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PROTECTING YOUR LIEN RIGHTS By Todd A. Haba A lot can go wrong during a construction project. Therefore, residential builders, subcontractors and suppliers must know how to file a mechanic’s lien against construction projects for which they have not received payment. Following several relatively simple steps can ensure the protection and security needed to guarantee payment for completed work. Perfecting a lien is a vital step in gaining the protection available under mechanic’s lien laws. To perfect a mechanic’s lien for a residential project, a general contractor, subcontractor or supplier need only consider six general issues. First, is the project a homestead and was the work performed by a general contractor or a subcontractor? Second, are there notice requirements and if so, what are they? Third, when does the contractor’s indebtedness accrue? Fourth, what is the deadline to file the lien affidavit? Fifth, what is required of a lien affidavit? Sixth, are there notice requirements after the lien affidavit is filed? The first consideration of identifying whether the residence is a homestead and whether a general contractor performed the work are extremely important in perfecting a lien. More often than not, lien affidavits are found to be legally insufficient and contractors lose their lien rights and leverage in the ability to foreclose on the property because these issues are mishandled. The Texas Property Code defines a general contractor as one who has a direct contractual relationship with the owner. Naturally, if there is no direct relationship, subcontractor relationship exists. Additionally, if the owner intends to use the property as a dwelling, the project is a homestead, which then necessitates additional requirements to perfect the lien. If the construction project is a homestead, the general contractor must file the construction contract in the real property records of the county in which the property is located. Also, just as important, the construction contract must be signed by both spouses if the owners are married. Failure to comply with any of these requirements could render a lien void. Next, a contractor must determine whether written notice of the intent to file a lien is necessary. Generally, there are no notice requirements prior to the filing of a lien affidavit for general contractors. However, subcontractors, must issue notice of any unpaid balance by certified mail to the owner, at the owner’s last known address and to the general contractor before filing the lien affidavit. The notice required by the subcontractor must include the specific language that is set forth in the Property Code. Failure to include the required language can invalidate the lien. Additionally, the Property Code sets forth specific deadlines by which the notice must be issued. The notice must be issued by the fifteenth day of the second calendar month in which the labor was performed or material furnished. This notice requirement applies to every month in which the subcontractor provided labor and/or materials. Therefore, the notice letter must be sent timely on the fifteenth day of the second calendar month after each month the subcontractor provides labor and/or materials to the project. This means that a subcontractor may send several notice letters before filing a lien. After meeting the notice requirements, a contractor must then determine the deadline to file the lien affidavit and when the indebtedness accrues. The deadline to file a lien affidavit for both a general contractor and subcontractor is the fifteenth day of the third calendar month after the indebtedness accrued. For a general contractor, the indebtedness accrues on the last day of the month in which the contract was completed, settled, abandoned, or the last of the month in which the contract was terminated. For a subcontractor, the indebtedness accrues on the last day of the month in which labor or materials were furnished. For example, if a general contractor is terminated or a subcontractor completes the job on January 15, the indebtedness will accrue, for both, on January 31. Therefore, the general or the subcontractor must file their lien affidavit on or before the fifteenth day of the third calendar month after January 31 (April 15). Next, the language of the lien affidavit must comply with the Property Code or it may be invalidated. As a general policy, a general contractor or a subcontractor should use a standard form lien affidavit that contains all the requirements for any type of lien as the validity of a lien is not threatened by including more information than required. However, a lien may be invalid when the contractor fails to include the statutory required language. A contractor must include the following language in his lien affidavit: (1) A lien affidavit must contain at the top of the page “NOTICE; THIS IS NOT A LIEN. THIS IS ONLY AN AFFIDAVIT CLAIMING A LIEN.”; (2) A sworn statement of the amount of claim; (3) The name and last known address of the owner or reputed owner; (4) A general statement of the kind of work performed and materials furnished by the claimant and, for a claimant other than an original contractor, a statement of each month in which the work was done and materials were furnished for which payment is requested; (5) The name and last known address of the person by whom the claimant was employed or to whom the claimant furnished the materials or labor; (6) The name and last known address of the original contractor; (7) A description, legally sufficient for identification of the property sought to be charged with the liens; (8) The claimant’s name, mailing address and if different, physical address; (9) The affidavit must be signed by the person claiming the lien and contain a jurat; (10) For a claimant other than a general contractor, a statement identifying the date each notice of the claim was sent to the owner and the method by which the notice was sent. Lastly, if the lien was filed by a subcontractor, he must send one copy of the lien affidavit to the owner and one to the general contractor at their last known address by certified mail, no later than the fifth day after the lien is filed. By following these relatively simple steps, contractors should be able to eliminate many challenges to lien affidavits. Naturally, contractors should be wary of relying solely on liens and should ensure that their contracts are up to date in order to provide an additional safety net. Following the lien requirements and obtaining current contracts from your local homebuilder associations will go a long way to providing the needed protection and security.
Todd A. Haba is a shareholder of Bush & Motes, P.C., an Arlington-based law firm that represents builders, remodelers and developers across Texas. Bush & Motes, P.C. 4025 Woodland Park Blvd., Suite 190 Arlington, TX 76013 (817) 274-5992; (817) 261-1671 (Fax) This article is provided for informational purposes only and is not a substitute for specific legal advice. The opinions set forth herein are not intended to create an attorney-client relationship between Mr. Haba or Bush & Motes, P.C., and the readers of this publication.
sent to Builder/Architect and Greater San Antonio Builder’s Association
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