1
Q
What does the Residential Construction Liability Act (RCLA) govern?
A
Residential construction defect claims
RCLA provides a framework for pre-suit notice and opportunity to cure.
2
Q
What is the purpose of the pre-suit notice under RCLA?
A
To limit litigation and encourage resolution before trial.
3
Q
What is the required notice period before filing a suit under RCLA?
A
60-day written notice detailing alleged defects.
4
Q
How long does a builder have to inspect after receiving notice under RCLA?
A
35 days.
5
Q
What is the timeframe for a builder to make a written offer of repair or settlement under RCLA?
A
45 days.
6
Q
What happens if procedures are not followed under RCLA?
A
Abatement of suit.
7
Q
What types of damages are homeowners limited to under §27.004(g) of RCLA?
A
- Cost to repair
- Diminution in market value
- Reasonable attorney’s fees
8
Q
When are punitive damages available under RCLA?
A
Only if contractor committed fraud, misrepresentation, or made repairs causing death/bodily injury.
9
Q
What is the exclusive remedy for residential construction defect claims?
A
RCLA (but DTPA may layer if fraud/misrepresentation).
10
Q
What defines trust funds under the Texas Construction Trust Fund Act?
A
Construction payments and loan receipts paid to contractor/subcontractor for specific improvements.
11
Q
Who are the trustees of trust funds under the Texas Construction Trust Fund Act?
A
Contractors and subcontractors.
12
Q
Who are the beneficiaries of trust funds under the Texas Construction Trust Fund Act?
A
- Laborers
- Mechanics
- Contractors
- Subcontractors
- Material suppliers
- Owners in residential contracts
13
Q
What is required of a contractor for residential projects over $5,000 under the Trust Fund Act?
A
Must keep a separate construction account.
14
Q
What constitutes misapplication of trust funds?
A
Diverting funds without paying all current/past due obligations.
15
Q
What may indicate intent to defraud in relation to trust funds?
A
Failure to keep required accounts/records.
16
Q
What are the defenses against misapplication of trust funds?
A
- Funds used for actual project expenses
- Retained due to good faith dispute of entitlement
- Payment within 30 days of notice of investigation
17
Q
What are the consequences of misapplication of trust funds?
A
Civil and criminal liability; potential felony.
18
Q
Who is personally liable under the Texas Construction Trust Fund Act?
A
Officers/directors who control funds.
19
Q
Can attorney’s fees be recovered under the Texas Construction Trust Fund Act?
A
No.
20
Q
What does CPRC Ch. 12 prohibit?
A
Making, presenting, or using a fraudulent court record or lien/claim against real or personal property.
21
Q
What are the elements required to establish a fraudulent lien under CPRC Ch. 12?
A
- Knowledge document is fraudulent
- Intent that it be treated as valid
- Intent to cause financial, physical, or emotional harm
22
Q
What is the minimum liability for a person violating the fraudulent lien provisions?
A
Greater of $10,000 or actual damages.
23
Q
Who can bring causes of action for fraudulent liens?
A
- Attorney General
- DA
- County/Municipal attorney
- Injured private party (property owner, obligor, debtor)
24
Q
Is a valid lien under Prop. Code Ch. 53 considered fraudulent?
A
Not unless filed with intent to defraud.
25
Where is the proper venue for fraudulent lien cases?
County where document recorded or property located.
26
What does a prevailing plaintiff recover in a fraudulent lien case?
Court costs + attorney's fees + investigative expenses.
27
What is the mnemonic for remembering key consumer protections?
R-T-F → RCLA, Trust Fund Act, Fraudulent Liens.
28
What are the notice-inspection-offer deadlines for RCLA?
60/35/45.
29
What are the key points of the Trust Fund Act?
* Funds = trust
* Misapplication = civil/criminal liability
* Personal liability for officers
30
What is the minimum penalty for fraudulent liens?
$10,000 + attorney's fees + exemplary damages.
31
What does 'Action' mean in the context of Chapter 27?
A court or judicial proceeding or an arbitration.
32
Define 'Appurtenance' as per Chapter 27.
Any garage, outbuilding, retaining wall, or other structure or recreational facility constructed by a contractor in connection with the construction or alteration of a residence.
