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Filing a Mechanic’s Lien in Texas
Mechanics’ liens are a common tool used by contractors and subcontractors to ensure they are paid for their work on private construction projects. As public property is not generally subject to a mechanics lien, a bond claim is typically required for collection of accounts due on public works projects. For claims on public works projects, see “Perfecting Bond Claims, State and Federal.” [insert link]
The notice and filing requirements for mechanics’ liens in Texas vary, depending on whether the project is commercial or residential, and have additional requirements if the residential construction is also a homestead. If you’re working on a construction project in Texas, it’s important to note these requirements right from the start of your work. The following outline applies to private work in Texas and will help guide you through the various forms and deadlines.
Who Can File a Lien
Understanding if you’re eligible to file a lien in Texas is your first step. Texas has a broad definition of who can file a mechanics’ lien, which includes the following:
Labor or materials
Custom fabricated materials
Design services, if you are a professional architect, engineer or surveyor, and have a written agreement with the owner
Note, however, that there are some differences in the rights and remedies of architects, engineers, surveyors, landscapers, and demolition contractors. For those types of claimants, the priority of lien claims against others is determined by when the lien was filed, as compared to all other liens that stand on an equal footing with their inception date being the commencement of construction.
No pre-lien notice is required of a general contractor in Texas. For everyone else, sending lien notices is required and is somewhat complicated in Texas. What you need to send and when you need to send it is dependent on your relationship with the project as well as the type of project it is. The various types of notices and the deadlines for those notices is outlined below. The most important thing to remember is that failing to send your notice – or notices – on time and in the proper form will likely result in you forfeiting your right to recover through a mechanics’ lien against the project. Links to the required notices, and other forms discussed below, are provided at the end of this outline.
Subcontractors and Suppliers – Notices of Claim – First Tier
If you are a subcontractor or supplier and have a contract directly with the original contractor (first tier subcontractor or supplier), you must give the owner written notice of the unpaid claim by the fifteenth day of the third calendar month (second month for residential construction) following each month in which labor was performed or material delivered for which you have not been paid. These notices must be sent certified mail, return receipt requested, and must contain the following information:
If this claim remains unpaid, you may be personally liable and your property may be subjected to a lien unless you withhold payments from the contractor for payment of the claim or the claim is otherwise paid or settled.
This notice, sometimes referred to as a fund trapping notice, third month notice, or notice of intent to lien, is not only required in order to perfect the claim, but it requires the owner to withhold funds in excess of the ten percent retainage required by statute. This is particularly important since the statutory ten percent retainage is rarely enough to cover claims against a general contractor who has defaulted.
Once notice is given, the time for filing the lien is calculated the same as with a general contractor, i.e., by the fifteenth day of the fourth calendar month after accrual of indebtedness. As with an original contractor, lower tier claimants’ notice of the lien must be mailed to the owner by certified mail, return receipt requested, no later than the fifth day after the date the person files the affidavit.
Caution: If the claim is to include a “lien on retained funds” commonly known as “retainage,” a separate notice is required, the deadline for which is “not later than the earlier of”:
The notice of retainage must generally state the existence of a requirement for retainage in an agreement and contain a name and address of the claimant and, if the agreement is with a subcontractor, the name and address of the subcontractor.
In case of a termination of the general contractor, there appears to be a “catch 22” on this retainage notice. The claimant gets a pass on the retainage notice if the prime contract is terminated or abandoned and the owner has not sent the subcontractor a notice of the termination under Texas Property Code §53.107(d). But, Texas Property Code §53.107(a)(1) requires the Owner to send this notice only if he has a §53.057 retainage notice first. So, it seems that, where a termination is in play the two notice requirements may cancel each other out. As far as the author knows, as of this posting, there are no legal case decisions in Texas discussing this issue.
If your agreement for retainage is with a subcontractor, you must also give notice of the retainage claim to the original contractor within the same deadline.
Additional Notices Required – Second Tier and Below Subcontractors and Suppliers – Those Not Having a Contract With the Original Contractor
If you do not have a contract with the original contractor, you must also give written notice via certified mail, return receipt requested, to the original contractor not later than the fifteenth day of the second calendar month following each month in which all or part of the labor or material was provided to the project. In addition, the same fund trapping notice as described in the previous section must be given to the owner by the fifteenth day of the third calendar month (“third month” notice) as required for those having a contract directly with the original contractor. The second month notice is not required on residential construction because the deadline for the third month notice is moved up a month.
