Bulletin: LA2011005

Dear Associates:  

During the 2010 Regular Legislative Session, Act 638 was passed which enacts La R.S. 9:4815 which is in effect now.  This statute requires that an owner must place retainage funds under a construction contract into an interest bearing escrow account. The law does not apply to a single or double family residence. It does apply to 3 and 4 family residences, to multi-family residences and to many types of commercial projects. The law specifically exempts 14 additional construction projects as set out below.

R.S.  9:4815 Escrow of funds due under contract; procedures

A. When, under the provisions of this Part, a contract in the amount of fifty thousand dollars or more is entered into between an owner and a contractor and if in accordance with the terms of such contract funds earned by the contractor are withheld as retainage by the owner from periodic payments due to the contractor then such funds shall be deposited by the owner into an interest bearing escrow account.  The provisions of this Section shall not apply to a contract for a single family residence or double family residence.  The provisions of this Section also shall not apply to a contract for the construction or improvement of the following types of industrial facilities that are, or will be, engaged in activities defined or classified under one or more of the following subsectors, industry groups, or industries of the 1997 North American Industry Classifications System (NAICS):

(1) 22111 electric power generation.

(2) 321 wood products manufacturing.

(3) 322 paper manufacturing.

(4) 324 petroleum and coal products manufacturing.

(5) 325 chemical manufacturing.

(6) 326 plastics and rubber products manufacturing.

(7) 331 primary metals manufacturing.

(8) 562211/562212 hazardous and solid waste landfills.

(9) 422710 bulk stations and materials.

(10) 486110 crude oil pipelines.

(11) 486910 refined petroleum products pipelines.

(12) 486210 natural gas pipelines.

(13) 486990 other pipelines.

(14) 211112 natural gas processing plants.

B. An escrow account under the provisions of this Section shall be located at a qualified financial institution and shall be under the control of an escrow agent.  The escrow account and escrow agent shall be selected by mutual agreement between the owner and the contractor.

What you need to know:  You could be asked to act as an escrow agent. If so, you should have an escrow agreement signed by the owner and the contractor and you.  Escrow activities are not part of our agency agreement and your actions as an escrow agent are independent of title insurance matters.  

C. pon completion of the work that is the subject of the contract, the funds, including any interest located in the escrow account shall be released from escrow under the following conditions:

(1) here are no existing claims by the owner, the whole amount shall be paid to the contractor within three business days upon receipt by the escrow agent of a written release signed by the contractor and the owner

(2) if here is a dispute between the owner and contractor and the contract does not provide for binding arbitration of such dispute:

(a)  Undisputed amounts shall be released by the escrow agent within three business days of receipt of a notarized request of the contractor

(b) Disputed amounts that are the subject of a judicial proceeding shall be released by the escrow agent within three business days of the receipt of a final order by the court. Upon receipt of the order of the court, the escrow agent shall pay the contractor or owner such amounts as are determined by the court.

(3) If there is a dispute between the owner and contractor and the contract provides for binding arbitration of such dispute, the following shall occur:

(a) Undisputed amounts shall be released by the escrow agent within three business days of receipt of a notarized request of the contractor.

(b) Disputed amounts that are the subject of binding arbitration under the contract shall be released by the escrow agent within three business days of the receipt of a final order by the arbitrator who has been selected by mutual agreement between the owner and the contractor.  Upon receipt of the order of the arbitrator, the escrow agent shall pay the contractor or owner such amounts as are determined by the arbitrator under the rules as defined in the contract between the owner and the contractor.

D. Receipt by the escrow agent or the qualified financial institution in which the escrow account is maintained of what purports to be a written release signed by the contractor and owner, or an order by a court or arbitrator, shall be a full release and discharge of the escrow agent for transfer of funds to the contractor. Neither the escrow agent nor the qualified financial institution in which the escrow account is maintained shall be held liable to any party based on any claim that the written release is unauthorized, forged, or otherwise fraudulent.

What you should know: To avoid liability under your escrow agreement you should not release funds unless the written release is signed by both the contractor and the owner, or by a court or arbitrator. 

E. Neither the escrow agent nor the qualified financial institution in which the escrow account is maintained pursuant to the provisions of this Section shall have any liability to the owner, contractor, or any other person when complying with the provisions of this Section.

Acts 2010, No. 638, §1.

Underwriting standard: When you have been provided with evidence, such as a full release of funds for retainage held in escrow, you may consider that all mechanic's liens have been satisfied and remove any general exception for such liens.  Filed liens must be separately released.
 
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