Trust Construction Actions: What Are They?

Home » Knowledge » Trust Construction Actions: What Are They?

Do you know many contractors, subcontractors, artisans, or construction workers, in general, have sometimes gone unpaid in time past? Other times, the property owner suffers mismanagement of funds earmarked for a particular work. With this chaos in place, the Construction Trust Fund Act, Construction Trust Funds, and the Trust Construction Actions became necessary to protect contractors and job owners.

To understand the Construction Trust Fund Actions as a contractor or job owner, you need to understand some terms below.

What are Trust Construction Actions?

These are actions taken based on the Construction Trust Fund Statute concerning misapplying or other associated issues to Construction Trust Fund between the general contractor and other sub-construction workers. It might include seeking guidance in court or even going against a contractor in court. What then is Construction Trust Fund?

What is a Construction Trust Fund?

Construction trust funds are payments made to a contractor, subcontractor, agent, director, or an officer to perform a construction contract or improve a specified real property.

Construction Trust Funds are also loans borrowed by a contractor, subcontractor, agent, director, or officer for a contractor, subcontractor, or owner to perform a construction contract or the improvement of specified real property and gotten in part or whole by a lien on the property.


Who are the Parties of a Trust Construction Action?

  • Trustee – Under the Construction Trust Fund Act

A trustee is a contractor, subcontractor, owner, agent, director, or owner who controls or looks after a trust fund. At times, the term ‘trustee’ is interchanged with a successor trustee, and while both act in the same capacity, the main difference is the timeline of acting as a trustee.

  • Beneficiary – Under the Construction Trust Fund Act

A beneficiary in this context is someone who labors or furnishes labor or material for the repair or construction of an improvement on specific real property is a beneficiary of paid or received trust fund in connection with the improvement of this property.

The beneficiary in this context can be an artisan, a contractor or subcontractor, a laborer, a material supplier, a mechanic, or even a property owner.

In the case of a property owner, this is for a resident construction contract and includes funds deposited into a construction account.

Now let’s talk about the Construction Trust Fund Act and its actions

What are the Construction Trust Fund Act and its Actions?

The construction Trust Fund act is a statute enacted to guide against the nonpayment of the agreed fund to contractors, subcontractors, or material suppliers that have rendered quality and acceptable services to a contractor or project owner.  The statute or act ensures that the project owner or the general contractor does not withhold the payment for unjust reasons or use the fund to pay off a different job.

Some common reasons why the contractor might choose to withhold these funds are:

  • To pay an outstanding debt incurred from other projects
  • Uncertainty of when the contractor with be paid
  • The uncertainty of the duration before his/her next job
  • Poor performance
  • The funds were utilized in footing other construction costs of the same construction project.

While the latter two might be easily asserted by the constructor or project owner, there are chances of winning the case. The first three are under a misapplication of funds, and the Construction Trust Fund statute protects you against that.

The Construction Trust fund Statute varies across several states but has a common goal. It attaches trust to funds paid to a general contractor and earmarked for a particular construction project for the benefit of all the sub-workers.

The general contractor places these funds in a fiduciary capacity to ensure all the workers and materials sellers get their entitlement and is not spent on illegitimate cost.

Subcontractors can take action for the nonpayment of a trust fund by pursuing criminal charges for the intent of fraud or making claims against the contractor in civil court. However, an individual needs a district attorney to pursue criminal claims.

What are Other Relevant Things to Consider concerning the Construction Trust Fund and Actions

In some states the Construction Trust Fund statute is limited to private projects, and residential projects might have additional requirements.

For instance, the Construction Fund Trust Statute says that if a written contract or trust instrument with a project owner over a property improvement worth more than $5,000, the funds should be deposited into a construction account owned by a financial institution.

The contractor has to provide the source, amount, and date of fund deposit. Also, the date, amount of each disbursement, and to whom while also stating the account balance.

The contractor must also adhere to some strict regulations when managing the construction account. This includes the following;

  • Retention of all invoices and supplementing support documents received concerning disbursed funds from the construction account
  • Proper documentation of all deposits and disbursement, including the account or information that shows a direct link between the account and documentation
  • The contractor must not destroy any information required to maintain the construction account and contract ahead of the first anniversary of the improvement date for the contract completion.

There are other binding laws but varies across states, and a failure to comply would be intent of fraud.

Construction Trust Fund and Bankruptcy

In case when the Contractor has not paid the Construction Trust Fund and eventually declares bankruptcy. Section 541(d) of the Bankruptcy Code exempts the trust fund from the bankruptcy estate, hence ensuring the subcontractor and other workers or sellers get their funds. Also, parties to whom the contractor is indebted will not have access to the trust fund.

Conclusively, it is imperative property owners and contractors, subcontractors, material suppliers, and other construction workers in the construction work chain know the Construction Trust Fund Statute tenable in their state. This will assist all parties to comply with the necessary statute, understanding their obligations, trust construction actions to take, and penalties for noncompliance.