AN ACT Relating to the proceeds of construction loans; and adding a new chapter to Title 61 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Owner" means the record holder of the legal or beneficial title to the real property to be improved or developed.

(2) "Interim or construction financing" means that portion of money secured by a mortgage, deed of trust, or other encumbrance to finance or improvements of, or to real property, but does not include:

(a) Funds to acquire real property;

(b) Funds to pay interest, insurance premiums, lease deposits, taxes, assessments, or prior encumbrances;

(d) Funds to pay other customary fees, which under the agreement with the owner or borrower are to be paid by the lender from time to time; or

(e) Funds to acquire personal property for which the potential lien claimant may not claim a lien under this chapter.

(3) "Prime contractor" includes all contractors, general contractors, and specialty contractors, as defined by RCW 18.27.010 who contract directly with a property owner or common law agent to assume primary responsibility for the improvement to real property, and includes property owners or their authorized representatives who are contractors, general contractors, or specialty contractors as defined in RCW 18.27.010 who offer to sell their property without occupying or using the structures, projects, developments, or improvements for more than one year.

(4) "Subcontractor" means a general contractor or specialty contractor as defined by RCW 18.27.010 who contracts for the improvement of real property with someone other than the owner of the property.

(5) "Contract" means an agreement, express or implied, between an owner, owner's agent, or construction agent and another person for the improvement of the owner's real property including the furnishing of materials, equipment, or professional services.

(6) "Construction agent" means any registered or licensed contractor, registered or licensed subcontractor, architect, engineer, or other person having charge of improvements to real property, who shall be deemed the agent of the owner for the limited purpose of establishing the lien created by this chapter.

(7) "Undisputed amount" means an amount owed on a contract for which there is no good faith dispute, including retainage withheld.

(8) "Improvement" means: (a) Constructing, altering, repairing, remodeling, demolishing, clearing, grading, or filling in, of, to, or upon any real property or street or road in front of or adjoining the same; (b) planting of trees, vines, shrubs, plants, hedges, or lawns on any real property; and (c) professional services.

(9) "Professional services" means surveying, establishing, or marking the boundaries of, preparing maps, plans, or specifications for, or inspecting, testing, or otherwise performing any other architectural or engineering services for the improvement of real property.

NEW SECTION. Sec. 2. Interim or construction financing proceeds received by an owner or contractor, or money received by a prime contractor or a subcontractor in connection with improvement of real property shall be held in trust by the owner, prime contractor, or subcontractor as trustee, for the benefit of persons furnishing labor, materials, equipment, or professional services in connection with the improvement.

NEW SECTION. Sec. 3. Nothing in this chapter shall be construed to require funds held in trust, as prescribed under section 2 of this act in a separate account or to prohibit commingling money held in that trust with other funds. Commingling of trust funds, by itself, does not constitute a violation of this chapter.

NEW SECTION. Sec. 4. (1) Any officer, director, or employee of any owner, prime contractor, or subcontractor, who, with intent to defraud, retains or uses money held in trust, or any part thereof, under section 2 of this act, for any purpose other than to pay those persons furnishing labor, materials, equipment, or professional services for whom the money is held in trust, shall be personally liable to any person damaged and the retention or use of the money shall constitute a per se violation of chapter 19.86 RCW.

(2) The use by an owner, prime contractor, or subcontractor, or any officer, director, or employee thereof of any funds held in trust under section 2 of this act for any purpose other than to pay those persons for whom the funds are held in trust, shall be prima facie evidence of intent to defraud in a civil action.

NEW SECTION. Sec. 5. (1) Any person, who fully performs under a contract, shall be entitled prompt payment of undisputed amounts as provided by this section:

(a) If the contract is with an owner or the owner's agent and no specific dates or times for payment are specified in the contract, payment shall be made within the earlier of thirty days after the owner or owner's agent takes possession or thirty days after the occupancy permit or temporary occupancy permit is granted. If the contract provides for specific dates or times for payment, payment shall be made within seven days of the date or time specified.

(b) If the contract is not with an owner or owner's agent, payment of undisputed amounts shall be made within seven days after receipt of the payment by the prime contractor or subcontractor from which payment to its subcontractor is to be appropriately made.

(c) Failure of owners, contractors, and subcontractors to make prompt payments of undisputed amounts within twenty-one days shall result in a late payment penalty amounting to one percent of the contract amount for each additional day late. Unless otherwise ordered by a court of competent jurisdiction, the late payment penalty will be limited to fifteen percent of the contract amount.

(2) (a) In addition to any other remedy under any other provision of law, a court of competent jurisdiction, for good cause shown, may award any equitable relief for prompt payment of undisputed amounts that it considers necessary, including the enjoining of further violations; and in any action, award to the prevailing party:

(i) Interest from the date the court determines that the amount owed was due; and

(ii) Any reasonable costs incurred.

(b) If a court determines that an owner, contractor, or subcontractor has acted in bad faith by failing to pay any undisputed amounts owed, the court may award to the prevailing party reasonable attorneys' fees.

NEW SECTION. Sec. 6. Sections 1 through 5 of this act shall constitute a new chapter in Title 61 RCW.