33
What is meant by 'Construction defect'?
A deficiency in the design, construction, or repair of a new residence or an alteration, repair, or addition to an existing residence.
34
Who qualifies as a 'Contractor' under this chapter?
A builder contracting with an owner for construction or repair, any person contracting for the sale or construction of a new residence, or a person contracting for construction or sale of residences in a housing project.
35
What are 'Economic damages'?
Compensatory damages for pecuniary loss caused by a construction defect, excluding exemplary damages or damages for personal injury.
36
What constitutes a 'Residence'?
Real property and improvements for a detached one-family or two-family dwelling, a townhouse, an accessory structure, or units in a multiunit residential structure.
37
Define 'Structural failure'.
Actual physical damage to the load-bearing portion of a residence caused by a failure of that portion.
38
What is a 'Developer of a condominium'?
A declarant as defined by Section 82.003 of a condominium consisting of one or more residences.
39
Describe a 'Townhouse'.
A single-family dwelling unit constructed in a group of three or more attached units extending from foundation to roof.
40
What actions does Chapter 27 apply to?
Actions to recover damages from a construction defect, except personal injury, survival, wrongful death, or damage to goods.
41
True or False: 'Goods' includes a residence.
False.
42
What does Chapter 27 not apply to?
Damages arising from contractor's wrongful abandonment of a project or violations of specific sections of the Business & Commerce Code.
43
What are the liability conditions for a contractor under this chapter?
A contractor is liable only for actual physical damage, failure of building components, or danger to occupants caused by a defective condition.
44
List some factors that do not make a contractor liable.
* Negligence of others
* Failure to mitigate damages
* Normal wear and tear
* Contractor's reliance on false information from official records.
45
Fill in the blank: A contractor is not liable for damages caused by the _______ of a person other than the contractor.
negligence
46
What is the consequence for a contractor if the written information from official government records is false and the contractor was unaware?
The contractor is not liable if they did not know and could not reasonably have known of the falsity, modification, or inaccuracy of the information.
## Footnote
This refers to protections for contractors regarding claims based on inaccurate government records.
47
What happens if an assignee of the claimant fails to provide the contractor with written notice and opportunity to inspect before repairs?
The contractor is not liable for costs of repairs or damages caused by those repairs.
## Footnote
This emphasizes the importance of communication and procedure in construction defect claims.
48
To maintain a claim of breach of warranty of habitability, what must a claimant establish regarding the construction defect?
1. The defect was latent at the time the residence was completed or title was conveyed.
2. The defect has rendered the residence unsuitable for its intended use as a home.
49
What is the liability for a party who files a groundless suit under the Texas Property Code § 27.0031?
The party is liable to the defendant for reasonable and necessary attorney's fees and court costs.
50
What must a claimant do before initiating action for damages arising from a construction defect?
Give written notice by certified mail to the contractor specifying the construction defects in reasonable detail.
## Footnote
This is part of the requirements outlined in Section 27.004.
51
What is the timeframe within which a contractor can make a written offer of settlement after receiving notice?
Not later than the 60th day after receiving the notice.
52
What must a contractor's settlement offer include?
1. Agreement to repair or have repaired any construction defect.
2. Description of the repairs and estimated time for completion if more than 60 days.
53
What is the consequence if a claimant rejects a reasonable settlement offer?
The claimant may not recover an amount in excess of the fair market value of the contractor's last offer or reasonable monetary settlement.
## Footnote
This encourages claimants to consider settlement offers seriously.
54
What types of economic damages may a claimant recover in an action subject to this chapter?
1. Reasonable cost of repairs.
2. Cost for replacement or repair of damaged goods.
3. Engineering and consulting fees.
4. Temporary housing expenses.
5. Reduction in current market value post-repair.
6. Attorney's fees.
7. Arbitration filing fees.
55
What happens if a contractor fails to make a reasonable settlement offer?
The limitations on damages provided for in subsection (e) shall not apply.
56
Fill in the blank: A contractor who receives written notice of a construction defect must take reasonable steps to ______ as soon as practicable.
[cure the defect]
57
What must a notice and response letter prescribed by this chapter be sent by?
Certified mail, return receipt requested.
58
What may happen if a contractor is prejudiced in their opportunity to inspect or make an offer?
