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 

What is a Proof of Claimin a Texas Bankruptcy?

A “proof of claim” is an official form filed by creditors in a bankruptcy case that helps the trustee determine what debts are owed and how much to pay each creditor if there are assets available for liquidation or a payment plan.

  

Filing a proof of claim does not guarantee that you will be paid!  For example, in a chapter 7 bankruptcy case, creditors are paid only if there are non-exempt assets available for the trustee to liquidate.  In many cases there are no assets.  In cases with assets, their liquidation usually does not yield enough to pay creditors in full, but creditors may receive a partial payment.

Typically, when a bankruptcy case is filed, the trustee will provide notice to creditors that the bankruptcy case has been filed, and the notice will specify the date (the “bar date”) by which a proof of claim must be filed.  An example of this notice can be found at the following link: http://www.uscourts.gov/uscourts/RulesAndPolicies/rules/BK_Forms_Current/B_009I.pdf.  Failure to file a proof of claim on time may “bar” a creditor's claim.

In the proof of claim, the creditor must set forth specific information such as its correct name and address, the amount of the debt as of the date on which the bankruptcy case was filed, and whether the claim is secured or unsecured.  Creditors should also attach copies of the documents that evidence the claim such as a promissory note, security agreement, UCC-1 financing statement, guaranty, or deed of trust.

A form proof of claim may be found at: http://www.uscourts.gov/uscourts/RulesAndPolicies/rules/BK_Forms_Current/B_010.pdf, however, some local courts have their own versions of this form.

Some larger companies with collections departments and bankruptcy specialists will file their own proof of claim.  However, if you are unfamiliar with the bankruptcy process and deadlines, the best practice is to hire an attorney to assist you in navigating through the bankruptcy case.

Article by Sarah F. Berry, Attorney

How to Determine the Texas Debtor’s Homestead: Involuntary Designation

What does a creditor do when the debtor or his/her spouse owns more than one piece of property but has never made a voluntary homestead designation using the methods described in section 41.005 of the Texas Property Code? Or when the debtor has designated more than one piece of property as his/her homestead, and it is unclear which property constitutes the homestead entitled to constitutional protection from most types of debt?

Subchapter B of Chapter 41 of the Texas Property Code describes the method by which a judgment creditor seeking execution of a writ on certain real property can force the debtor to make an election for purposes of designating the exempt homestead. See Tex. Prop. Code § 41.021 et seq. First, the creditor must send a notice to the debtor containing the proper statutory language. If the debtor fails to respond, the judgment creditor must then file a motion with the court that issued the writ of execution, requesting that the court appoint a commissioner to determine the judgment debtor’s homestead. See id. at § 41.023. After appointment, the commissioner will submit a report concerning his/her designation, which shall be confirmed, rejected or modified by the court, as deemed appropriate. Id.

The reasonable costs and fees associated with this involuntary designation process “shall be” taxed against the judgment creditor as part of the costs of execution. Id.

Article by Cynthia Veidt, Attorney

How to Determine the Debtor’s Homestead: Finding a Voluntary Designation

As most creditor’s discover, Texas homestead laws can be, well, complicated. The basic rule is sound: a debtor and his/her family can have only one Texas homestead. But when the debtor owns more than one piece of real property, or the debtor and his/her spouse own multiple pieces of real property, how can the creditor determine which property is the homestead under Texas law?

There are always a few exceptions, but in general, section 41.005 of the Texas Property Code governs the debtor’s voluntary homestead designation.  Essentially, the debtor must file a signed designation, acknowledged in the manner required for recording instruments, in the real property or official records of the Texas county in which all or part of the property is located. The designation must contain certain information, particularly a description sufficient to identify the property designated as homestead.  See Tex. Prop. Code § 41.005(c). It is always advisable for a creditor to check the official records held by the County Clerk’s office to determine whether any instrument filed in that county meets the statutory criteria for designation of the debtor’s homestead. 

Alternatively, the debtor may file an application for homestead exemption with the appraisal district for the county in Texas in which the property is located. See Tex. Prop. Code § 41.005(e). However, where the debtor has designated one property using this method and has also designated another property as his homestead by filing that instrument in the county clerk’s official records, the designation filed in the Texas official real property records will prevail over the debtor’s application for tax exemption. See Tex. Prop. Code § 41.005(e).

Article by Cynthia Veidt, Austin Attorney

Debtors, Taxes and Bankruptcy

If you're a creditor and you wondered how taxes are handled in a bankruptcy, there is a good article on taxes and debtors in bankruptcy in the Texas Lawyer.  The link is here: http://www.law.com/jsp/tx/PubArticleTX.jsp?id=1202542728986&rss=tx&slreturn=1