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Texas Lien Laws – Changes effective 1/1/2022

BICA HB 2237 Update

In the regular session of the 2021 Texas Legislature, passed Senate Bill HB 2237, which makes
substantial changes to the Texas Property Code as it applies to mechanics’ and materialmens’
liens. These changes will take effect for contracts entered into on or after January 1, 2022.
Some of these changes will affect how to perfect claims on private (non-governmental)
construction projects in Texas and when and in what form your claim notices must be sent.
Below is an outline of the changes. All references to specific sections of the revised statute are
to sections in Texas Property Code, Chapter 53.


Definitional Sections Clarified and Amended:

A number of the definitions provided in Section 53.001 have been amended and new definitions
have been added. Please refer to the full text of the Bill attached for the full list. A few of the
more significant changes are as follows.


Architect and Engineer Lien Rights Expanded via the Definition of Labor:

The definition of “labor” under Section 53.001 (3) is expanded to include professional services
“in the direct preparation of a design, drawing, plan, plat, survey or specification.” The
definition or “persons entitled to lien” Section 53.021 (c) related to architects, engineers or
surveyors, is modified to delete the requirement that such persons preparing plans, plats, surveys
or specifications have a contract directly with the owner in order to have a lien.


New Definition of Purported Original Contractor:


“Purported original contractor” is now defined in Section 53.001 (7-a) as “an original contractor
that either (1) can effectively control the owner or is effectively controlled by the owner through
common ownership of voting stock or ownership interests, interlocking directorships, common
management, or otherwise or (2) was engaged by the owner for the construction or repair of
improvements without a good faith intention of the parties that the purported original contractor
was to perform under the contract. In this definition, “owner” does not include a person who has
or claims a security interest only.” This new definition, essentially, replaces the old sham
contractor section at Section 53.026. Section 53.026 (a) is revised to simply state: “A person
who labors or furnishes labor or materials under a direct contractual relationship with a purported
original contractor is considered to be an original contractor for purposes of perfecting a
mechanic’s lien.”


Definition of “Residence” Clarified:


The definition of “Residence” is now revised slightly to be: “a single family house, duplex,
triplex, or quadruplex or a unit in a multiunit structure used for residential purposes in which title

to the individual units is transferred to the owners under a condominium or cooperative system
that is:

(A) owned by one or more adult persons; and
(B) used or intended to be used as a dwelling by one of the owners.”

The italicized text is added in the new statute.


Counting of Days for Notice is Clarified to Allow for Weekends and Holidays:

A new subsection, 53.003 (e), provides that, “[i]n computing the period of days in which to
provide a notice or to take any action required under this chapter, if the last day of the period is a
Saturday, Sunday, or legal holiday, the period is extended to include the next day that is not a
Saturday, Sunday, or legal holiday.”

Landscapers and Other Site Improvement Contractor’s Lien Rights Expanded:

Section 53.021 (d), now (4), relating to landscaping and other site improvements, is modified to
delete the requirement for a written contract with the owner and now includes demolition of an
improvement on real property.


Deadlines to File an Affidavit of Lien are Clarified (sort of):


Section 53.052 is modified to eliminate the needlessly confusing “accrual of indebtedness”
trigger for filing of the affidavit of lien. The new section simply states the deadlines as follows:


(a) An original contractor claiming the lien must file an affidavit with the county clerk:


(1)  for projects other than residential construction projects, not later than the 15th
day of the fourth month after the month in which the original contractor’s work
was completed, terminated, or abandoned; or
(2)  for residential construction projects, not later than the 15th day of the third
month after the month in which the original contractor’s work was completed,
terminated, or abandoned.


(b)  Except as provided by Subsection (c) or (d), a claimant other than an original
contractor claiming the lien must file an affidavit with the county clerk not later than the
15th day of the fourth month after the later of:


(1)  the month the claimant last provided labor or materials; or
(2)  the month the claimant would normally have been required to deliver the last
of specially fabricated materials that have not been actually delivered.


(c)  A claimant other than an original contractor claiming a lien arising from a residential
construction project must file an affidavit with the county clerk not later than the 15th
day of the third [calendar] month after the later of:

(1)  the month the claimant last provided labor or materials; or
(2)  the month the claimant would normally have been required to deliver the last
of specially fabricated materials that have not been actually delivered.


(d)  A claimant other than an original contractor claiming a lien for retainage must file an
affidavit with the county clerk not later than the 15th day of the third month after the
month in which the original contract under which the claimant performed was completed,
terminated, or abandoned. *


(e)  An affidavit under this chapter must be filed in the county where the improvements
are located.

