Why is Texas mechanic's and materialman's lien process so complicated?

The Texas lien process seems a little complicated, and it is.  Why do Texas contractors have to comply with notice and filing requirements and deadlines to perfect a lien?  The lien claim process was designed to protect property owners as well as contractors.  The requirements for Texas General Contractors who have made their agreement directly with the Owner of property are less onerous than the requirements on Subcontractors who have their agreements with the General Contractor.  The rationale behind the varying requirements and deadlines is that the Owner should be given the opportunity to protect his property.

It is the Owner’s responsibility to pay the General Contractor.  There is no doubt that the Owner will know if the General Contractor has not been paid and may ultimately claim a lien.  Accordingly, the process for a General Contractor to claim a lien is not very complicated.

On the other hand, it is not the Owner’s responsibility to pay Subcontractors.  It is the General Contractor’s responsibility to pay Subcontractors according to their contracts.  Without notice, the Owner may not ever know that a Subcontractor has been hired, what the terms of their agreement with the General Contractor are, and whether or not Subcontractors have been paid by the General Contractor.  Accordingly, Subcontractors in Texas are required to provide certain notices to the Owner in order to perfect their lien rights, which is where it can get complicated.

By Sarah Berry, attorney 

Check our blog next week for the next post on mechanic's and materialmen's liens.

Our firm regularly hosts what we like to call "Texas Lien & Bond Claim 101" workshops with small groups of contractors.  If you are interested in attending a workshop please contact Sarah Berry for more information.  Sarah@LPVLaw.com or (512) 472-2300.

How will perfecting a lien claim help me collect?

Why should you go through the trouble of perfecting a lien?  There are several reasons that going through the lien claim process may be beneficial to you and your business. 

As will be discussed in later blog posts, in most situations, contractors must send out notices of their unpaid claims very early on in the process.  This is helpful for several reasons.  For one, the notices must be sent within a few months after the labor and/or materials were provided to the project, and, consequently, you aren’t allowing your AR to become seriously delinquent.  Additionally, the notices serve as a reminder that your invoice has not been paid, and sometimes a reminder may be all it takes.  Some notices must also be sent to the Owner of the property.  Once the owner becomes aware that you as a subcontractor are not being paid by the General Contractor, the Owner may intervene with the General Contractor on your behalf or retain funds from the General Contractor for your benefit.  Furthermore, timely sending out the proper notices demonstrates that you understand the lien process and are a competent and professionally run business that will have no problem perfecting and enforcing your lien rights if necessary.

If sending the required notices does not result in payment, you have set yourself up to claim a lien on the property.  Perfecting a lien claim is beneficial from a legal and negotiation standpoint.  Legally, if you have followed the proper procedure and perfected your lien, you can file suit to foreclose on the lien if necessary.

From a negotiation standpoint, you have more power when you’ve perfected a lien.  If you have perfected your lien, it will be reflected in the real property records and will put third parties on notice.  This can be helpful in several situations.  For example, if the Owner of the property would like to refinance a loan on the property or sell the property to a third party, most lenders and third parties will require a release of lien from you before proceeding with the transaction.  This could mean that the Owner or the third party buyer may offer to pay you all or some portion of your claim to release the lien.  For new construction, continued financing may be contingent upon keeping the property lien free, and if your lien claim will make financing more difficult, you may be more likely to get paid.  Additionally, many property Owners will not release retainage until the General Contractor can provide lien releases and/or affidavits that all bills have been paid, which can motivate the General Contractor to pay Subcontractors.

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.

What is a lien under Texas law?

A lien is the legal claim of one person upon the property of another person to secure the payment of a debt or the satisfaction of an obligation.  In the case of mechanic’s liens, the lien is intended to secure payment for labor or materials supplied in improving, repairing or maintaining real property.

A lien may be provided for in a contract, the Texas Constitution, or by a statute.  Constitutional liens are provided for in Article 16 Section 37 of the Texas Constitution.  Statutory liens are provided for in Chapter 53 of the Texas Property Code.  The Constitution and Property Code provide similar protections to lien claimants; however, the two procedures are distinct and independent of one another.  A contractual lien is provided for in an agreement between the parties in which they agree that the contractor is secured by a right of foreclosure and sale.  Contractual liens are not discussed further in this series of blog postings.

The text of the Texas Constitution and Texas Property Code is provided online by the Texas Legislature and may be found at the following link: http://www.statutes.legis.state.tx.us/

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.

Texas Mechanic's & Material Liens / Texas Bond Claims

Texas lien and bond claim laws are more complicated and complex than those in many other states.  Contractors must comply with strict requirements and deadlines to perfect their lien or bond claim and protect their rights.  The series of articles to come is an overview of the Texas lien and bond claim process meant to assist contractors in understanding the requirements and deadlines that must be met to perfect their lien or bond claim.  However, due to the complexity of the process, I advise that contractors seek guidance from an attorney experienced with lien and bond claims until they become comfortable with the process.

Our firm regularly hosts what we like to call "Lien & Bond Claim 101" workshops with small groups of contractors.  If you are interested in attending a workshop please contact Sarah Berry for more information.  Sarah@LPVLaw.com or (512) 472-2300.

Holding On To Default Judgments in Texas

Creditors (and other plaintiffs) may find it harder to obtain and hold on to default judgments in the State of Texas. 

A recent study of appellate cases heard in the fourteen Texas Courts of Appeal during the Sept. 2010 to Aug. 2011 time frame found that appeals from “no answer” default judgments – in other words, cases where the defendant failed to enter an answer, the plaintiff obtained a default judgment, and the defendant filed a timely appeal from that default judgment – had a reversal rate of 77%.  So, approximately three out of every four default judgments was reversed and sent back down to the trial court for further action.

The reason for these reversals varied, as one would expect, but the primary basis appeared to be defects in personal service on the defendant/debtor.  The lesson for creditors: be extra careful when obtaining service of process on debtors if you want to increase your chances of holding on to the judgment. 

Source: Liberato & Rutter, “Reasons for Reversal in the Texas Courts of Appeal,” 48 Hous. L. Rev. 993 (2012).

By: Cynthia W. Veidt