The State of Texas is a good place to be a contractor and building material supplier. The rights of these “mechanics” and “materialmen” to place liens upon real estate improved by their labor or materials arise not just from any statute, but from the Texas constitution itself. Article XVI, Section 37 of the Texas Constitution provides that “Mechanics, artisans and materialmen, of every class, shall have a lien upon the buildings and articles made or repaired by them for the value of their labor done thereon, or material furnished therefor; and the Legislature shall provide by law for the speedy and efficient enforcement of said liens.” The Texas Legislature followed its constitutional mandate with the mechanic’s lien laws in Title 5, Chapter 53 of the Texas Property Code.
Mechanic’s Liens Cloud the Property Owner’s Title, Which Can Induce the Property Owner to Pay the Contractor:
Mechanic’s lien laws are complex, can cloud title even without a lawsuit and associated lis pendens, and are quite favorable to the contractor or material supplier. Without the mechanic’s lien laws, a contractor wanting to assert rights to a mechanic’s lien would need to file a lawsuit in a Court with appropriate jurisdiction and file a lis pendens in the real property records for the county that the property is located in. This procedure is cost-prohibitive because the suit generally needs to be filed in a District Court because District Courts generally have exclusive jurisdiction over title disputes. See Escobar v. Garcia, 2014 Tex. App. LEXIS 5157, *3 (Tex. App.—Corpus Christi May 15, 2014, pet. denied). District Courts are the highest level of trial Courts in the State of Texas and tend to be the most burdensome and expensive Courts to litigate in from an attorney’s fees standpoint.
Corporations and Limited Liability Companies Must Have an Attorney in Court. To cloud title through a lis pendens, a contractor would need to hire an attorney unless the contractor has not incorporated his business. Only a contractor doing business as a sole proprietor may represent himself in District Court on a pro se basis, or in other words, without an attorney. Corporations and other legal entities may not appear in court without an attorney, even if the company is owned and operated by a single person. See Wuxi Taihu Tractor Co. v. York Grp., Inc., No. 01-13-00016-CV, 2014 Tex. App. LEXIS 12888, at *21, 2014 WL 6792019 (App.—Houston [1st Dist.] Dec. 2, 2014); Kunstoplast of Am. v. Formosa Plastics Corp., USA, 937 S.W.2d 455, 456 (Tex. 1996); Marin v. Gilberg, No. V-07-62, 2008 U.S. Dist. LEXIS 53341, at *8 (S.D. Tex. 2008).
A lis pendens is a notice of pending lawsuit that is filed publicly in the real property deed records of the county in which the property is located. The lis pendens must be indexed under the name of each party to the proceeding so that it shows up in a title search performed by an attorney or title company. The lis pendens generally has the effect of putting the world on notice of the claim and of subordinating any future unrecorded claims to the claim recorded in the lis pendens. See Tex. Prop. Code § 12.007 (2015).
Consequently, a contractor seeking to cloud title to real property, without the protections of the mechanic’s lien laws, would need to hire an attorney, file a District Court lawsuit, draft and file a proper lis pendens, and complete service of the foregoing using a private process server. For attorneys, lawsuits can be like marriages—easy to get in, hard to get out. Any attorney who makes an appearance as lead counsel under Tex. R. Civ. P. 8 must be “responsible for the suit” until such attorney withdraws from the case. Making an appearance is as simple as appearing in court on behalf of someone or filing any written document with the court. Withdrawing from the suit, on the other hand, is much more time-consuming. The attorney wanting to withdraw must follow Tex. R. Civ. P. 10, which requires the attorney to (1) show good cause, (2) submit a written motion to the court, (3) prove that the withdrawal is not sought for delay only, (4) deliver a copy of the written motion to the client, (5) notify the client in writing of the client’s right to object to the motion, (6) find out whether the client is opposed to the motion or not, (7) state the client’s last known address and (8) list all pending settings and deadlines. Moreover, the court can impose conditions before granting leave to withdraw. Finally, the notice to the client must be made by regular and certified mail.
Accordingly, most attorneys will not file a new District Court lawsuit without a substantial, up-front retainer of several thousand dollars. Even a relatively simple District Court lawsuit will cost the attorney a tremendous amount of time, energy, paperwork, and organization. Due to Tex. R. Civ. P. 8 and 10 and because getting a new attorney up to speed on the details of a case requires expenditure of substantial time and effort, finding an attorney who will file a District Court lawsuit and lis pendens for a low, flat-rate fee is highly unlikely for the aggrieved contractor.