*BUT, Property Code Section 53.103, discussed below, says a claimant has a lien on the
reserved (formerly “retained”) funds if the claimant sends the required notices (under Section
53.057) and “except as allowed by Section 53.057 (new (d), old (f)), files an affidavit claiming a
lien not later than the 30th day after the earliest of the date:

(A) the work is completed;
(B) the original contract is terminated; or
(C) the original contractor abandons performance under the original
contract.

Apparently, there was a last-minute disagreement between the primary authors of the
amendments as to whether to “officially” clarify whether a lien could be filed for retainage
allowed in Section 53.052, the 15 th of the third month after completion, termination or
abandonment of the prime contract, OR not later than 30 days after completion, termination or
abandonment of the prime contract as under Section 53.057. So, they left both provisions in the
statute, preserving an apparent conflict.


What should you do? Where the owner has held back retainage (now called reserved funds) as
required in Section 53.101, the owner will likely not be held liable to pay again funds released
before receipt of a notice of a claim. Thus, claimants are cautioned to treat the deadline for filing
a retainage lien as on or before 30 days after the earlier of the date the contract is completed,
terminated, or abandoned, under Section 53.057 (d) or (f), and always preceded (a-1) and (a-2)
by a notice of retainage as required under Section 53.057 (discussed below). If claimants miss
the 30 days after completion deadline, an argument can be made that the lien is still valid as long
as filed within the deadline set in section 53.052.


Notices for Non-Residential Construction:


The “second month” and “third month” notices for subcontractors and sub-subcontractors
required under Section 53.056 are now consolidated into a single third month notice. The notice
now must be sent to the owner and general contractor by the same 15 th day of the third month
deadline, regardless of whether the claimant has a contract directly with the prime contractor or
with a subcontractor and this notice must be sent by the fifteenth day of the third month
following each month in which labor or material is furnished.

For residential construction, the timing of the notice is unchanged, keeping in mind that, some
years back, the notices from first tier and lower tier claimants on residential projects were
combined in a similar fashion, requiring the notices for first tier subcontractors and those lower
in the chain to all be given by the 15 th of the second month after labor or materials were provided.
The new law now requires a particular form of the notice to be given under both Section 53.056
(notice of derivative claimant) and 53.057 (notice of contractual retainage). These required
forms are attached.


Note that the notices no longer must be sent only by certified mail but may also be sent using any
other form of traceable, private delivery or mailing service that can confirm proof of receipt.
Specially Fabricated Items:


The current statute provides additional lien right to persons that provide specially
fabricated materials through additional notice provisions in Section 53.058. These persons 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 their contract is
with a person other than the original contractor, they 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. The claimant must also give fund trapping notices if
delivery has been made or if the normal delivery time has passed.


Since the lien of a claimant who accepts an order for specially fabricated materials but
fails to give notice under this section is valid as to delivered items, if you have given a proper
fund trapping notice, the implication is that a lien will be valid for items not delivered if a
claimant providing specially fabricated material has complied with the notice requirements of
this section.


The Amendment repeals Section 53.058 and revises the notice provisions under Section
53.056 to include specially fabricated materials. Section 53.021, defining persons who have a
lien, is revised to state that a person who specially fabricates materials has a lien even if the
material is not delivered. The deadline to send notice for specially fabricated materials is now
the 15th of the third month after month in which the specially fabricated materials would have
“normally been delivered.” The deadline to file a lien for specially fabricated materials under
the Amendment under Section 53.052 is the 15th of the fourth month after the later of the month
the claimant last provided labor or materials or the month the claimant would normally have
been required to deliver the last of specially fabricated materials that have not been actually
delivered.


Notices for Residential Construction:

Similar changes are made to Subchapter K of Chapter 53, dealing with residential construction.
As you may recall, a “residential construction project” is defined as “a project for the
construction or repair of a new or existing residence, including improvements appurtenant to the
residence, as provided by a residential construction contract.” As noted above, the definition of
“Residence” has now been modified to include condominium structures.


A new subsection (2) is added under Section 53.056 for the deadline for notice of a claim on
residential construction to replace similar language in the existing statute as follows:

(2) for residential construction projects, not later than the 15th day of the second month
following the month during which the labor or materials were provided or the
undelivered specially fabricated materials would normally have been delivered;


Note that the form for the notice on residential work is the same as that prescribed for non-
residential claims. The separate notice provisions under Subchapter K for residential lien
notices, Sections 53.252 and 53.253 have been deleted and replaced with the residential notice
deadline noted above under Section 53.056.


New Prescribed Form for a Retainage Notice:


As with the notices for progress payment claims, there is a new prescribed form for a notice of a
retainage claim. Section 53.057, which deals with the timing and content of the retainage notices
is revised to include the required form and the deadlines for sending the notice are revised as
follows:

(a)  To the extent that a claim for unpaid retainage is not included wholly or partly in a
notice provided under Section 53.056, a claimant other than an original contractor whose
contract provides for retainage must give notice under this section for a lien for unpaid
retainage to be valid.
(a-1) The claimant must send the notice of claim for unpaid retainage to the owner or
reputed owner and the original contractor not later than the earlier of:


(1)  the 30th day after the date the claimant’s contract is completed, terminated, or
abandoned; or
(2)  the 30th day after the date the original contract is terminated or abandoned.


