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.

Collecting Judgments in Texas: Is it Easy or Difficult?

The answer is: difficult.

Many times I get asked, "I have this Texas judgment. So now what?"

Well, that is precisely the issue in Texas. Many collections lawyers will not talk about the collectability of a judgment before taking your retainer and starting the collections process. This may not be a big issue in some other states, but in Texas you really do have to know the difficulties our fine (cough) legislature has made collections in this state.

The only state in which I've worked with local counsel that has it harder than Texas lawyers in collections was the time I worked with a Florida lawyer on a domesticated Texas judgment. In Florida, as I understand it, you could (at that time, a few years ago) convert non-exempt assets into exempt assets so long as you transferred it to your homestead. Basically, if you prepay your mortgage with the money you owed someone else, that was protected. At least in Texas we consider that a fraudulent transfer.

So how is it otherwise difficult to collect a Texas judgment? Well, there are many procedural reasons why it is difficult to collect a judgment in Texas, too many to fully mention, but I'll try to give you a flavor.

First of all, Texas is one of the two most debtor friendly states in the union, particularly when it comes to exempt property. Texas in some cases has unlimited values in its exempt property, largely unheard of in other states.

Also, Texas requires fraudulent transfer actions as a separate lawsuit, and not as an ancillary proceeding in post judgment. This basically means that if the debtor moves his or her property to an insider, largely you have to sue and serve the debtor and the debtors transferee in a whole new lawsuit. That is always fun.

One of the most commonly referenced limitation in Texas law for collection against individuals is the infamous garnishment law in Texas. First, unless it is child support, you can't garnish wages. So in other states where you just notify the employer that you'd like certain moneys to be directed to you as creditor, in Texas this is actually illegal. Furthermore, in non-wage situations the garnishee is usually a bank...and guess what? Bank lobbies in Texas were apparently at one time (I'm guessing before 2008) pretty strong. Banks apparently got tired of having to incur legal expenses to answer for debtors that either currently or recently had bank accounts, so now the creditor, who is largely already out money due to the actions of the judgment debtor, may end up having to pay for the legal fees of the bank if they go wildcatting and drill a dry hole. So congratulations, you get to risk even more money than paying your lawyer, Ms. Creditor...you also may have to pay the bank lawyer's fees too. Oh, and there's almost no way, other than asking the debtor for statements (which they always gladly give, right?), to find out in advance what money is in the account due to privacy laws.

Oh, and if there is money in the bank account? Yeah, it might end up all going to the bank anyway, since their right of offset against their own loans gives them the opportunity to pay themselves first once you notify them that their debtor is in trouble.

Another challenge is in business entities. The legislative creation of Limited Liability Companies and other "partnership corporations" add a very real layer of complications to the judgment creditor. Texas law has not done a very good job of making single member LLC's veil piercable, in fact making it one of the most challenging things to do. Furthermore, often collection is restricted to "charging orders", which is really not much of an order at all. Basically, charging orders give you no power of control over the limited liability company assets...so no voting, no control...merely a right to be paid if and when there is a decision by the LLC to do a distribution. So, by all means, hold your breath for that to happen.

So what is a good creditor to do? Well, know these are limitations and factor them into your business practices. If you're doing business with a subsidiary or a single member LLC, get a corporate parent or personal guaranty or consider adding explicit collateral and securitize the loan. Also, think about collection rates when you consider the cost of doing business in Texas.

And finally...don't hire just any litigation lawyer to do your collection. Hire someone experienced and familiar with these laws so that you do not throw good money after bad.

Credit Card Agreements May be Implied under Certain Circumstances

In a recent case out of a Dallas, the Court found that a credit card agreement may be implied under certain circumstances. In this case, Bank X issued a credit card to the debtor. Bank X then merged with another bank, Bank Y. Bank Y sued the debtor to collect the balance on the credit card. The debtor argued that Bank Y had not produced an agreement between the debtor and Bank Y, that the debtor had not made an agreement with Bank Y, and that the debtor was, therefore, not liable.

Even though there was no written agreement, the Court found that the debtor and Bank Y had an implied agreement. An “implied contract” can arise from the acts and conduct of the parties.

The Court noted conduct of the parties evidencing an implied agreement. The initial interest rate on the account was set forth on the first billing statement, and the financial terms in effect each time the card was issued were set out on each monthly statement. One of the monthly statements informed debtor of merger and stated that words “we, us and our” as used in cardmember agreement now referred to bank Y. Even after debtor was given notice of the merger, new charges were made on account almost every month and late fees and “over the limit” fees were periodically assessed which the debtor did not object to or dispute. The Court determined that based on the series of transactions reflected on the account statements, it was reasonable to infer that the debtor agreed to the full amount shown on the statements and impliedly promised to pay the indebtedness.

Texas Charging Orders – Collection Devices Available Against Limited Partnerships

Texas Charging orders are an often overlooked collection device. A charging order is a postjudgment collection device, meaning you must have already obtained a judgment in the underlying lawsuit. Charging orders in Texas are discretionary, and the Court does not have to grant one. With a charging order, a creditor can reach a debtor’s interest in a limited partnership. It is basically a lien on the debtor’s partnership interest. Payment to the creditor is ordered out of the debtor’s interest in the partnership. However, the creditor can only receive distributions that the debtor would otherwise receive. For example, if the debtor is a partner in a limited partnership, the creditor can obtain a charging order ordering the partnership to pay any distributions to which the debtor is entitled in the future to the creditor in satisfaction of the Judgment. For judgments obtained prior to September 1, 2007, the Court may, at its discretion, appoint a receiver, foreclose on the interest, and order a sale of the interest. However, due to recent changes in the law, for Judgments obtained after September 1, 2007, the lien against the debtor’s interest is the exclusive remedy. Appointment of a receiver, foreclose on the interest, and ordering the sale of the interest are no longer available.

Note: A charging order in Texas is unavailable against partners of general partnerships but is available against members of limited liability companies.