Notice for Specially Fabricated Items
The Texas Property Code provides additional lien right to persons that provide specially fabricated materials. For this type of claim, you must give the owner notice not later than the fifteenth day of the second month after the month in which you receive and accept an order for the specially fabricated materials. If your contract is with a person other than the original contractor, you must also give notice within that same time to the original contractor.
The notice must contain a statement that the order has been received and accepted and the price of the order. This notice must be sent by registered or certified mail, return receipt requested, to the last known business address or residence address of the owner or reputed owner and/or the original contractor as applicable.
IMPORTANT: In addition to the notice required by this section, the claimant must also give fund trapping notices (the Third Month Notices) if delivery has been made or if the normal delivery time has passed.
Subcontractor Claims on Residential Construction
Residential Construction, for purposes of the Texas mechanics’ lien laws, includes homestead properties, but also includes any property of 4 residential units or less for which the owner intends to occupy one of the units as a primary residence. For residential construction, the deadline for sending the fund trapping, or third month, notice discussed above, is the 15th day of the second month following each month in which all or part of the labor or material was provided for which the claimant has not been paid. As with non-residential projects, this notice must state in substance: “If the claim remains unpaid, the owner may be personally liable and the owner’s property may be subjected to a lien unless: (1) the owner withholds payment from the contractor for payment of the claims; or (2) the claim is otherwise paid or settled.”
On a residential homestead, the notice must contain additional language that “conspicuously” states:
IF A SUBCONTRACTOR OR SUPPLIER WHO FURNISHES MATERIALS OR PERFORMS LABOR FOR CONSTRUCTION OF IMPROVEMENTS ON YOUR PROPERTY IS NOT PAID, YOUR PROPERTY MAY BE SUBJECT TO A LIEN FOR THE UNPAID AMOUNT IF:
(1) AFTER RECEIVING NOTICE OF THE UNPAID CLAIM FROM THE CLAIMANT, YOU FAIL TO WITHHOLD PAYMENT TO YOUR CONTRACTOR THAT IS SUFFICIENT TO COVER THE UNPAID CLAIM UNTIL THE DISPUTE IS RESOLVED; OR
(2) DURING CONSTRUCTION AND FOR 30 DAYS AFTER COMPLETION OF CONSTRUCTION, YOU FAIL TO RETAIN 10 PERCENT OF THE CONTRACT PRICE OR 10 PERCENT OF THE VALUE OF THE WORK PERFORMED BY YOUR CONTRACTOR.
IF YOU HAVE COMPLIED WITH THE LAW REGARDING THE 10 PERCENT RETAINAGE AND YOU HAVE WITHHELD PAYMENT TO THE CONTRACTOR SUFFICIENT TO COVER ANY WRITTEN NOTICE OF CLAIM AND HAVE PAID THAT AMOUNT, IF ANY, TO THE CLAIMANT, ANY LIEN CLAIM FILED ON YOUR PROPERTY BY A SUBCONTRACTOR OR SUPPLIER, OTHER THAN A PERSON WHO CONTRACTED DIRECTLY WITH YOU, WILL NOT BE A VALID LIEN ON YOUR PROPERTY. IN ADDITION, EXCEPT FOR THE REQUIRED 10 PERCENT RETAINAGE, YOU ARE NOT LIABLE TO A SUBCONTRACTOR OR SUPPLIER FOR ANY AMOUNT PAID TO YOUR CONTRACTOR BEFORE YOU RECEIVED WRITTEN NOTICE OF THE CLAIM.
Additional Requirements for a Contract for Homestead Properties to be Subject to a Lien
In order to have a valid mechanics’ and materialmans’ lien on a homestead in Texas, there must be a written contract between the original contractor and owner, signed by both spouses (if property is owned by a married coupled) and filed with the county clerk prior to any work being done on the homestead. Under Section 41.007 of the Texas Property Code, a contract for home improvements must contain the following warning conspicuously printed, stamped or typed in an equal size to at least a ten point bold type or computer equivalent next to the owner’s signature line on each document creating a lien.
