It seems inevitable that every construction project comes with headaches. Most notably, the pesky mechanics and materialmen’s liens. The Texas Constitution and Property Code empower laborers (i.e. contractors and suppliers) to place a lien on an owner’s property to ensure payment for labor and/or materials delivered and incorporated into the project. This can be an utter nightmare, whether you are selling, refinancing, or simply trying to avoid foreclosure. How is this avoided, and in the event you can’t stop it, what are the ways to attack it? We represent numerous property owners who have been burdened by lien filings and the stress of unringing the bell.
Who Can Lien?
- Among others, any persons that labor, specially fabricate material, or furnish labor or materials for construction or repair in Texas toward a house, building, or improvement. TPC 53.021. Simply put, any subs or suppliers (general contractors included and notice requirements do not apply) that work on the project are entitled to file an affidavit under TPC 53.052 claiming a lien for nonpayment.
What should the lien look like?
- The lien will amount to a sworn statement by the sub or supplier stating the amount owed, the work that was performed or the materials delivered, the owner (or reputed) of the project, the general contractor on the project, the date notices were sent to the GC and owner (including method) and the legal description of the property.
What can the claimant do with that lien?
- Provided the claimant significantly adheres to the requirements of the Texas Property Code (i.e. notice requirements, filing deadlines, etc.), the claimant will be entitled to foreclose on his/her/its lien and force the sale of the property to satisfy the amount of the claim (and potentially legal fees) TPC 53.145
- A lawsuit to foreclose on an M&M Lien must be commenced within 2 years from the date the claimant records its lien in the deed records. TPC 53.158
- In any proceeding to foreclose on M&ML, the Court MUST award costs and reasonable fees as are just and equitable.
What can the owner do to prevent it?
- Payment Bond- The owner can demand that general contractor furnish a bond for payment of all claims. This prevents claimants from filing against the owner or the owner’s property and instead, the claimant pursues a claim against the bond. The payment bond must be in an amount equal to the original contract amount for the entire project and is best served if done prior to or simultaneous with the commencement of the project.
- Direct Payments-Owner can always control the payments and should secure lien waivers for each pay application that is honored. This minimizes the potential for outstanding invoices to slip through the cracks.
- Joint Check- Joint Checks will ensure those owner payments are delivered to the intended recipients and prevent the general contractor from diverting and/or misappropriating funds.
Note: Retainage in the amount equal to 10% of the contract value will not prevent a claimant from filing an M&ML against the property but can ensure property owners caps their liability.
What can the owner do to remedy?
- Payment Bond-The owner can demand that general contractor furnish a bond for payment of all claims. This prevents claimants from filing against the owner or the owner’s property and instead, the claimant pursues a claim against the bond. The payment bond must be in an amount equal to the original contract amount for the entire project.
- Indemnity Bond-Much like a payment bond, the indemnity bond discharges a previously recorded M&M Lien and prevents the claimant from foreclosing on the property. Instead, the claimant must pursue the bond to collect on the claim. For the previously recorded M&ML, the bond amount is particular to each claim.
- Summary Motion to Remove
- 53.160 of TPC authorizes a property owner to file a verified motion to remove the lien as invalid and unenforceable. Attorneys’ fees are available to the owner if successful.
- A lawsuit under Chapter 12 CPC
- Chapter 12 of the Civil Practice and Remedies Code authorizes the owner of the property to sue the lien claimant for filing a “fraudulent” lien. There is a heightened burden on the owner when it involves an M&M Lien and there must be a showing of intent. Attorneys’ fees and costs are available to the owner as well as civil penalties and punitive damages.