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.

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.

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.