Legal Question in Construction Law in Texas

Builder Over-budget and Time on Fixed-Price Contract

In October of last year we entered into a construction loan with builder with finish date of April 4, 2004. Construction is still underway to this date at a snail's pace. He has already received all of the draw money from the mortgage company although we asked the mortgage company to release a portion of it to us b/c he had not finished the work. Instead they released all of the money to him and our loan has converted to permanent mortgage without our home being finished. Our builder met with us last week and told us he is out of money without finishing the project and without paying all of the subs. He told us if we were patient he would finish it as he got money from draws on other homes. This is very scary to me and I'm not sure what our course of action should be. What are our rights as far as him not finished on time? What can we do if we have paid him and he hasn't paid the subs? Is the mortgage company responsible for releasing the money to him without our approval? Also since he is out of money he has resorted to doing some of the work himself which he is neither good at or qualified to do. What rights do we have to have qualified professionals completing the work. Thank you for you advice in advance.


Asked on 7/19/04, 3:55 pm

2 Answers from Attorneys
Peter Bradie Bradie, Bradie & Bradie

Re: Builder Over-budget and Time on Fixed-Price Contract

There isn't much you can do at this stage, other than putting more money into the project and hiring contractors to properly complete the work. Then you can sue your original contractor, for what that may be worth, to recoup some of your costs.

It may be worthwhile to sit down with an attorney and go over the original contracts to see whether the mortgage company was negligent in releasing the later draws. I don't really expect that they are; rather, they followed the contract that everyone agreed to.

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Answered on 7/19/04, 4:29 pm
Charles White Charles G. White

Re: Builder Over-budget and Time on Fixed-Price Contract

Your builder has violated Chapter 162 of the Texas Property Code. This chapter makes a builder a ficudiary over funds which he receives from the lender for construction. His failure to apply the funds toward payment of his subs is a criminal offense, a felony of the third degree if over $500.00. His suggestion to pay you from other jobs is further compounding his criminal activity. Your attorney cannot ethically threaten to have him prosecuted for failure to properly apply the funds. However, there is nothing to bar you from seeking prosecution. It is a defense if he pays up within 30 days of notice of filing of the complaint -- a very good persuasive device for getting something done.

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Answered on 7/19/04, 5:41 pm


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