The court or arbitration tribunal may order that an offer made by the contractor after the prescribed time is considered timely.
59
What is required if a contractor refuses to initiate repairs under an accepted offer?
The limitations on damages provided in this section shall not apply.
60
What is the effective date of the Acts 2023, 88th Leg., ch. 291?
May 29, 2023
61
According to O'Connor's annotations, what does §27.004(g) allow a plaintiff to recover?
Attorney and expert fees as damages in an action arising from a construction defect
62
True or False: §27.004(g) provides an independent basis for recovering attorney and expert fees.
False
63
What does the RCLA require a claimant to do before filing suit for a construction defect?
Give the contractor written notice of the defect 60 days before filing suit
64
What happens if a claimant fails to provide notice pursuant to §27.004(a)?
The action must be abated for 60 days
65
In Martin v. Cottonwood Creek Constr., LLC, what issue was addressed regarding counterclaims?
The procedures for abatement and settlement under the RCLA
66
What is the purpose of the notice requirement in the RCLA?
To encourage pre-suit negotiations to avoid litigation expenses
67
What is the maximum amount for which a claimant can file a motion to compel mediation under §27.0041?
Greater than $7,500
68
Fill in the blank: The court shall order mediation of the dispute not later than the ______ day after the date a motion is filed.
30th
69
What does §27.0042 allow a contractor to elect if repair costs exceed an agreed percentage of the fair market value?
To purchase the residence instead of paying specified damages
70
In what year was the RCLA amended to state that it does not create a cause of action?
1999
71
What must a claimant prove in an action to recover damages resulting from a construction defect according to §27.006?
The defect existed at completion and damages were proximately caused by the defect
72
According to §27.005, what does the chapter not do?
Create a cause of action or derivative liability or extend a limitations period
73
What is required of each party during mediation under §27.0041?
Participate in mediation and contribute equally to the cost
74
True or False: A written agreement between a contractor and a homeowner can specify conditions for a conditional sale.
True
75
What are the consequences if a claimant does not file a controverting affidavit before the 11th day after a verified plea in abatement?
The suit is automatically abated without court order
76
What does §27.004(g) limit in a construction defect case?
The damages recoverable under existing causes of action
77
What are the damages recoverable by a homeowner if a contractor elects to purchase the residence?
* Attorney's and expert fees
* Reimbursement for permanent improvements
* Reasonable costs to move
78
Fill in the blank: If a settlement offer is made regarding additional defects, claimants must notify the contractor in writing and in ______ detail why they consider the offer unreasonable.
reasonable
79
What does the court do if the parties cannot agree on the appointment of a mediator?
The court shall appoint the mediator
80
What does a conditional sale to a builder require from the homeowner when the contractor elects to purchase?
Tender a special warranty deed free of all liens
81
What is the significance of §27.004(a) in the context of construction defect claims?
It requires notice before suit, and failure to comply leads to abatement
82
What must a claimant prove in an action to recover damages from a construction defect?
The construction defect existed at the time of completion and the damages were proximately caused by the construction defect.
83
What is the required notice in a written contract according to V.T.C.A., Property Code § 27.007?
The notice must inform that the contract is subject to Chapter 27 of the Texas Property Code and describe the construction defect.
84
True or False: A claimant can recover a civil penalty of $500 if a contract does not contain the required notice.
True
85
What is the effect of submitting an action to arbitration according to V.T.C.A., Property Code § 27.008?
It has the same effect on the running of a limitations period as a filing in a court.
86
What is the status of an attempted waiver of the provisions of Chapter 27 in a contract?
An attempted waiver is void.
87
Fill in the blank: The notice required by Chapter 27 of the Texas Property Code must be provided by _______ to the contractor.
certified mail, return receipt requested
88
What is the time frame within which a claimant must provide notice to the contractor before filing a lawsuit?
Not later than the 60th day before the date of filing.
89
What must the notice to the contractor refer to according to V.T.C.A., Property Code § 27.007?
Chapter 27 of the Texas Property Code.
90
What happens if the construction defect has not been corrected as required by law or contract?
The claimant must provide the required notice to the contractor.
91
What is the effect of the amendments made by Acts 2023 to the Texas Property Code regarding construction liability?