Statutory Mecahnic’s Liens Can be Recorded Without Filing a Lawsuit:
Fortunately for contractors, Title 5, Subtitle B, Chapter 53, Subchapter C of the Texas Property Code (§§ 53.051–53.080) provides a way around the necessity of a District Court lawsuit and lis pendens. Many contractors see this as a Do-It-Yourself1 way to cloud the property owner’s title in hopes of cajoling payment from the recalcitrant property owner. Essentially, the contractor can file a mechanic’s lien affidavit in the real property deed records of the county. This affidavit will cloud the title and prevent most title companies from closing on a sale of the real property. The owner who wants to sell the property will then face a conundrum—whether to settle with the contractor or figure out a way around the lien affidavit. Often, when a property is being rehabbed, the eventual purpose of the rehab is a sale of the property with the improved rehab value. Accordingly, the lien affidavit tends to get contractors paid. The rules for how to properly perfect a mechanic’s lien using a mechanic’s lien affidavit are exceedingly complex. Accordingly, those rules are beyond the scope of this article. However, even an improper mechanic’s lien affidavit can cause enough problems at the property owner’s title company to induce the property owner to make a settlement offer to the contractor.
Work Stoppage Issues:
On the owner’s side, if the contractor is fired, then the owner should be prepared to show that the contractor was given reasonable notice. Tex. Bus. & Com. Code § 2.309. The prudent owner should set concrete deadlines or conditions and make it clear, and expressed in writing, that the failure to comply will result in termination of the contract. The prudent owner will give as much advance written notice to the contractor as possible if the owner is considering a lock-out to avoid a submission of the issue of reasonable notice to a jury.
On the contractor’s side, the contractor, if the property is not a detached residence and the contractor intends to use a work stoppage, i.e., suspension of work, due to nonpayment, then the contractor should make sure to give written notice, following the statutory requirements, to the owner and owner’s lender. See Tex. Prop. Code § 28.009. Failure to follow the rules in Tex. Prop. Code § 28.001–28.010 could result in losing the special rights granted to contractors by the Texas Prompt Payment Statute, like 18.00% interest on unpaid amounts due. The owner, upon receipt of the foregoing notices, may need to list specific reasons in writing for nonpayment to the contractor. Tex. Prop. Code § 28.009(d).
Homesteads. Homesteads are different from residences. “Homesteads” are defined by Section 41.002 of the Texas Property Code, while “residences” are defined in Sections 53.001(8)–(10). Contractors working on “homesteads” need to both meet the constitutional requirements for perfecting a mechanic’s lien on homestead property (Tex. Const. art. XVI, § 50(a)(5)) and follow the specific rules in Section 53.254 of the Texas Property Code. Contractors working on a homestead must obtain a written contract signed by both spouses to have a chance at obtaining a valid mechanic’s lien. This applies to both original and derivative claimants. Additionally, unless the property owner misrepresents the property owner’s marital status on the contract itself, even if the property owner makes misrepresentations elsewhere, a mechanic’s lien probably cannot attach without both spouses’ signatures. The Cadle Co. v. Ortiz, 227 S.W.3d 831, 838-39 (Tex. App.—Corpus Christi 2007). Accordingly, contractors should make sure to list the owner’s name in the contract as “John Doe, a single man,” or something similar, to avoid undisclosed marriages. Id. “It is well-settled that neither a constitutional lien nor a statutory mechanic’s lien may be enforced against a homestead unless a written contract for the work and material to be supplied is signed by all owners prior to the work commencing and is recorded.” Cadle v. Oritz, 227 S.W.3d at 836.; also see Tex. Const. art. XVI § 50(a)(5)(A); Tex. Prop. Code § 53.254(c). Under Tex. Prop. Code § 53.254(e), a construction contract on a homestead must be filed with the county clerk. Ultimately, because of how many rules apply to homesteads, unless the contractor is quite savvy and papered the transaction correctly, the typical homestead owner can probably escape the contractor’s claim for a mechanic’s lien. Under the Texas Constitution, a mechanic’s lien may attach to a homestead if:
“(A) The work and material are contracted for in writing, with the consent of both spouses in the case of a family homestead, in the same manner as is required in conveying the homestead;
(B) The contract for the work and material is executed by the owner or his or her spouse on or after the fifth day after the owner applies for any extension of credit for the work and material, unless the work and material are necessary to complete immediate repairs to the homestead property that materially affect the health or safety of the owner or person residing in the homestead, and the owner acknowledges that in writing;
(C) The contract for the work and material expressly provides that the owner may rescind the contract without penalty or charge within three days after execution of the contract by all parties, unless the work and material are necessary to complete immediate repairs to conditions on the homestead property that materially affect the health or safety of the owner or person residing in the homestead, and the owner acknowledges that in writing; and
(D) The contract for the work and material is executed by the owner and the owner’s spouse at the office of a third-party lender making an extension of credit for the work and material, an attorney at law, or a title company.”
