Construction Fraud

Construction fraud happens frequently. Homeowners and businesses alike can find themselves victims when builders, contractors, or suppliers misuse project funds, falsify records, or engage in deceptive billing practices. In Texas, construction fraud can quickly escalate into complex legal issues, resulting in serious financial damage if not addressed immediately.

We represent clients across Texas dealing with construction fraud involving misuse of construction funds, false payment claims, fraudulent liens, deceptive trade practices, and intentional misrepresentations regarding the scope of work or project timelines. Each of these scenarios has distinct legal implications, but they all require quick action and strategic responses to limit financial harm and protect your interests.

The Texas Trust Fund Statute specifically requires contractors and builders to use project funds received from property owners to pay subcontractors, laborers, and material suppliers. When contractors violate this law by diverting funds for personal use, unrelated projects, or overhead expenses, it constitutes fraud and may even result in criminal penalties. We regularly assist clients in holding contractors accountable under this statute, ensuring funds are properly accounted for, and aggressively pursuing recovery when they are not.

Fraudulent liens are another common issue. Contractors, subcontractors, or suppliers sometimes file mechanic’s liens on properties even when they know no valid claim exists. These liens are typically used to coerce payment or apply improper leverage during negotiations. Under Texas law, filing a fraudulent lien can lead to significant penalties, including liability for damages, attorney’s fees, and in some cases, statutory penalties or punitive damages. Our firm quickly assesses lien validity, takes steps to remove invalid or fraudulent liens, and aggressively pursues compensation for damages caused by improper filings.

Deceptive billing practices frequently occur in construction as well. These can include billing for work never performed, materials never purchased, or inflating invoices beyond agreed-upon amounts. Often these practices remain unnoticed until after substantial payments have been made, causing significant losses for property owners or general contractors. Our approach involves detailed accounting review, thorough documentation analysis, and, when necessary, retaining experts to expose fraudulent billing schemes clearly.

Misrepresentations in contracts can also constitute construction fraud. Builders or contractors might promise certain materials, timelines, or specifications without any intent or capability of meeting those commitments. When these misrepresentations induce property owners to enter into contracts or approve change orders, they may constitute fraud actionable under Texas law, including claims under the Deceptive Trade Practices Act (DTPA).

Construction fraud, encompassing everything from misused funds and fraudulent liens to deceptive billing and contractual misrepresentations, poses a significant threat to homeowners and businesses in Texas. Prompt and strategic legal intervention is essential to mitigate financial damage and protect your interests. Our firm is dedicated to aggressively pursuing justice for victims of construction fraud, leveraging our expertise to uncover deceit, enforce accountability, and secure rightful recovery.

Case Law Highlights – Construction Fraud

Texas law offers strong remedies when contractors or builders engage in fraud but success often turns on the facts, the paperwork, and how early legal intervention occurs. These key Texas cases demonstrate how courts interpret fraudulent conduct in construction, from false promises to financial deception.

Dudley  Construction,  Ltd.  v.  ACT  Pipe  &  Supply,  Inc., 545 S.W.3d 532  (Tex.  2018)

A pipe supplier sued the general contractor for unpaid invoices and misapplication of trust funds under the Texas Construction Trust Fund Act. The Texas Supreme Court held that the contractor’s receipt of owner payments conclusively created a trust and that the jury’s zero‑damage finding could not stand, but wiped out the supplier’s attorney‑fee award, ruling that neither the Trust Fund Act nor CPRC § 38.001 authorizes fees on a TCTFA claim.

The case puts contractors on notice that diverting project funds can trigger personal liability, yet trust‑fund plaintiffs must finance their own fee bill.

Miller v. Argumaniz, 479 S.W.3d 306 (Tex. App.—El Paso 2015)

In this case, the Texas Court of Appeals affirmed a fraud judgment against Russell D. Miller for failing to transfer property as promised, awarding past economic damages. The court found sufficient evidence for the fraud claim based on the property owner’s valuation.

However, it reversed the awards for past and future lost profits related to a breach of fiduciary duty, citing insufficient evidence of profit-generating activity. The ruling underscores the importance of clear evidence in claims of lost profits and highlights the separation of fraud claims from contractual obligations.

Green Int’l, Inc. v. Solis, 951 S.W.2d 384 (Tex. 1997)

In the case of Green International, Inc. v. Solis, the Supreme Court of Texas addressed issues related to representations made during construction negotiations and their impact on subcontractor payment expectations. The court found that Solis, the subcontractor, did not produce sufficient evidence to support a claim of fraud against Green International, the general contractor. Solis had alleged that he signed the Woodville Subcontract based on Green’s representation that payments due on the Snyder and Dayton Projects would be made.

However, the court determined that Solis failed to provide evidence that Green’s representation was false or that Green did not intend to pay at the time the promise was made. Consequently, the court ruled that the trial court did not err in refusing to submit a jury issue on fraud, as the evidence did not support such a claim.