It includes changes to the requirements for disclosure statements and arbitration effects.
92
What are construction payments classified as under Texas Property Code § 162.001?
Trust funds if made to a contractor or subcontractor for specific real property improvements
93
What are loan receipts classified as under Texas Property Code § 162.001?
Trust funds if borrowed for improving specific real property and secured by a lien
94
When is a fee payable to a contractor not considered a trust fund?
If there is a written construction contract specifying payment terms before construction starts
95
According to Texas Property Code § 162.002, who is considered a trustee of trust funds?
A contractor, subcontractor, owner, or their officers, directors, or agents who receive or control trust funds
96
Who are the beneficiaries of trust funds under Texas Property Code § 162.003?
Artisans, laborers, mechanics, contractors, subcontractors, materialmen, and property owners in residential contracts
97
Fill in the blank: Construction payments are considered _______ under Texas Property Code § 162.001.
trust funds
98
True or False: A contractor's fee is always considered a trust fund under the Texas Property Code.
False
99
What does Texas Property Code § 162.003 state about the beneficiaries of trust funds?
They include those who labor or furnish materials for the construction or repair of specific real property
100
According to Texas Property Code § 162.001, what must be true for funds borrowed by a contractor to be considered trust funds?
The funds must be secured by a lien on the property being improved
101
What is the purpose of the Texas Construction Trust Fund Act?
To protect laborers and materialmen
102
According to the Texas Property Code, what happens if a construction company misappropriates trust funds?
They may face legal penalties for misapplication of funds
103
Fill in the blank: Trust funds under Texas Property Code are intended to benefit _______.
artisans, laborers, mechanics, contractors, subcontractors, or materialmen
104
What is the significance of the relationship between the contractor and the property owner in terms of trust funds?
The contractor acts as a trustee for the funds received under the contract
105
What does Texas Property Code § 162.002 state about the liability of officers or directors regarding trust funds?
They are personally liable if they have control or direction over the funds
106
True or False: The Texas Construction Trust Fund Act allows for recovery of attorney's fees.
False
107
What does the term 'misapplication of trust funds' refer to?
Using trust funds for purposes other than those specified in the construction contract
108
According to Texas Property Code § 162.003, who qualifies as a beneficiary under a residential construction contract?
The property owner and those who labor or furnish materials for the construction
109
Fill in the blank: Trust funds are not considered the property of a debtor who is a _______.
trustee
110
Who is considered a beneficiary of trust funds in connection with construction improvements?
A mechanic, contractor, subcontractor, or materialman who furnishes labor or material for the construction or repair of an improvement on specific real property, or their qualified assignee under Section 162.0031.
## Footnote
This definition includes any individual or entity involved in the construction process that contributes labor or materials.
111
What is the role of a property owner in relation to trust funds for residential construction contracts?
A property owner is a beneficiary of trust funds described by Section 162.001 in connection with a residential construction contract, including funds deposited into a construction account described by Section 162.006.
## Footnote
This highlights the property owner's rights regarding funds allocated for construction.
112
What are the requirements for enforcing an assignment of a beneficiary’s interest in unpaid trust funds?
The assignment must be:
* Made in writing after the assignee has paid the beneficiary in good and sufficient funds
* Not part of the beneficiary's construction contract
* Made to a beneficiary, trustee, or property owner under the contract
* Notified to the property owner and contractor within seven days of the assignment.
## Footnote
This ensures that all parties are informed and that the assignment is legitimate.
113
Which entities are exempt from the application of Chapter 162?
The chapter does not apply to:
* Banks
* Savings and loan institutions
* Title companies or other closing agents
* Corporate sureties issuing payment bonds.
## Footnote
This outlines the limitations of the statute's applicability.
114
What does 'intent to defraud' mean in the context of a trustee's actions?
A trustee acts with 'intent to defraud' when they:
* Retain, use, disburse, or divert trust funds to deprive beneficiaries
* Fail to maintain a required construction account
* Use funds paid in reliance on a false affidavit.
## Footnote
This definition is critical for understanding legal implications regarding the misuse of trust funds.
115
Define 'construction account' as per the Texas Property Code.
A construction account is an account in a financial institution into which only trust funds and funds necessary to pay charges imposed by the financial institution may be maintained.
