Texas Mechanic's and Materialman's Liens and Bond Claims: Constitutional Liens and Sham Contracts

Constitutional Liens

In Texas, contractors may have a constitutional lien claim.  The Texas Constitution states as follows:

“Article 16 Section 37:  LIENS OF MECHANICS, ARTISANS, AND MATERIAL MEN. Mechanics, artisans and material men, of every class, shall have a lien upon the buildings and articles made or repaired by them for the value of their labor done thereon, or material furnished therefor; and the Legislature shall provide by law for the speedy and efficient enforcement of said liens.”

Constitutional liens benefit only original contractors, or those who have their contract directly with the owner of the property.  A constitutional lien arises automatically or is “self-executing”.  It is not necessary to send notices or file an affidavit of lien as with statutory liens.  However, the best practice is to go ahead and file an affidavit of lien even though it is not required to perfect the constitutional lien.  The affidavit of lien filed in the real property records provides notice of the lien to third parties.  For example, if a third party wishes to purchase the property upon which the contractor has a constitutional lien, the lien will transfer only if the third party had notice of the lien.  Filing an affidavit in the real property records provides this notice.

Sham Contracts

There are many more notice requirements for Subcontractors and Sub-Subcontractors than there are for General Contractors.  An Owner who understands this may attempt to use an alter ego as the General Contractor making it more difficult for workers and materials suppliers to make valid lien claims. 

A sham contract may exist when the Owner and General Contractor are essentially one and the same.  They may be operating under different names, but either the Owner or General Contractor can effectively control the other, for example, through ownership of voting stock, interlocking directorships, or otherwise.  For example, Company X is the Owner and Company Y is the General Contractor.  However, the President and members of each company are the same. 

If there is truly a “sham contract,” Subcontractors are considered to be in direct contractual relationship with the Owner and can claim a lien as a General Contractor.  This is beneficial to Subcontractors because, as previously noted, it is easier for General Contractors to claim a valid lien. 

Furthermore, when there is a sham contract, Subcontractors may be able to claim a constitutional lien as well.

By Sarah F. Berry, Attorney

If you are interested in attending a lien and bond claim workshop please contact Sarah Berry for more information.  Sarah@LPVLaw.com or (512) 472-2300.  Our next workshop is scheduled for November 2, 2012. 

 

Texas Lien & Bond Claim Seminar - November 2, 2012

We are hosting a Texas Lien & Bond Claim Seminar on November 2, 2012.  If you are interested in attending please contact Sarah Berry at (512) 472-2300 or Sarah@LPVLaw.com.

Flyer and Registration Form

Texas Mechanic's and Materialman's Liens and Bond Claims: Contractors and Claimants

The type of contractor or claimant you is an important factor in determining the correct procedures and deadlines in perfecting your lien or bond claim. 

There may be several different types and tiers of contractors involved on one project.  The Owner will contract with one or more General Contractors.  The General Contractors may contract out part of the work to or purchase materials from Subcontractors.  Then the Subcontractors may contract out part of that work to or purchase materials from Sub-Subcontractors.

General Contractor

The General Contractor (also sometimes referred to as the “Prime Contractor” on public works projects) has its contract directly with the Owner of the property.  Remember, if it is a public project, the Owner will be a governmental entity.  The General Contractor may also be referred to as the “Original Contractor” or “Prime Contractor.”  There may be more than one General Contractor.

Subcontractor (First Tier Claimants)

A Subcontractor has its contract with the General Contractor.  Subcontractors are also referred to as “First Tier Claimants.”  It is likely that there will be multiple Subcontractors hired for each project.  For example, the General Contractor may hire Subcontractor X for drywall services and Subcontractor Y for roofing services.

Sub-Subcontractor (Second Tier Claimants)

A Sub-Subcontractor has its contract with a Subcontractor.  Sub-subcontractors are also referred to as “Second Tier Claimants.”  It is likely that there will be multiple Sub-Subcontractors hired for each project as well.  For example, a Subcontractor may hire Sub-Subcontractor A for gutter installation services and Sub-Subcontractor B to supply materials.

By SarahF. Berry, Attorney

If you are interested in attending a lien and bond claim workshop please contact Sarah Berry for more information.  Sarah@LPVLaw.com or (512) 472-2300.  Our next workshop is scheduled for November 2, 2012. 

Texas Mechanic's & Materialmen's Liens and Bond Claims: TYPES OF PROJECTS

There are a few steps contractors should go through at the very beginning of the lien and bond claim process before any notices are sent.  Why?  Before you get started, you need to know the type of project, property and your status (as general contractor, subcontractor or sub-subcontractor).  These factors will establish whether you are following the lien claim or bond claim process and will largely determine the deadlines you must meet and the procedures to be followed to perfect your claim.

