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. 

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.

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.

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 Public Works Bond Claim Case

A recent case, brings good news for material suppliers and subcontractors. The Texas Supreme Court ruled in favor of an unpaid supplier regarding statutory and common law claims, even though the unpaid material supplier missed their bond claim deadlines. In Dealers Electrical Supply Co. v. Scoggins Construction Co. Inc., 2009 WL 1901638, Slip op No. 08-0272 (Tex. July 3, 2009), an electrical subcontractor on a bonded public-works project walked off the job and left his parts supplier, Dealers, unpaid. The supplier missed the McGregor Act deadline to pursue a claim on the bond, but filed suit against the prime or general contractor for violation of the Texas Construction Trust Fund Act and breach of a separate Joint Check Agreement.

At trial, it was held that the prime contractor's president violated the Trust Fund Act by failing to pay the supplier, and had guaranteed the payment of the supplier’s materials under a Joint Check Agreement, and was therefore liable. The court of appeals reversed incorrectly ruling that that the McGregor Act was the supplier’s exclusive remedy. The Texas Supreme Court disagreed, holding that the McGregor Act is the unpaid laborer and materialman's exclusive remedy against the payment bond but does not otherwise limit their other statutory and common-law claims. Dealers Electrical Supply Co. v. Scoggins Construction Co. Inc., 2009 WL 1901638, Slip op No. 08-0272 (Tex. July 3, 2009).

Part 5: Texas Public Works Construction Projects & Subcontractors: Prime Contracts Over $25,000.00 & Rights to Information from Prime Contractors and Gover

Subcontractors in Texas are entitled to certain information upon written request and public owners (governmental entities) and prime contractors are required to furnish the information.

Subcontractors can request the following information / documentation from prime contractors:

(1) the name and last known address of the governmental entity with whom the prime contractor has its contract;
(2) a copy of the payment and performance bond for the project; and
(3) the name of the surety issuing the payment bond and the toll-free telephone number maintained by the Texas Department for obtaining information concerning licensed insurance companies.

See Tex. Gov’t Code § 2253.024

If the prime contractor did not initially disclose the name of the surety, the best practice is to request this information as soon as possible as this information is necessary to send the “Third Month Notice” discussed in Part 3 of this blog series. If you do not obtain this information early enough but wait until payments are missed, you may not have the necessary information in time to mail the required “Third Month Notice” to the surety.

In addition to a written request, subcontractors must submit an affidavit when requesting information from a governmental entity. The affidavit must state that the person / subcontractor:

(1) has supplied public work or labor for which payment has not been made;
(2) has contracted for specially fabricated materials for which payment has not been made; or
(3) is being sued on a payment bond.

Subcontractors can request the following information / documentation from governmental entities:

(1) a certified copy of the bond;
(2) the public work contract for which the bond was given; and
(3) the toll-free telephone number maintained by the Texas Department for obtaining information concerning licensed insurance companies.
See Tex. Gov’t Code § 2253.026

Information requested must be provided within 10 days after the receipt of the written request for the information. A prime contractor or governmental entity from whom information is requested may require payment of the actual cost for providing the requested information.
Texas law governing public projects can be found in Texas Government Code Chapter 2253 (formerly known as the McGregor Act) and Texas Property Code Chapter 53.

Please visit our blog again in a few days for Part 6: Public Works Construction Projects & Subcontractors: Prime Contracts Over $25,000.00 & Rights to Information from Subcontractors & Payment Bond Claimants.