The easiest way is to simply wait out the limitations period. Tex. Prop. Code § 53.158. If a suit is not filed by the contractor to foreclose the lien within one (1) year on a residential project or two (2) years on a commercial project, then the lien is automatically discharged of record. Id.; Tex. Prop. Code § 53.157 (listing ways that a mechanic’s lien becomes “discharged of record”). Title companies know about the “Discharge of Lien” statute and will generally insure around lien affidavits after the limitations period runs out. Please note that the foregoing deadlines apply to statutory liens, not constitutional liens. For constitutional liens, the statute of limitations to file suit to foreclose the lien appears to be four years. Atkinson v. Swoboda, 01-94-00510-CV, 1997 WL 94358, at *6, n. 8 (Tex. App.—Houston [1st Dist.] Mar. 6, 1997, pet. denied) (citing Hoarel Sign Co. v. Dominion Equity Corp., 910 S.W.2d 140, 144 (Tex.App.—Amarillo 1995, writ denied).
Somewhat confusingly, a “lien” is defined as a “claim in property for the payment of a debt and includes a security interest.” Tex. Civ. Prac. & Rem. Code § 12.001, but mechanic’s lien affidavits on homesteads must conspicuously state that “THIS IS NOT A LIEN. THIS IS ONLY AN AFFIDAVIT CLAIMING A LIEN.” Tex. Prop. Code § 53.254. Since a “claim in property” is a lien and since the affidavit claiming a lien still clouds title to the property and prevents the homeowner from conveying the property with title insurance to a buyer, the distinction between a lien and an affidavit claiming a lien seems like a distinction without a difference. Title companies generally do not care that an affidavit claiming a lien is not actually a lien—they still will not insure the transaction without a release of the lien or claim of lien.
Check with your title company regarding whether the company will “insure around” a lien. Generally, there must be some defect in the lien rendering it clearly invalid to do this. The title company will look at each lien claim on a case-by-case basis to evaluate whether to offer any options for insuring around the claim of lien. The title company probably will not insure unless the lien clearly cannot exist. You will probably need to execute an indemnity agreement with the title company and you may need to make a substantial deposit with the title company to satisfy any potential claims. Doing this can be a great alternative to a remedial bond under Tex. Prop. Code § 53.171. If the property owner insures around the lien, and then the statute of limitations runs out on the lien without the contractor filing suit, then generally, the property owner will be in the clear.
Note that title companies in Texas follow The Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas (hereinafter the “Title Insurance Basic Manual” or the “Manual”). The Manual is available online here: https://www.tdi.texas.gov/title/titleman.html
The first section of the Manual is Title 11 of the Texas Insurance Code and is referred to as the Texas Title Insurance Act. Section 2502.003 of the Texas Insurance Code defines the practice of “insuring around” a lien and sets forth prohibitions on insuring around and exceptions to those prohibitions on insuring around. The title company handling your transaction must evaluate these rules and regulations prior to insuring around your lien issue.
Remedial Bonds Under Section 53.171 of the Texas Property Code:
Under Section 53.171(c) of the Texas Property Code, a mechanic’s lien can be discharged with a bond even after the dispute has arisen and the lien has been filed. The bond must be substantially higher than the lien amounts. See Tex. Prop. Code § 53.172(3). The filing of the bond starts a one-year limitations period against any lien claimants. Tex. Prop. Code 53.175; Stoltz v. Honeycutt, 42 S.W.3d 305 (Tex. App.—Houston [14th Dist.] 2001, no writ). The statutory requirements for filing and notice regarding the bond should be followed to ensure that no problems arise.
Summary Motion for Lien Removal:
Section 53.160 of the Texas Property Code allows a property owner to file a “Summary Motion to Remove Invalid or Unenforceable Lien.” Tex. Prop. Code § 53.160. It is called a “summary” motion for lien removal because it allows for the lien to be removed as fast as twenty-one (21) days after the lien claimant answers or appears in the suit. Tex. Prop. Code § 53.160(c). This is obviously much faster than waiting for the Court to schedule a trial date. Getting a trial date; under the most common Discovery Control Plan—Level Two (2) (See Tex. R. Civ. P. 190.3); is going to take at least nine months, probably much longer, since the parties are entitled, in a Level Two case, to a nine-month discovery period starting with the “earlier of the date of the first oral deposition or the due date of the first response to written discovery.” Tex. R. Civ. P. 190.3(b)(1)(B)(ii). Even this “expedited” lien removal process tends to leave aggrieved property owners bitter. No one wants to file a new lawsuit, watch the process server spend a month chasing the defendants down, and then wait another month for the answer to get filed, and then wait another twenty-one days after that, to get an “expedited” hearing, especially in District Court since County Courts at Law in Texas generally do not have jurisdiction over “question[s] of title.” Escobar v. Garcia, No. 13-12-00596-CV, 2014 Tex. App. LEXIS 5157, at *9 (App.—Corpus Christi May 15, 2014, pet. denied); Tex. Gov’t Code Ann. § 26.043(8).