IMPORTANT NOTICE: YOU AND YOUR CONTRACTOR ARE RESPONSIBLE FOR MEETING THE TERMS AND CONDITIONS OF THIS CONTRACT. IF YOU SIGN THIS CONTRACT AND YOU FAIL TO MEET THE TERMS AND CONDITIONS OF THIS CONTRACT, YOU MAY LOSE YOUR LEGAL OWNERSHIP RIGHTS IN YOUR HOME. KNOW YOUR RIGHTS AND DUTIES UNDER THE LAW.
A lien on a homestead is valid only if the claimant strictly complies with the requirements of Chapter 53 of the Property Code and any other relevant constitutional or statutory provisions.
The lien affidavit for homestead property must contain the following notice conspicuously printed, stamped, or typed in a size equal to at least ten point boldface or computer equivalent at the top of the page: “Notice: THIS IS NOT A LIEN. THIS IS ONLY AN AFFIDAVIT CLAIMING A LIEN.”
The Lien Affidavit Requirements (All Claimants)
For all types of private construction, whether commercial or residential in nature, the lien affidavit must contain substantially the following:
(1) a sworn statement of the amount of the claim;
(2) the name and last known address of the owner or reputed owner;
(3) a general statement of the kind of work done and materials furnished by the claimant and for a claimant other than an original contractor, a statement of each month in which the work was done and materials furnished for which payment is requested;
(4) the name and last known address of the person by whom the claimant was employed or to whom the claimant furnished the materials or labor;
(5) the name and last known address of the original contractor;
(6) a description, legally sufficient for identification, of the property sought to be charged with the lien;
(7) the claimant’s name, mailing address, and, if different, physical address; and
(8) for a claimant other than an original contractor, a statement identifying the date each notice of the claim was sent to the owner and the method by which the notice was sent.
The affidavit is not required to state individual items of work done or material furnished and the statute allows the use of abbreviations or symbols customarily used in the trade. However, claimants are advised to be careful to provide a meaningful description of the general type of work or material supplied and to not use abbreviations and symbols that are not commonly recognized in the trade or by a judge that may be reviewing your lien affidavit if its adequacy is contested. Note also the additional requirements for residential construction outlined above.
Of critical importance to the affidavit is the requirement of a “sworn statement.” The signature line on the affidavit must include the notary’s statement that the affidavit was “subscribed and sworn to” not just “acknowledged” to be true and correct.
Filing Deadlines and Notice of Lien
On non-residential projects, the claimant must file the lien affidavit with the County Clerk in the county where the property is located by the fifteenth day of the fourth calendar month after the “indebtedness accrues.” Indebtedness to an original contractor accrues either on the last day of the month in which either party terminates the contract in writing or on the last day of the month in which the original contract is completed, finally settled, or abandoned. Indebtedness accrues to a subcontractor or supplier of any tier on the last day of the month in which the last of the labor or material was furnished. For residential construction, the deadline is the 15th of the third calendar month after the indebtedness accrues.
Notice of the filed affidavit must be sent to the owner or reputed owner at the owner’s last known business or residence address within five (5) calendar days after the affidavit is filed.
Special Deadlines for Filing a Lien for Retainage
The deadline for filing the lien for retainage is “not later than the earliest of”:
When drafting the lien affidavit, you may wish to call the county recorder where the lien is to be filed to confirm whether it has special requirements, such as margin and paper sizes, that must be followed and to inquire as to whether and how electronic filing is permitted.
Liens on Leaseholds
For those providing improvements to tenants, it is very important to know that lien rights may be limited with regard to improvements to a leasehold. If the original contract is with a tenant, then the lien rights of any claimant is likely limited to a claim against the leasehold interest of the tenant.
Payment or Enforcement
The last step depends on what happens next. Many liens are resolved without further action. If, however, filing has not resulted in payment, it is time to consider enforcement. A suit must be brought to foreclose the lien within two years after the date of filing of the lien affidavit (one year or residential construction) or within one year after completion of the work under the original contract under which the lien is claimed, whichever is later.
