MECHANIC’S AND MATERIALMAN’S LIEN CLAIMS: A FEW PITFALLS
By: R. Scott Alagood
When contractors are not paid for their work or materials supplied to a construction job, they have several avenues of recourse to attempt to collect the debt. One option is to file a lien claim under either the Texas Constitution (Art. XVI, Section 37) or the Texas Property Code (Chapter 53). Here are a few of the more material factors to consider in filing a mechanic’s lien claim.
A contractor must always determine whether they are an original contractor or subcontractor. An original contractor is a party who contracts directly with the owner of the property to which the labor or materials have been supplied. A subcontractor is a party who has no direct relationship to the owner of the property, but who is working under an original contractor or other subcontractors who are in contractual privity with an original contractor. There may be multiple original contractors and subcontractors on a single construction project.
It is equally important to know whether the project is residential or non-residential in nature. This determination is not always as easy as it may seem. For example, if a contractor agrees to perform work on a single-family residence where the owner is the occupant of the dwelling, it is fairly clear that the nature of the project is residential. However, where the same single-family residence is a rental unit owned by a party with no intention of ever living in the dwelling, the construction project is not residential, but non-residential. The best way way to understand this distinction is to understand the definition of “residence” in the Texas Property Code. A “residence” is a single-family house, duplex, triplex, quadruplex, or condominium untit which is used or intended to be used as a dwelling by one of the owners. Tex. Prop. Code Section 53.001(8). Any property which is not a “residence” will be considered non-residential in nature.
If the project is residential, then the contractor must figure out if it is homestead. In Texas, a person’s homestead is protected from forced sale for debts which are not otherwise permitted by the Texas Constitution. Tex. Const. Art. XVI, Section 50. While new home construction and the repair and renovation of existing improvements are types of permissible debts which can be secured by a lien on a homestead, there are very specific and peculiar requirements that must be followed before such liens will attach to a homestead. For example, there must be a writtten contract which accurately describes the property on which the constrcution is to be performed, and the contract must be sgned by the owner. If the property is the homestead of a married couple, both spouses must execute the contract. Depending upon the type of work to be performed, the contract may have to be signed before any extension of credit is granted and/or filed in the county real property records prior to any of the work being performed. Additionally, a mandatory right of rescission may have to be provided to the owner prior to any of the work being performed.
The dates of performance of the work, completion of the project, and the deadlines for providing notices and filing the lien claim must be determined. For subcontractors, lien claims may only arise under Chapter 53 of the Texas Property Code. Chapter 53 sets forth specific deadlines when certain required notices must be sent to owners, original contractors, and subcontractors, and when an affidavit claiming a lien must be filed. Failure to meet these deadlines and/or provide the required notices may result in a lost lien claim. Also, Texas law requires an owner to “retain” ten percent of the entire contract price for a period of thirty days following completion of the project. Where a lien claim is not properly noticed and filed before the expiration of the retainage period, then the claimant may lose its lien claim and ability to hold the owner personally liable for the debt. Lien claims may also be lost where the contractor fails to file a claim in the county real property records prior to a transfer of the subject property to a bona fide purchaser or a bona fide mortgagee for value.
Finally, filing lien clams in Texas is extremely complicated. The aforementioned pitfalls only constitute a few of the many barriers that exist for the unsophisticated lien claimant. If it is economically feasible to file a lien claim, consultation with qualified legal counsel should be considered