At the summary lien removal hearing, the lien claimant has the burden of proving that the notice of claim and affidavit of lien were furnished to the owner and original contractor (if applicable) as required. Tex. Prop. Code § 53.160(d). The movant has the burden of establishing that the lien should be removed for “any other ground authorized by this section.” Id. Despite the title of the code section, the lien cannot be removed simply because it is invalid or unenforceable. Instead, the “grounds for objecting to the validity or enforceability of the claim or lien for purposes of the motion are limited to” the seven (7) grounds listed in Texas Property Code § 53.160(b). The seven grounds are:
“(1) notice of claim was not furnished to the owner or original contractor as required by Section 53.056, 53.057, 53.058, 53.252, or 53.253;
(2) an affidavit claiming a lien failed to comply with Section 53.054 or was not filed as required by Section 53.052;
(3) notice of the filed affidavit was not furnished to the owner or original contractor as required by Section 53.055;
(4) the deadlines for perfecting a lien claim for retainage under this chapter have expired and the owner complied with the requirements of Section 53.101 and paid the retainage and all other funds owed to the original contractor before:
(A) the claimant perfected the lien claim; and
(B) the owner received a notice of the claim as required by this chapter;
(5) all funds subject to the notice of a claim to the owner and a notice regarding the retainage have been deposited in the registry of the court and the owner has no additional liability to the claimant;
(6) when the lien affidavit was filed on homestead property:
(A) no contract was executed or filed as required by Section 53.254;
(B) the affidavit claiming a lien failed to contain the notice as required by Section 53.254; or
(C) the notice of the claim failed to include the statement required by Section 53.254; and
(7) the claimant executed a valid and enforceable waiver or release of the claim or lien claimed in the affidavit.”
If the property owner’s reasons for wanting the lien removed do not neatly fit into any of these categories, then the property owner should try simply depositing “all funds subject to the notice of a claim” into the court’s registry, and getting the lien removed under Tex. Prop. Code § 53.160(5). Doing this can be cheaper than a remedial bond since the remedial bond must be substantially higher than the lien amount. See Tex. Prop. Code § 53.172(3).
One potential hiccup with the summary lien removal motion is Tex. Prop. Code § 53.161, which provides that the Court must allow the lien claimant to stay the removal of the lien by posting a bond that is a “reasonable estimate of the costs and attorney’s fees the movant is likely to incur” and that does “not exceed the amount of the lien claim.” The bond must be posted within thirty (30) days of the order. If the bond is not posted by the deadline, then the property owner can file a certified copy of the order along with a certificate from the clerk of court stating that no bond was filed within thirty (30) days after the date the order was entered by the Court and no order staying the order to remove the lien was entered by the Court. Tex. Prop. Code § 53.161(f). Upon filing the foregoing, creditors or subsequent purchasers for valuable consideration can take an interest in the property free of the lien claim. Tex. Prop. Code § 53.161(g). At this point, the property owner should have no problem selling or encumbering the property with title insurance from any title company.
If the lien claim is removed under the summary lien removal statute, but the lien claimant ultimately wins at trial, establishing the validity of the claim and getting an order for foreclosure of the lien, then the claimant can file the final judgment with the county clerk and get the lien revived. Tex. Prop. Code § 53.162.
Action on Fraudulent Lien on Property:
Property owners, real estate developers, and anyone else dealing with mechanic’s liens need to know right off the bat that the “Action on Fraudulent Lien on Property” under Tex. Gov’t Code § 51.903 is NOT a panacea for every mechanic’s lien dispute. In fact, it rarely applies. The Court dealing with this section CANNOT “make a finding as to any underlying claim of the parties involved.” Tex. Gov’t Code § 51.903(a). If a “substantive evidentiary claim” must be decided by the Court, then this procedure is unavailable. Tu Nguyen v. Bank of Am., N.A., No. 01-15-00587-CV, 2016 Tex. App. LEXIS 12595, at *7 (App.—Houston [1st Dist.] Nov. 29, 2016). For the procedure to be available, the fraudulent nature of the claim must, pretty much, be determinable by review of the document alone. Id. (citing David Powers Homes, Inc. v. M.L. Rendleman Co., 355 S.W.3d 327, 339 (Tex. App.—Houston [1st Dist.] 2011).
