Thursday, May 6, 2010

Texas Mechanics Lien Filing "How To"

In Texas, mechanics’ liens are created by constitutional right and by statute. A Constitutional Lien is available only to contractors in direct contractual privity with the owner for the improvements to the property. Texas statutory Mechanics’ Liens may be asserted, similar to other states, by general contractors, subcontractors, materialmen, mechanics, or artisans. A Texas mechanics lien that is filed with regard to work performed on privately owned property attaches to and encumbers the fee simple ownership of the property.

Real estate brokers of commercial property also have Texas mechanics lien rights for unpaid commissions.

For public projects, a mechanics lien against monies due the prime contractor may be filed. The mechanics lien is against monies due, not against the real property or improvements.

Contractors, as well as subcontractors, sub-subcontractors and suppliers who have a contract with a general contractor or a subcontractor can file a Texas Mechanics lien. Architects, engineers and surveyors are also entitled to statutory liens so long as their design is utilized in the performance of the construction work.

In some cases, prior to filing a Texas mechanics lien, pre-requisites must first be met.  Texas pre-lien notices, known as Disclosure Statements, are required in residential construction. The original contractor should furnish a Disclosure Statement to the owner before it enters into a contract for construction. Essentially, the contractor should attach a list of subcontractors and suppliers. A signed periodic statement that lists the bills or expenses that the original contractor intends to pay or have been paid under its request for payment must also be provided.

If the lien claimant is not the original contractor, notice of unpaid amounts must be given directly to the owner and the original contractor. Specifically, any lien claimant must file its Affidavit of Lien in accordance with Texas statute.

While a mechancis lien can often be filed without first filing a pre-lien notice, claimants whose contract is not with an owner, such as subcontractors or suppliers, should provide the project owner periodic written notices of the unpaid value of the claim. These notices should be issued periodically and not solely upon the completion of work. If the pre-notices are not provided, the lien can be invalidated even if the lien itself is filed properly.

Pre-lien notices to the owner and original contractor must be issued no later than the 15th of the third month following each month in which the claimant performed all or part of its work.

In the case of lower tier claimants “e.g. sub-subcontractors”, these periodic notices must be provided to the original contractor no later than the 15th day of second month following each month of which the claimant performed all or part of its work.

In order to file a Texas mechanics lien clam, the filing must be effectuated within a certain time period.  A Texas mechanics lien must be filed by the 15th of the fourth calendar month after the day on which the indebtedness accrued or the third month for a residential project. The timing depends upon when the indebtedness accrued which can depend on the tier of lien claimant.

In the case of an original contractor has a contract with an owner, the owner’s debt accrues the last day of the month in which (1) the original contract is completed, finally settled or abandoned, or (2) either the owner or contractor receives from the other a written notice of contract termination.

In the case of a subcontractor, a debt accrues on the last day of the month in which the claimant performed labor or furnished materials.

To file a Texas mechanics lien, the work must have been accomplished in accordance with an agreement.  However, the agreement need not be in writing, unless the improvements are to homestead property or the lien claimant is an architect, engineer or surveyor. The contract may be either expressed in writing or implied.

Filing a Texas mechanics lien is useful in collecting unpaid monies because, on a private project, the mechanics’ lien places an encumbrance on the property that makes it difficult to resell or re-finance the property without first removing the mechanics lien.  On a public property, the mechanics lien freezes the funds due from the owner to the general contractor.

Another way to ensure payment is to file a stop notice.  A Stop Notice is a notification that has the ability to enhance the effectiveness of a mechanic’s lien. A Stop Notice, or a notice to withhold funds, is sent to the company that is financing or funding the construction funds for a project. Once that company receives the Stop Notice, that company has notice that it should withhold sufficient money to satisfy the stop notice claim. The purpose of the Stop Notice is to provide the lender, financiers or funders of the construction project notice that there is money owed to a contractor, subcontractor or supplier so that an inquiry can be made as to why that money is not being paid.

Finally, if a payment bond has been posted on the project, filing a bond claim can be very effective in obtaining payment.  Bond claims can only be filed on a project where the owner, contractor or subcontractor has obtained a payment bond to ensure that every contractor receives payment for the work performed on the Project.  The payment bonds issued by sureties for construction projects have specific timing requirements, but most require claimants to submit claims against the bond within sixty to ninety days from the claimants’ last date of work.  Bond claims are as or more effective than a lien claim because the payment bond acts as a guarantee that payment will be made for work properly completed.

On Texas public projects, filing bond claims and stop notices are the most effective way to ensure that you will be paid for the work performed.

For more information on filing a Texas Construction Lien, a Texas Mechanics Lien, a Texas Stop Notice, a Texas Bond Claim, or a Texas pre-lien notice, please visit http://www.lienitnow.com/Texas-faq.asp.

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