## Footnote
This ensures that funds are properly allocated and protected for construction purposes.
116
What must a contractor do when entering a contract for residential improvements exceeding $5,000?
The contractor must deposit trust funds into a construction account in a financial institution, and the account must be referred to as a 'construction account' in the periodic statements.
## Footnote
This requirement is designed to safeguard the funds for specific construction projects.
117
What records must a contractor maintain for a construction account?
The contractor must maintain records that include:
* Source and amount of funds in the account and deposit dates
* Date and amount of each disbursement and recipient
* Current balance of the account.
## Footnote
This documentation is essential for accountability and transparency in managing trust funds.
118
What actions constitute misapplication of trust funds by a trustee?
Misapplication occurs when a trustee knowingly retains, uses, disburses, or diverts trust funds without fully paying all current or past due obligations to beneficiaries.
## Footnote
This is a serious violation that can lead to legal consequences.
119
True or False: The Texas Trust Act applies to any trust created under Chapter 162.
False.
## Footnote
Chapter 162 explicitly states that the Texas Trust Act does not apply to trusts created under this chapter.
120
Fill in the blank: A contractor must retain all invoices and documentation for disbursed funds for _______.
one year after the completion of the improvement.
## Footnote
This retention period is crucial for legal compliance and financial audits.
121
What must a trustee do with trust funds that are not paid to beneficiaries?
The trustee may use them for actual expenses related to construction or repair, retain them after notifying the beneficiary, or retain as required by Chapter 53.
122
What is an affirmative defense for a trustee under Subsection (a)?
The trustee paid all beneficiaries the trust funds they are entitled to within 30 days of receiving written notice of a criminal complaint.
123
Does commingling trust funds with other funds defeat a trust created by this chapter?
No, commingling does not defeat the trust.
124
What is the penalty for a trustee who misapplies trust funds amounting to $500 or more?
It is a Class A misdemeanor.
125
What constitutes a felony of the third degree regarding the misapplication of trust funds?
Misapplying trust funds of $500 or more with intent to defraud.
126
What is required of a trustee regarding the establishment of a construction account?
The trustee must establish and maintain a construction account.
127
What happens if a trustee fails to maintain a construction account record?
It constitutes a Class A misdemeanor.
128
True or False: A trustee can simultaneously be a beneficiary of the trust.
False.
129
What is the essential element of establishing personal liability as a trustee?
The ability to retain, use, disburse, or divert trust funds without fully paying current and past due obligations.
130
Fill in the blank: The Texas Construction Trust Fund Act provides that a contractor can be held criminally liable if it misapplies trust funds by _______.
[disbursing or diverting trust funds without first fully paying all current or past due obligations]
131
What must a trustee justify when making payments to themselves?
Payments must be for actual expenses directly related to construction.
132
What can happen if trust funds are knowingly used for expenses not related to construction?
Criminal sanctions can be imposed.
133
What does §162.031(b) provide as a defense?
It acts as a defense to claims of misapplication of funds held in trust for beneficiaries.
134
What must claimants prove to establish civil liability for misapplication of trust funds?
They must prove a breach of duty, requisite scienter, and that they are within the protected class.
135
What is the significance of the term 'current or past due obligations' in the context of trust fund disbursement?
It indicates that funds must be paid to beneficiaries before being used for other purposes.
136
What is the legal basis for prosecuting a trustee for misapplication of trust funds?
If the misapplication constitutes another offense under state law, the state may elect that offense for prosecution.
137
True or False: Injunctive relief is available for the kind of trust created by the Texas Construction Trust Fund Statute.
False.
138
What does the Texas Construction Trust Fund Act aim to protect?
It aims to protect subcontractors.
TBLS - CONSTRUCTION LAW
flashcards
Decks in class (15)
# Cards
-
Contracts56
-
Industry Regulation & Licensing52
-
Mechanics Lien & Related239
-
Surety26
-
Insurance122
-
Warranty26
-
Consumer Protections138
-
Causes of Action, Defenses & Damages28
-
Soverign and Governmental Immunity20
-
Dispute Resolution23
-
Torts & Accidents20
-
Judgment Collection & Enforcement16
-
Ethics14
-
Misc.19
-
Prompt Payment128
