or determined to be invalid by a final judgment of a court.
The maximum amount of the lien is the amount required to be retained under the statutory retainage method plus the amount of trapped funds.