Construction fraud in Texas refers to any dishonest or unlawful conduct by builders, contractors, or tradespeople that results in financial loss or damages to property owners. Although Texas law doesn’t provide a specific definition for the crime of “construction fraud,” prosecutors commonly use the following statutes to pursue criminal charges:
- Theft Statutes (Texas Penal Code Section 31.03), which includes embezzlement
- Statutes on Misapplication of Fiduciary Property (Texas Penal Code Section 32.45)
- Fraud-Related Provisions under Tort Law
In serious cases, such as those involving vulnerable individuals or large sums, criminal actors may also be charged with elder exploitation or insurance fraud. Examples of fraudulent activity might include accepting payment without completing work, using poor-quality materials that result in construction defects, lying about licensing or project deadlines, or manipulating insurance claims.
In addition to criminal charges, construction fraud may also be addressed through civil law. On the civil side, homeowners can turn to the Texas Residential Construction Liability Act (Property Code Section 27.001 et seq.), which requires notice and a chance for the contractor to inspect or fix issues before legal action is taken.
Homeowners may also sue a contractor under the Deceptive Trade Practices Act (Business and Commerce Code Section 17.41 et seq.), which targets false advertising and misleading conduct in business dealings.
It is important to note that if you suspect construction fraud, contacting law enforcement or your county’s district attorney should be your first step. Many of those agencies have units focused on financial and contractor-related crimes. However, if you have suffered financial harm, you should also consider setting up a legal consultation in Texas with a Texas lawyer familiar with handling contractor fraud cases.
What Is Fraud?
In Texas, the term fraud refers to when someone intentionally deceives another person to gain an unfair advantage, often resulting in financial or personal harm. In order to succeed in a fraud case, the plaintiff (i.e., the person that was allegedly harmed) must prove several key legal elements that establish both the deception and the resulting injury.
The essential elements of fraud in Texas include:
- False representation of a material fact: The defendant must have made a statement that was untrue and significant to the decision at hand
- Knowledge of falsity or reckless disregard: The defendant must have known the statement was false or acted without caring whether it was true
- Intent to induce reliance: The defendant must have intended for the plaintiff to rely on the false statement
- Justifiable reliance: The plaintiff must have reasonably relied on the misrepresentation
- Resulting damages: The plaintiff must have suffered actual harm or financial loss due to that reliance
Is Criminal Fraud the Same as Contract Fraud?
No, criminal fraud and contract fraud in Texas are distinct legal concepts. Criminal fraud involves intentional deception for unlawful gain and is prosecuted by the state under the Texas Penal Code, such as Theft (Section 31.03) or Forgery (Section 32.21).
Both of these offenses require proof of criminal intent and are punishable by fines, imprisonment, or both. The state must prove beyond a reasonable doubt that the defendant knowingly engaged in fraudulent conduct beyond a reasonable doubt.
Contract fraud, on the other hand, is a civil matter typically pursued by private parties. Contract fraud arises when one party makes false representations or promises to induce another into a contract, and the injured party suffers damages as a result.
Under Texas common law, the plaintiff must prove elements like misrepresentation, intent to deceive, reliance, and harm. In some cases, statutory fraud under Texas Business & Commerce Code Section 27.01 may apply, especially in real estate or stock transactions. Unlike criminal fraud, civil fraud focuses more on compensating the victim rather than punishing the wrongdoer.
How To File a Criminal Charge Against a Contractor in Texas
If you want to pursue criminal charges against a contractor in Texas, the first step is to report any suspected misconduct to your local police or district attorney. Criminal prosecution is appropriate when a contractor intentionally misleads a client.
For example, by taking payment without ever planning to do the work. Prosecutors may then pursue the case under laws like Theft (Texas Penal Code Section 31.03) or Misapplication of Fiduciary Property (Texas Penal Code Section 32.45).
What Are Some Types of Claims for Contractor Fraud Cases?
In Texas, various legal claims may arise in cases of contractor fraud, depending on how the misconduct actually occurred. One of the most common types of contractor fraud cases is fraudulent misrepresentation, which applies when a contractor knowingly makes false statements to influence a homeowner’s decisions.
Another is fraudulent inducement, where misleading promises are used to get someone to sign a contract. If real estate is involved, statutory fraud may be pursued under Texas Business & Commerce Code Section 27.01, especially for deceptive statements related to property transactions.
Other possible claims include negligent misrepresentation, when inaccurate information causes harm even if it wasn’t intended to deceive, and breach of contract, which applies when the contractor fails to deliver on agreed terms.
In certain cases, homeowners might also bring a claim for constructive fraud, which focuses on the abuse of a position of trust, even without clear intent to defraud. These civil actions are meant to recover losses such as repair expenses, diminished property value, or out-of-pocket costs caused by the fraudulent conduct.
Who Can Commit Construction Fraud?
Construction fraud in Texas can be committed by a wide range of individuals involved in a building project, including general contractors, subcontractors, suppliers, engineers, architects, or even the property owners themselves.
As noted above, fraud can take many forms and may occur at any point, from planning and bidding phase to construction and final review. Typical misconduct includes dishonest billing practices, misrepresenting credentials or experience, using poor quality materials, or providing false project details.
In short, anyone who fails to uphold their obligation to act honestly and ethically during the project may face civil lawsuits or criminal charges under laws such as Texas Penal Code Section 31.03 (Theft) or Section 32.45 (Misapplication of Fiduciary Property).
What Should I Do To Prevent Construction Fraud?
In order to reduce the risk of construction fraud in Texas, you should begin by carefully researching potential contractors. For instance, you should check references, validate credentials, and confirm active insurance policies.
It is important to get everything in writing, including labor details, materials, costs, deadlines, and warranties, to set clear expectations. You should also avoid paying large amounts up front, and instead use installment payments tied to verified progress.
It is also important to maintain organized records of all contracts, receipts, and communications, and stay actively involved in monitoring the project to ensure transparency and accountability throughout the build.
Can Settlements and Agreements Be Reached in Texas Contractor Fraud Cases?
In Texas, contractor fraud cases can often be resolved through mutual agreements or negotiated settlements, especially when both sides prefer to avoid the expense and uncertainty of a courtroom battle. These arrangements may take place before or after a lawsuit is filed and can include repayment for damages, termination of contracts, or other customized terms.
Civil claims such as misrepresentation, breach of contract, or statutory fraud under Texas Business & Commerce Code Section 27.01 often serve as the foundation for these settlements. Agreements may also feature confidentiality provisions or structured payment options, and are usually documented in a formal written contract that is signed by all parties.
Should I Contact a Texas Lawyer About Construction Fraud?
If you suspect construction fraud in Texas, or if you have been financially harmed as a result of construction fraud, then it is recommended to immediately consult with an experienced Texas construction lawyer.
LegalMatch can assist you with setting up a consultation with a construction attorney near you who handles cases involving deceptive billing, unfinished work, misrepresentation, or other similar issues.
As can be seen, these cases often involve complex legal issues. An experienced attorney can help you understand your rights, gather evidence, and pursue compensation through negotiation or litigation. They can also represent you at any in person hearing, as needed.
