Enforcing Perfected Lien Rights


In order to enforce a perfected mechanic's and materialman's lien against a private construction project in Texas, a lawsuit must be filed seeking the foreclosure of the lien. A mechanic's lien can only be foreclosed on the judgment of a court of competent jurisdiction. (Texas Property Code Sec. 53.154).

Judicial Foreclosure

The judgment entered in such a proceeding shall foreclose the lien and order the sale of the property subject to that lien. In order to determine what court is a court of competent jurisdiction, you must determine what court has jurisdiction and venue of a suit to foreclose a mechanic's and materialman's lien.

Jurisdiction

Basically, Texas has three types of Courts that hear and determine lawsuits filed by individuals. These three types of Courts are district courts, statutory county courts and justice courts. The jurisdiction of the various courts in the State of Texas is determined by the amount in controversy and the subject matter involved. Article 5, Section 8 of the Constitution of the State of Texas grants to the district courts of this state exclusive, original, and appellate jurisdiction of all actions except those where the original, exclusive or appellate jurisdiction has been conferred by the legislature on another court. The legislature of the State of Texas, pursuant to Texas Government Code Sec. 26.042, grants to statutory county civil courts at law concurrent jurisdiction with the district courts of civil cases in which the matter in controversy exceeds $500.00, excluding interest, and does not exceed $5,000.00, excluding interest, statutory or punitive damages, penalties, attorneys fees and costs. The legislature, pursuant to Texas Government Code Sec. 26.043, prohibits a statutory county civil court from having jurisdiction in suits involving the following matters:

  1. For recovery of damages for slander or defamation of character
  2. For the enforcement of a lien on land (in counties with a population of less than two million persons);
  3. An escheat suit filed on behalf of the State;
  4. Divorce
  5. Forfeiture of a corporate charter;
  6. Right to property valued at $500.00 or more and levied on under a writ of execution, sequestration, or attachment;
  7. Eminent domain; and
  8. Recovery of land

Venue

Every county in the State of Texas has a statutory county court and a district court. Some of the smaller counties share district courts. Once a determination is made as to what court has jurisdiction of the suit to foreclose a mechanic's and materialman's lien, a determination must then be made regarding in what county the suit must be brought. Texas Civil Practice & Remedies Code Sec. 15.011 provides that suits for the recovery of real property or an estate or interest in real property, for partition of real property, to remove encumbrances to real property, for recovery of damages to real property, or to quiet title to real property must be brought in the county in which all or a part of the real property is located. This venue is mandatory. As such, a suit to enforce a mechanic's and materialman's lien must be brought in the county in which all or a part of the property that is the subject of the lien is located.

Limitations

Contracts Executed Before September 1, 1999

A suit to foreclose a mechanic's and materialman's lien filed against non-residential property must be filed on or before the later of: two (2) years after the date that the affidavit claiming the lien is filed or one (1) year after the completion of the work required by the contract under which the lien is claimed (Texas Property Code Sec. 53.158). A suit to foreclose a mechanic's and materialman's lien against residential property must be brought within one (1) year after the lien affidavit is filed.

Contracts Executed On or After September1, 1999

The 1999 amendments to the Texas Property Code changed the time limitations by which a Claimant must file suit to foreclose a mechanic's and materialman's lien. For original contracts executed on or after September1, 1999, on non-residential construction projects, a claimant must file suit on the lien within two years after the last day the claimant could have filed the lien affidavit under Texas Property Code §53.052 or within one year after completion, termination, or abandonment of the work under the original contract under which the lien is claimed, whichever is later. A suit to foreclose a lien against residential property must be brought within one year after the last day the claimant could have filed a lien affidavit under Texas Property Code §53.052 or within one year after completion, termination, or abandonment of the work under the original contract under which the lien is claimed, whichever is later. Any suit to foreclose a lien not brought within the applicable time period(s) discussed above will be barred. The limitation periods will not affect the applicable limitation periods for other causes of action that a claimant may possess.

Parties

Pursuant to Rule 39 of the Texas Rules of Civil Procedure, a person or entity must be made a party to a lawsuit if:

  1. In his absence complete relief cannot be granted; or
  2. He claims an interest related to the subject matter of the suit and is so situated that the disposition of the suit in his absence would impair or impede his ability to protect that interest or leave any of the parties to the suit in substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the claimed interest.

The Constitution of the United States prohibits the taking of property without due process of law. Since the entry of a judgment foreclosing a mechanic's and materialman's lien and ordering the sale of the property can result in the owner of the property being divested of his property, the owner of the property at the time the suit is filed is a necessary party to any lawsuit to foreclose a mechanic's and materialman's lien. If the property that is the subject of the mechanic's and materialman's lien has been sold subject to the accrual of the indebtedness giving rise to the lien, the former owner of the property is not a necessary party to the suit to foreclose the lien. See Matthews v. First State Bank, 312 S.W.2d 571 (Tex. Civ. App.--Texarkana 1961, writ ref'd n.r.e.). The holder of a lien, encumbrance, or mortgage that has priority over the mechanic's and materialman's lien is not a necessary party to a suit to foreclose the lien (Texas Property Code Sec. 53.123).

