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You most likely are well aware of the three most common legal remedies you can employ when payment is not made: instituting a legal claim for breach of contract; filing a mechanic's lien on private projects; and making a claim on a labor and material payment bond for public projects and bonded private projects. However, another—and potentially potent—remedy may be available: trust fund statutes.
Trust fund statutes have been enacted by state legislatures to ensure payments made on construction projects are used to pay the people and firms that provided labor and materials. At the same time, trust fund statutes also are intended to benefit building owners so compensation paid by an owner for a specific job will not be misused.
In states with trust fund statutes, money paid by a building owner to a general contractor is considered a trust fund, which must be held in trust for subcontractors and suppliers. When an owner pays a general contractor, the general contractor is considered the trustee and subcontractors and suppliers are beneficiaries of the trust. As the trustee, the general contractor cannot use a trust fund to reimburse himself or herself or pay for other jobs or any person until beneficiaries have been paid. Failure to abide by a trust fund statute can result in civil and, in some states, personal and criminal liability for the officers and representatives who diverted trust funds.