Retainage Notice (Now called the “Reserved Funds):


The retainage notice provision is changed and there is now also a prescribed form for the notice
for retainage. See Sec. 53.057 (a-1) in the attached. Notably, the new law substitutes the term
“reserved fund” for “retained fund.” Supposedly, this change is to eliminate the confusion
between the “retainage” as a contractual amount that a contract allows to remain unpaid to the
prime contractor, subcontractors or suppliers, and the actual pool of funds required to be held in

the owner’s hands until thirty days after completion under Section 53.101. Those funds in the
owner’s hands are now called “reserved funds.”


Changes to the Affidavit of Completion:


Property Code Sections 53.106(a), (b) and (d), dealing with filing an Affidavit of Completion,
are modified as follows. Subsection (a)(6) is modified to remove the statement that “a claimant
may not have a lien on retained funds unless the claimant files an affidavit claiming a lien not
later than the 40th day after the date the work under the original contract is completed” to “a
claimant may not have a lien on retained funds unless the claimant files an affidavit claiming a
lien in the time and manner required by this chapter.” This is significant because the deadlines
for filing a retainage lien remain confusing under the new revisions. As noted above, under
revised Section 53.052 (d), a lien for retainage must be filed “not later than the 15th day of the
third month after the month in which the original contract under which the claimant performed
was completed, terminated, or abandoned.” Section 53.103 says a claimant has a lien on the
reserved (formerly “retained”) funds if the claimant sends the required notices AND (2) “except
as allowed by Section 53.057(new (d), old (f)), files an affidavit claiming a lien not later than the
30th day after the earliest of the date:

(A) the work is completed;
(B) the original contract is terminated; or
(C) the original contractor abandons performance under the original
contract.

See notes above suggesting you treat the deadline to file the lien as the shorter of the two, i.e.
before the expiration of 30 days after the prime contract is completed, terminated, or abandoned.


Notary no Longer Required for Lien Waivers:


The new law removes the requirement that the statutory conditional and unconditional lien
waivers under Section 53.281(b) be notarized to be effective. While this will simplify things for
contractors and subcontractors, owners should be mindful that, in the absence of a notarized
sworn statement in connection with the bills paid statement, it is likely that personal liability for
false claims in the bills paid language of the form will attach under Section 53.085. Section
53.085 makes false statements in a bills paid “affidavit” actionable against the party making such
statements for both civil and criminal liability. Without a notarized “sworn statement,” the bills
paid language in the statutory release forms is not an “affidavit” under Section 53.085 and
would, apparently, not then carry the liability provided for in that section.


Statute of Limitations on Foreclosure Changed:


Under the revised statute, the deadline for filing suit to foreclose on a mechanics lien for non-
residential projects is changed to one year from the last day a lien could be timely filed under
Section 53.052. This now matches the deadline to file the lien for a claim on a residential
project. The deadline to file the lien under Section 53.052 for non-residential projects was
previously defined as the 15th of the fourth month after the month in which the “indebtedness
accrues” which was defined separately for contractors and subcontractors under Section 53.053.

Section 53.053 is now deleted, and the deadline stated in Sectioin 53.052 is now simply the
“15th day of the third month after the month in which the original contractor’s work was
completed, terminated, or abandoned.”


The one year limitation period to file suit can be extended to “not later than the second
anniversary of the date the claimant filed the lien affidavit under Section 53.052 if, before the
expiration of the limitations period by written agreement between the claimant and the owner of
the property.” The agreement must be recorded in the property records in the county where the
property is located.


The Right to Request Information:


Section 53.159 has been revised to simplify a party’s right to request a property description, the
existence of a payment bond and other particulars related to security interests. As before, the
information requested is to be provided not later than 10 days after the request. However, gone
are the particular informational requirements to be provided by a contractor or subcontractor
under deleted sections (b), (d), (e), and (f).


While the revisions are intended to clarify the process for perfecting a mechanics lien in Texas,
the end result does not make much headway in that regard. In the end, it is still important to get
notices out and on time, and as of January 1, 2022, on a new form required by the Texas Property
Code.

Previously a licensed architect, Steven E. Kennedy has three decades of construction law experience and recently was among the first group of Texas attorneys to receive board certification in construction law. The author wishes to thank Andrea Parisi of the Building Industry Credit Association for the opportunity to contribute this article to BICA’s new website. Mr. Kennedy can be contacted at skennedy@mcslaw.com.

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