Priorities

The perfection of a mechanic's and materialman's lien does not guarantee a claimant payment. Instead, it improves the claimant's chances of payment and gives him a right to a share of any funds available or that should be available to pay mechanic's and materialman's lien claimants. The priority of the various types of claims determines what funds, if any, should be, or are available to pay claims and also the amount of any judgment the claimant is entitled to receive in a suit brought to foreclose his mechanic's and materialman's lien.

Inception of Lien

Pursuant to Texas Property Code Sec. 53.124, the time of inception of a mechanic's and materialman's lien for a claimant other than an architect, engineer, surveyor, or landscaper is the earlier of the commencement of visible construction of the improvements on the land on which the improvements are to be located, or the first delivery of materials to be used in the construction of the improvements to the land on which the improvements are to be located, or the recording of an affidavit of commencement pursuant to Texas Property Code Sec. 53.124(c). In order for the commencement of construction to be sufficient to constitute the inception of the lien, it must be conducted on the land to be improved itself, be visible on that land, and constitute either an activity defined as an "improvement" under Texas Property Code Sec. 53.001 or excavation for or laying of the foundation or structure of the building. See Diversified Mortg. Investors v. Lloyd D. Blalock General Contractor, Inc., 576 S.W.2d 794 (Tex. 1978).

The clearing of the construction site is not sufficient to constitute commencement of construction for inception purposes. See Perkins Const. Co. v. Ten-Fifteen Corp., 545 S.W. 2d 494 (Tex. Civ. App.--San Antonio 1976, no writ). In order to constitute inception of the lien, the materials delivered to the improvement site must be materials that will be used during the construction or incorporated into the permanent structure. See Diversified Mortg. Investors, 576 S.W.2d 794. The recording of an affidavit of completion that is in compliance with Texas Property Code Sec. 53.124(c) is prima facia evidence of the date of commencement. The time of inception of a mechanic's and materialman's lien claimed by an architect, engineer, surveyor, or landscaper, as those persons are defined in Texas Property Code §§53.021(c) and (d), is the date of the recording of the affidavit of lien under Texas Property Code Sec. 53.052. See Texas Property Code Sec. 53.124(e).(1)

Relation Back Doctrine

This doctrine comes into play in situations where a receiver, mortgagee or other lien claimant attempts to hold his lien or claim superior to that of the mechanic's and materialman's lien claimant. It determines the priority of liens that may be filed. Pursuant to this doctrine, all mechanic's and materialman's liens relate back to their time of inception regardless of when the affidavit claiming the lien was actually recorded or when the work resulting in the lien claim was performed, except for, as described above, architect's, engineer's, surveyor's, and landscaper's liens, where the time of inception for their liens is decided by the date the lien Affidavit is actually recorded.

The relation back doctrine, along with Texas Property Code §§53.122 and 53.124, place all mechanic's and materialman's liens, with the exception of architect's, engineer's, surveyor's, and landscaper's liens, on an equal footing regardless of when the affidavit claiming the lien was actually recorded or when the work resulting in the lien claim was performed. The priority of a lien claimed by an architect, engineer, surveyor, or landscaper is determined by the date of recording. Texas Property Code §53.021(d). Texas Property Code §53.123 provides all mechanic's and materialman's lien claims priority over any lien, mortgage or encumbrance recorded or arising after the date of inception of the mechanic's and materialman's lien.

Priorities

Except for liens claimed by architects, engineers, surveyors, and landscapers, all perfected mechanic's and materialman's liens are on equal footing regardless of the date of the filing of the affidavit claiming the lien. Texas Property Code Sec. 53.122 does not create a "race to the courthouse" situation. As such, a properly recorded affidavit claiming a mechanic's and materialman's lien that is recorded in April is treated equally to one properly recorded in June. If the proceeds of a foreclosure sale of property are insufficient to discharge all properly perfected mechanic's and materialman's liens in full, the various liens share pro rata in the proceeds. Texas Property Code Sec. 53.122(b).

Preferences

Individual artisans and mechanics are entitled to a preference to statutory retainage. Texas Property Code Sec. 53.104. A mechanic is generally defined as those that perform manual labor, while an artisan is generally defined as an individual skilled in a trade requiring manual dexterity (Black's Law Dictionary). After payment of the individual artisans and mechanics, other perfected lien claimants share proportionally in the balance of the retained funds. These individual artisans and mechanics, however, share equally with other lien claimants in available trapped funds.