Private Property v. Public Property = Lien Claim v. Bond Claim

Private property is subject to a lien while public property is not. 

Accordingly, if property is owned privately, contractors should follow mechanic’s and materialman’s lien procedures. 

If property is public, contractors should follow bond claim procedures.

Private Projects = Lien Claim

Private projects are construction projects on property owned by individuals or companies, not owned by governmental entities.  Chapter 53 of the Texas Property Code addresses claims arising out of work on private projects / property.

                       

Private projects may be further classified as commercial, residential, or homestead.

Commercial Projects

Commercial projects are construction projects that do not involve residences.  Examples would include office buildings, restaurants, and warehouses.

Residential Projects

A residence is defined as a “single-family house, duplex, triplex, or quadruplex, or a unit in a multiunit structure used for residential purposes, that is owned by one or more adult persons and used, or intended to be used, as a dwelling by one of the owners.” 

A residential construction project is a project for the construction or repair of a new or existing residence, including improvements appurtenant to the residence.

Residential Homestead Projects

Generally, homestead property is property that an individual intends to use as his or her residence.  See Texas Property Code § 41.002 and article 16, section 51 of the Texas Constitution.

Texas Public Projects = Bond Claim

Public property is owned by governmental entities and public projects are those in which governmental entities make public works contracts.  In other words, the General Contractor has its contract with a governmental entity. 

Governmental entities include but are not limited to the following: a governmental or quasi-governmental authority authorized by state law to make a public work contract, the state, a county, or a municipality, a department, board, or agency of the state, and a school district or a subdivision of a school district.

Federal Public Projects = Miller Act

Federal projects are those projects on US government property or projects on behalf of the US government.  The Miller Act governs claims on federal public work projects

By Sarah F. Berry, Attorney

If you are interested in attending a lien and bond claim workshop please contact Sarah Berry for more information.  Sarah@LPVLaw.com or (512) 472-2300.

To what Texas property does a mechanic's and materialmen's lien attach?

A valid lien extends to the “house, building, fixtures, or improvements, the land reclaimed from overflow, or the railroad and all of its properties, and to each lot of land necessarily connected or reclaimed.”

In a city, town, or village, the lien extends to “each lot on which the house, building, or improvement is situated or on which the labor was performed.” 

For property outside of a city, town, or village, the lien extends to “not more than 50 acres on which the house, building, or improvement is situated or on which the labor was performed.” 

The lien does not extend to abutting sidewalks, streets, and utilities that are public property.  You cannot have a lien on public property.

Texas Property Code § 53.022

By Sarah F. Berry, Attorney  

If you are interested in attending a lien and bond claim workshop please contact Sarah Berry for more information.  Sarah@LPVLaw.com or (512) 472-2300.

Who can claim a Texas mechanic's and materialmen's lien?

Many different types of laborers and material suppliers are entitled to liens in Texas for labor and materials provided.   The Texas Property Code and Texas Constitution describe who may be entitled to liens. 

To be entitled to a lien, the claimant must have a contract with the Owner of the real property.  The contract can be made with an agent of the Owner such as a trustee, receiver, general contractor, or subcontractor. 

The contract must be in writing if:

         1.         the labor and materials were provided to a residential homestead project

         2.         an architect, engineer, or surveyor prepares a plan or plat

The following is a list of persons entitled to statutory liens under the Texas Property Code:

General Laborers & Material Suppliers …

… who labor, specially fabricate materials, and furnish labor or materials for construction or repair of:

1. a house, building, or improvement
2. a levee or embankment to be erected for the reclamation of overflow land along a river or creek
3. a railroad

Architects, Engineers & Surveyors …

… who prepare a plan or plat in connection with

1. the actual or proposed design, construction, or repair of improvements on real property
2. the location of the boundaries of real property

*** Must have contract in writing.

Landscapers & Others …

… who provide labor, plant material, or other supplies for the installation of landscaping for a house, building, or improvement.  This includes construction of a retention pond, retaining wall, berm irritation system, fountain, or other similar installation

Demolition … Persons who labor or furnish labor or materials for the demolition of a structure on real property.

“Mechanics, Artisans and Material Men, of every class”

The Texas Constitution states that “mechanics, artisans and material men, of every class” shall have lien rights.  Constitutional liens are discussed in detail later in this article.

By Sarah F. Berry, Attorney 

If you are interested in attending a Texas lien and bond claim workshop please contact Sarah Berry for more information.  Sarah@LPVLaw.com or (512) 472-2300.