How do mechanics’ liens work in Texas?
The Texas construction law attorneys at Murray Lobb regularly advise and represent builders and developers, subcontractors and suppliers, design professionals, owners/buyers, and other parties in all aspects of construction law, including:
- Mechanics’ liens and bond claims,
- Construction claims,
- Defaults during construction,
- Design defects,
- Contract drafting, review, and negotiations, and
- OSHA compliance, citations, and proceedings.
Mechanics’ liens can help to protect your company from potential losses and unnecessary litigation, but there are notices that must be served and strict deadlines that must be met to preserve your rights under Texas construction lien laws.
What is a Mechanics’ Lien in Texas?
A mechanics’ lien, or contactors’ lien, is a way for contractors, subcontractors, and others to secure payment for unpaid labor or materials, including:
- General contractors,
- Subcontractors,
- Second-tier subcontractors,
- Architects,
- Engineers,
- Material suppliers, and
- Laborers.
How do you get paid if an owner or contractor defaults on their agreement with you? You could file a lawsuit for breach of contract or another cause of action, but, if you were diligent in filing and serving the appropriate notices and liens, you won’t have to…
Mechanics’ liens, or contractors’ liens, help to ensure that you are paid for labor and materials, giving you important rights and protections including:
- Leverage to negotiate and settle debts without litigating the issue in court,
- The right to file suit when necessary to foreclose on the lien and force a sale of the property,
- The right to collect funds held by a property owner that have not yet been paid to the general contractor if the general contractor does not formally dispute the amount owed within the deadline, and
- If the property owner pays the general contractor after receiving a pre-lien notice with the appropriate fund-trapping language, the right to collect double the amount owed from the property owner.
If negotiations fail and you must file suit to foreclose on the lien, you are also entitled to recover your attorney fees and court costs.
Preliminary Notices, Mechanics’ Lien Deadlines, Enforcement Deadlines
Depending on your circumstances, you may be required to serve pre-lien notices on the property owner, general contractor, or others before filing the lien affidavit – there are strict deadlines that must be met for preliminary notices, the filing of the lien affidavit, and the filing of a lawsuit to foreclose on the lien.
Service of pre-lien notices
If you were hired directly by the property owner or the property owner’s agent, you do not need to serve a pre-lien notice.
In other cases, you must serve a pre-lien notice on the property owner and general contractor:
- Commercial construction when hired by the general contractor: you must serve a preliminary notice on the property owner and the general contractor by the 15th day of the third month after each month that you provided unpaid labor or materials.
- Commercial construction when hired by a subcontractor (second-tier subcontractors): you must serve a preliminary notice on the property owner and the general contractor by the 15th day of the third month after each month that you provided unpaid labor or materials. (Prior to January 1, 2022, an additional preliminary notice was required to be served on the general contractor by the 15th day of the second month after each month that you provided unpaid labor or materials – this second required notice was eliminated by recent amendments to Texas’ construction lien laws.)
- Residential projects when hired by the general contractor: you must serve a preliminary notice on the property owner and the general contractor by the 15th day of the second month after each month that you provided unpaid labor or materials.
Filing and service of the lien affidavit
If you have served the pre-lien notices within the deadlines, you must still file the lien with the county clerk’s office where the property is located, and there are deadlines for when the lien affidavits must be filed:
- Commercial construction: the lien must be filed before the 15th day of the fourth month after the contract has been completed, abandoned, or terminated in writing.
- Residential projects: the lien must be filed before the 15th day of the third month after the contract has been completed, abandoned, or terminated in writing.
Constitutional Liens
If you provided materials or performed work on a project after being hired directly by the property owner, you can file a constitutional lien within four years after completion of the work, and there are no pre-lien notice requirements.
Deadlines to file suit on the lien:
In most cases, you must file suit for a lien foreclosure within one year from the date of your deadline for filing the lien affidavit, unless the property owner agrees in writing to extend the deadline to two years.
Note that this was previously two years but was changed in the recent amendments to Texas construction lien laws.
Changes to the Texas Construction Lien Statutes Effective January 2022
The Texas legislature has made changes to the construction lien statutes found in Chapter 53 of the Texas Property Code – effective January 1, 2022.
Some of the major changes include:
- Statutory retainage: a property owner must withhold 10% of their payments to the original contractor throughout the construction – this is still required but is now referred to as the “reserved fund.” The term “statutory retainage” applies to payments withheld under agreements between a contractor and subcontractor or a subcontractor and second-tier subcontractor.
- Notice forms: there are two forms to use for statutory notices for claimants other than the original contractor, and the requirements can be found at 1) Section 53.056 for claims for unpaid labor or materials or 2) 53.057 for unpaid contractual retainage.
- Second-tier subcontractor notice requirements: second-tier subcontractors are no longer required to serve a second pre-lien notice on the general contractor within two months, and all subcontractors now have the same notice requirements – you must serve a preliminary notice on the property owner and the general contractor by the 15th day of the third month after each month that you provided unpaid labor or materials.
- Statutory deadlines: when your statutory deadline falls on a weekend or a legal holiday, the deadline is extended to the next day that is not a weekend or legal holiday.
- Mailing of notices: you can now use FedEx, UPS, or another private delivery service with tracking to serve statutory notices. Don’t, though. Whenever possible, send your pre-lien notices by certified mail with return receipt requested.
- Architects, engineers, surveyors, landscapers, and demolition contractors: are no longer required to be under contract with the property owner to file a lien to secure payment, but, if they are not hired by the property owner, they must follow the same pre-lien notice requirements that apply to subcontractors.
- Deadlines for filing lien affidavits for unpaid contractual retainage: the lien must be filed before the 15th day of the third month after the contract has been completed, abandoned, or terminated, and other lien deadlines have been removed from the statute.
- Lien foreclosure deadline: the statute of limitations for filing a lawsuit for lien foreclosure has been reduced for most claimants to one year instead of the previous two years.
- Notarization of lien waivers: lien waivers are no longer required by law to be notarized, but property owners, contractors, and county clerks may still require notarization.
Please feel free to contact one of our Murray Lobb attorneys to obtain our legal advice regarding mechanics’ liens, pre-lien notices, lien affidavits, and lien foreclosures. We also remain available to help you with all your general construction law, business, corporate, and estate planning needs.