Tex. Const. art. XVI, § 50(a)(5).
The following is a table showing the rules for contractors who are trying to perfect mechanic’s liens:
Mechanic’s Lien Rules Matrix
||Provide the disclosure statement. Tex. Prop. Code § 53.255.
Provide the list of subcontractors and suppliers. Tex. Prop. Code § 53.256.
For homesteads, get the contract signed by both spouses, file it with the county clerk, and make sure to include the
notice in Tex. Prop. Code § 53.254(f) on the lien affidavit.
File the lien affidavit by the 15th day of the third calendar month after job completion or termination. Tex. Prop. Code § 53.052(b).
Send copy to owner within five days. Tex. Prop. Code § 53.055.
|Make sure that the original contractor complied with Tex. Prop. Code § 53.255 & 53.256.
Give written notice by registered or certified mail of
unpaid balance to original contractor and the property
owner by 15th day of second month after “each
month in which all or part of the claimant’s labor was
performed or material . . . was delivered.” Tex. Prop. Code § 53.252(b), with the notice required by Tex. Prop. Code § 53.254(g) if homestead.
For homesteads, make sure to include the notice in
53.254(f) on the lien affidavit.
To trap funds, the notice must also contain the statements in Tex. Prop. Code § 53.252(c).
File the lien affidavit by the 15th day of the
third calendar month after job completion or termination. Tex. Prop. Code § 53.052(b).
Send copy to owner and original contractor within five
days. Tex. Prop. Code § 53.055.
||File the lien affidavit by the 15th day of the fourth calendar month after job completion or termination. Tex. Prop. Code § 53.052(a).
Send copy to owner within five days. Tex. Prop. Code § 53.055.
|Give written notice by registered or certified mail of
unpaid balance to original contractor by 15th
day of second month after “each month in which all or part of the claimant’s labor was performed or material
delivered.” Tex. Prop. Code § 53.056(b). Give same notice to owner and original contractor by the 15 th day of the third month. Tex. Prop. Code §
53.056(b).File the lien affidavit by the 15th day of the
fourth calendar month after job completion or termination. Tex. Prop. Code § 53.052(a).
Send copy to owner and original contractor within five
days. Tex. Prop. Code § 53.055.
1Fraudulent Lien Law Warning. While many contractors in Texas try to perfect mechanic’s liens without the assistance of a licensed attorney who has studied this area of law, such Do-It-Yourself attempts should be highly discouraged. The mechanic’s lien laws are highly complex. Additionally, under Texas fraudulent lien law (Tex. Civ. Prac. & Rem. Code § 12.002; Tex. Gov’t Code § 51.901(c) and Tex. Penal Code § 32.49), the contractor can incur civil liability of the greater of $10,000.00 or actual damages (no actual damages necessary, See Harris County, Texas v. MERSCORP, Inc., 791 F.3d 545 (5th Cir. 2015); Vanderbilt Mortg. & Fin., Inc. v. Flores, 692 F.3d 358, 370, 372 (5th Cir. 2012)), plus costs and attorney’s fees, and exemplary (punitive) damages. Section 12.002(c) of the Texas Civil Practice and Remedies Code provides some protection to the uninformed lien-filing contractor by stating that “intent to defraud” is required, but “intent to defraud” can arise from claiming a larger amount than what is, in fact, owed (Taylor Elec. Servs. v. Armstrong Elec. Supply Co., 167 S.W.3d 522, 530 (Tex. App.—Fort Worth 2005, no pet.), but see RMDG Construction, LLC, et al. v. Oakwood Custom Homes Group, Ltd., 2014 Tex. App. LEXIS 6032 (Tex. App.—Waco June 5, 2014, no pet.)), refusing to release the lien, among other things (Gray v. Entis Mech. Servs., LLC, 2012 Tex. App. LEXIS 3278 (Tex. App.—Houston [1st Dist.] Apr. 26, 2012, no pet.)), or re-filing a previously released lien (Roberts v. Dixon, No. 12-15-00181-CV, 2016 Tex. App. LEXIS 2449, at *6 (App.—Tyler 2016)). Refusal to release a fraudulent lien is also a Class A misdemeanor. See Tex. Penal Code § 32.49. While courts may differ on what conduct sufficiently demonstrates “intent to defraud,” the wise and prudent contractor should consult with a competent, licensed Texas attorney in conjunction with any attempts to perfect a mechanic’s lien.
Copyright 2017, Ian Ghrist, All Rights Reserved.
Disclaimer: This blog is for informational purposes only. Do not rely on any part of this blog as legal advice. Instead, seek out the advice of a licensed attorney. Also, this information may be out-of-date.