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LIENS: YOUR RIGHTS AND RESPONSIBILITIES
by Stephen L. Polozola
Most residential builders, subcontractors, and suppliers believe they understand the requirements to file a mechanic’s lien against property for which they have not received payment. More often than not, lien affidavits are legally insufficient and may cause a contractor to lose his lien rights, leverage, and ability to foreclose on the property. It is important for contractors to keep current with changes in the law that affect liens and to fully understand their rights and responsibilities.
Perfecting a lien is a vital step in gaining the protection available under mechanic’s lien laws. To perfect the mechanic’s lien for a residential project, the contractor must comply with the statutory requirements, which can be broken down into six sections. First, the initial considerations -- is the project a homestead and are you a general contractor? 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 initial considerations are extremely important in perfecting the lien. The first consideration is whether you are a general contractor. The Texas Property Code defines a general contractor as one who has a direct contractual relationship with the owner.[1] If you do not have this direct relationship, you are a subcontractor. The next consideration is whether the project is a homestead. If the owner intends to use the property as a dwelling, the project is a homestead, which then necessitates two additional requirements to perfect the lien.
The first additional requirement for a homestead project requires the general contractor to file the construction contract in the Real Property Records of the county where the property is located. In addition, the construction contract must be signed by both spouses if the owners are married,. Failure to comply with either of these requirements could render a lien void.
After resolving the initial considerations, the next step is to determine whether the contractor must deliver written notice of intent to file a lien. As a general rule for lien purposes, there are no notice requirements prior to the filing of a lien affidavit, if you are a general contractor. However, if you are a subcontractor, you must issue notice of unpaid balance by certified mail to the owner, at his last known address, and to the general contractor before you file the lien affidavit. The Property Code sets forth very specific language that must be included in this notice. Failure to include this language can invalidate the lien. The deadline to issue the notice is the 15th day of the second calendar month in which the labor was performed or material furnished. (Note: You must send the notice letter timely on the 15th day of the second calendar month after each month the subcontractor provides labor and/or materials to the project. Thus, you may end up sending several notice letters before you file a lien.) It is not necessary to wait until the deadline to issue written notice. The law only establishes the deadline to send notice -- there is no penalty for sending the notice early.
Once the notice requirements are satisfied, the contractor must determine the deadline to file the lien affidavit and when the indebtedness accrued. The deadline to file a lien affidavit for a general or subcontractor is the 15th day of the third calendar month after the indebtedness accrued. For a general contractor, the indebtedness will accrue on the last day of the month in which the contract was completed, settled, abandoned or the last day of the month in which the contract was terminated. For a subcontractor, the indebtedness will accrue on the last day of the month in which the subcontractor performs labor or furnishes material. 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.
Using the example above, the general or subcontractor must file their lien affidavit on or before the 15th day of the third calendar month after January 31. The deadline would be April 15.
Once the deadline to file the lien affidavit is calculated, what must the lien affidavit state? As a matter of practice, I believe it to be the best course of action to use the same lien affidavit regardless of whether the project is a homestead or if you are a general or subcontractor. With the increase in multitasking, it is difficult to remember the lien affidavit requirements for a specific job. Therefore, it is recommended that the contractor make it his custom to use a form lien affidavit that contains all the requirements for any type of lien. The validity of the lien is not threatened by including more information than required. However, the lien’s validity is threatened when the contractor fails to include the statutorily required language.
The language, that a contractor must include in his lien affidavit, is as follows:
(1) The 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 the 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 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; (5) the name and last known address of the original contractor; (6) a description, legally sufficient for identification of the property sought to be charged with the lien; (7) the claimant’s name, mailing address, and if different, physical address; and (8) the affidavit must be signed by the person claiming the lien and contain a jurat; and (9) for 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, after the contractor files the lien, he must send one copy of the lien affidavit to the owner, and general contractor as applicable, at their last known address by certified mail no later than the fifth day after the lien was filed.
In the event the general contractor fails to comply with these requirements, the Texas Constitution provides the safety net of a constitutional lien. The general contractor should not make a practice of relying on the constitutional lien as it is somewhat untested before the Texas Appellate Courts.
While there remains various other issues with respect to retainage and fund trapping, if the contractor complies with these responsibilities, he will find few, if any, valid challenges to his lien affidavit.
Stephen L. Polozola is a shareholder of Bush & Motes, P.C., an Arlington-based law firm that represents builders, remodelers and developers across Texas. Mr. Polozola focuses his practice on residential construction and mechanic’s lien litigation. Bush & Motes, P.C. 4025 Woodland Park Blvd., Suite 190 Arlington, TX 76013 (817) 274-5992; (817) 261-1671 (Fax) spolozola@thebushfirm.com |
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