Section 51.903 of the Texas Government Code provides that a property owner with “reason to believe” that a previously filed “document purporting to create a lien or claim” against “real or personal property” is “fraudulent” may submit a “Motion for Judicial Review of Documentation or Instrument Purporting to Create a Lien or Claim” to the District Clerk. The motion, supporting affidavit, certificate of acknowledgement, and order on the motion should all follow the statutory formats listed in Tex. Gov’t Code § 51.903. The motion “may be ruled on by a district judge having jurisdiction over real property matters in the county where the subject document was filed.” Tex. Gov’t Code § 51.903(c). The Court’s review can be “ex parte without delay or notice of any kind.” Id. Moreover, the appellate court should “expedite review” of the trial court’s finding. Id. In filing the motion, keep in mind that documents or instruments meeting the criteria of Tex. Govt’ Code § 51.901(c) are “presumed to be fraudulent.” Tex. Gov’t Code § 51.901(c) provides that instruments are presumed fraudulent when:
“(1) the document is a purported judgment or other document purporting to memorialize or evidence an act, an order, a directive, or process of:
(A) a purported court or a purported judicial entity not expressly created or established under the constitution or the laws of this state or of the United States; or
(B) a purported judicial officer of a purported court or purported judicial entity described by Paragraph (A);
(2) the document or instrument purports to create a lien or assert a claim against real or personal property or an interest in real or personal property and:
(A) is not a document or instrument provided for by the constitution or laws of this state or of the United States;
(B) is not created by implied or express consent or agreement of the obligor, debtor, or the owner of the real or personal property or an interest in the real or personal property, if required under the laws of this state, or by implied or express consent or agreement of an agent, fiduciary, or other representative of that person; or
(C) is not an equitable, constructive, or other lien imposed by a court with jurisdiction created or established under the constitution or laws of this state or of the United States; or
(3) the document or instrument purports to create a lien or assert a claim against real or personal property or an interest in real or personal property and the document or instrument is filed by an inmate or on behalf of an inmate.”
Ordinary Certificate of Acknowledgement Instead of Short Forms for Certificates of Acknowledgement. Interestingly, a “Motion for Judicial Review of Documentation or Instrument Purporting to Create a Lien or Claim,” under Tex. Gov’t Code § 51.903(a), requires use of the “Ordinary Certificate of Acknowledgment,” (See Tex. Civ. Prac. & Rem. Code § 121.007) and not the commonly-used “Short Forms” (See Tex. Civ. Prac. & Rem. Code § 121.008).
Statutory Damages for Fraudulent Liens. If the Action on Fraudulent Lien on Property applies, then the movant should probably also file for relief under Section 12.002 of the Texas Civil Practice & Remedies Code. Under Tex. Civ. Prac. & Rem. Code § 12.002, anyone filing a claim knowing it to be fraudulent is liable to each person injured by the claim for the greater of $10,000.00 or actual damages, plus court costs, attorney’s fees, and exemplary damages. Tex. Civ. Prac. & Rem. Code § 12.002(b). With mechanic’s liens, there is no liability under this section unless the contractor “acts with intent to defraud.” Tex. Civ. Prac. & Rem. Code § 12.002(c).
Criminal Law on Fraudulent Liens. Refusal to execute a release of a fraudulent lien or claim, under Tex. Penal Code § 32.49, is a Class A misdemeanor. Also see Bowles v. State, NO. 14-99-01396-CR, 2001 Tex. App. LEXIS 6311, at *11 (App.—Houston [14th Dist.] Sep. 13, 2001). The owner, holder, or beneficiary of a purported lien or claim that is fraudulent, under Text. Gov’t Code § 51.901(c), who does not provide a release of lien by the twenty first (21st) day after the receipt of actual or written notice by certified mail or fax requesting release of the claim faces criminal liability. If that person fails to execute a release of the claim within twenty-one (21) days, then the person is “presumed to have had the intent to harm or defraud another.” Tex. Penal Code § 32.49(b). The violator could also be looking at a perjury charge depending on circumstances. Tex. Penal Code § 37.01(2)(A).
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.