Private Bond Claims
Although the primary mechanism for protecting lien rights on private property is the ten percent (10%) retainage requirement and fund trapping provisions found in subchapters D and E of the Texas Property Code, outlined above, private payment bonds are available and are often required by owners on private work. If a valid bond is recorded with the county clerk as required under Texas Property Code §53.203, the claimant may not file suit against the owner or the owner’s property and the owner is relieved of its liability for most lien claims.
A private property bond must be in a penal sum at least equal to the total of the original contract amount, be written in favor of the owner, with the written approval of the owner endorsed on the bond. The bond must also be executed by the original contractor as principal and a corporate surety authorized and admitted to do business in the State of Texas and licensed by the state to execute bonds as surety. Finally, the bond must be conditioned on prompt payment for all labor, subcontracts, materials, specially fabricated materials, and normal and usual extras not exceeding fifteen percent (15%) of the contract price. Once filed with the county records as required under Texas Property Code §53.203, a purchaser, lender or other person acquiring an interest in the property, is entitled to rely on the record of the bond and the contract as constituting payment of all claims as each claimant had filed a complete release and relinquishment of lien rights.
Perfection of a Private Bond Claim
A claim can be perfected on a payment bond in one of two ways. First, the claimant may perfect a lien claim under the notice procedures outlined above for a lien claim or, in addition to providing the original contractor any applicable notices required under the Texas Property Code, give to the surety on the bond, instead of the owner, all notices otherwise required to be given to the owner required for a lien claim.
If the owner receives any notices for a lien attempted to be perfected on the property, the owner is required to mail the surety a copy of those notices. Failure, however, of the owner to send copies of notices to the surety does not relieve the surety of any liability under the bond if the claimant has complied with the requirements for notice to the owner and the contractor.
A claimant on a statutory private payment bond need not give notice of a retainage claim unless the claimant has a direct contractual relationship with the original contractor and the agreed retainage is in excess of ten percent (10%) of the contract.
Limitation Period for Suit on a Private Payment Bond
A claimant must wait at least sixty (60) days after perfection of the claim on a payment bond for suit. Once the sixty (60) days has passed, suit must be brought in the county in which the property being improved is located. If the bond is recorded at the time the lien is filed, the claimant must sue on the bond within one year following perfection of his claim. If the bond is not recorded at the time the lien is filed, the claimant must sue on the bond within two years following perfection of his claim.
Partial and Final Lien Releases
In 2011, the Texas Legislature created an entirely new Subchapter L in Chapter 53 of the Texas Property Code that provides mandatory forms for lien waivers and release of lien and bond claims commonly used in the industry. The new Property Code §§53.281 and 53.282 are relatively straight-forward, simply stating that a lien release will not be effective unless one of the mandatory forms is used, and any provision in a contract requiring something different is unenforceable. The concept is fairly simple, there are forms for conditional release of lien (when payment is not yet made) and unconditional release of lien (when payment has been made). The two types are provided for both partial and final payment. Unfortunately, the new lien waiver forms are not a model of clarity. As with many legal forms, unclear instructions for how and why to fill out a particular form can lead to further confusion. In all of the four mandatory forms, there is a blank provided in the first paragraph after the phrase “to the following extent,” then the words “job description.” The statute does not provide any explanation for why the job description is to be inserted here.
You should note that the new lien waiver forms are not suitable for release of an affidavit of lien that has been filed of record. Such a release would need to include a property description and, if possible, the recording information for the filed lien that is being released.
There are exceptions to the mandatory use of these new release forms. The new forms are not required for a written agreement to subordinate, release, waive, or satisfy all or part of a lien or bond claim in:
(1) an accord and satisfaction of an identified dispute;
(2) an agreement concerning an action pending in any court or arbitration proceeding; or
(3) an agreement that is executed after an affidavit claiming the lien has been filed or the bond claim has been made.
Finally, the statute provides: “Notwithstanding any other law and except as provided by [Tex. Prop. Code ] §53.282, any contract, agreement, or understanding purporting to waive the right to file or enforce any lien or claim created under this chapter is void as against public policy.” This is important because of past practices of upstream parties insisting on an unconditional lien release as a condition for payment.
As can be seen from the above, Texas laws regarding liens are somewhat complex, requiring claimants in Texas to pay special attention to notice and filing requirements. This extra attention to the statutory requirements and deadlines can mean the difference between retaining the right to lien or forfeiting an important tool for enforcing your right to payment.
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