Removables

Perfected mechanic's and materialman's liens are granted a preference over all other liens on improvements that can be removed without material injury to the land, pre-existing improvements, or improvements to be removed from the structure. This preference even extends to deeds of trust filed prior to the inception of the mechanic's lien. Texas Property Code Sec. 53.122; First National Bank v. Whirlpool Corp., 517 S.W.2d 109 (Tex. 1974). The courts, however, have held that a claimant cannot remove a removable unless it can be proven that the claimant furnished the removable that it seeks to remove, i.e., unless it can identify its materials. See Kaspar v. Cockrell-Riggens Lighting Co., 511 S.W.2d 109 (Tex. Civ. App.--Eastland 1974, no writ); Suburban Homes Lumber Co. v. Lomas & Nettleton Fin. Corp., 609 F.2d 1387 (5th Cir. 1980).

Thus, a lumber supplier cannot remove the air handling unit because the lumber supplier did not provide same. The original contractor, however, is entitled to remove all removables provided by it and its subcontractors and suppliers since the entirety of the construction was provided pursuant to his contract with the owner. See Sikes, Inc. v. L & N Consultants, Inc., 648 S.W.2d 386 (Tex. Civ. App.--Dallas 1983, writ ref'd n. r. e.). A lien as to such removables can only be foreclosed by the order of a court with competent jurisdiction. The claimant is not entitled to self-help repossession in regard to these items.

Whether or not a particular item constitutes a "removable" is a question of fact for a jury to decide and will be decided on a case by case basis. The following is a non-inclusive list of items that the courts have, in the past, held to be removables:

  1. Garbage disposals and dishwashers. See First Nat. Bank in Dallas v. Whirlpool, 517 S.W.2d 262 (Tex. 1974);
  2. Air conditioning and heating system equipment such as furnaces, air conditioning coil, compressor, thermostat, and condensing unit. See Houck Air Conditioning, Inc. v. Mortgage & Trust, Inc., 517 S.W.2d 593, (Tex. Civ. App.--Waco 1974, rehearing denied);
  3. Windows and doors. See First Continental Real Estate Investment Trust v. Continental Steel Co., 569 S.W.2d 42 (Tex. Civ. App.--Fort Worth 1978, no writ);
  4. Lighting fixtures, cabinets, chimes, buttons, mail boxes and lamps. See Kaspar v. Cockrell-Riggens Lighting Company, 511 S.W.2d 109 (Tex. Civ. App.--Eastland 1974, no writ);
  5. Picture screen, ticket booth, neon sign, and speaker pools at drive-in movie. See Freed v. Rozman, 304 S.W.2d 235 (Tex. Civ. App.--Texarkana 1951, writ ref'd n.r.e.); and
  6. Pumps fastened to beds of concrete. See Mogul Prod. & Refining Co. v. Southern Engine & Pump Co., 244 S.W. 212 (Tex. Civ. App.--Beaumont 1922, no writ).

The following is a non-inclusive list of items that the courts have, in the past, held to be non-removable:

  1. Concrete roof tiles. See Exchange Sav. & Loan Assn. v. Mononcret Party Ltd., 629 S.W.2d 34 (Tex. 1982);
  2. Window frames. See McCallen v. Mogul Prod. & Refining Co., 257 S.W.2d 918 (Tex. Civ. App.--Galveston 1923, no writ); and
  3. Cabinets. See Houck Air Conditioning, Inc. v. Mortgage & Trust Inc., 517 S.W.2d 593 (Tex. Civ. App.--Waco 1974, rehearing denied).

In determining whether an item is removable, the court will look to the manner of its attachment to the land or existing improvements, the extent to which the removal of the item would require repairs, modifications, or protection of the land or existing improvements, the status of the construction at the time the removal is sought, and the function of the improvements sought to be removed. See Exchange Sav. & Loan Assn., 629 S.W.2d 34.

Leased Property

The extent of a leasehold interest and thus, the leasehold improvements, is determined by the terms of the lease agreement itself. A ground lease is an agreement pursuant to which a land owner leases his land to a tenant who, in turn, constructs a building upon the property. In that situation, the leasehold improvements would consist of the construction performed by the tenant such as the building constructed, underground utilities constructed by the tenant, parking lots, landscaping, etc. The leasehold interest of a tenant in an existing structure such as a shopping center is far less inclusive.

The improvements would still consist of the construction performed by the tenant, but would not include the structure since it most likely was already in place. Leasehold improvements in an existing structure could, depending upon the terms of the lease, include HVAC equipment, interior walls, lighting, doors, floor and wall coverings, cabinets, and built-ins. A claimant can perfect a mechanic's and materialman's lien against leasehold improvements. The rights of a contractor or materialman can be no greater than those of the person with whom he has contracted. As such, contracts with a lessee of real property cannot give any rights against the lessor or his title to the realty. See Grube v. Nick's No. 2, 278 S.W.2d 252 (Tex. Civ. App.--El Paso 1955, writ ref'd n.r.e.); Schneider v. Delwood Center, 394 S.W.2d 671 (Tex. Civ. App.--Austin 1965, rehearing den'd).

A contractor, subcontractor or supplier that supplies labor and/or materials for the construction of leasehold improvements can perfect a mechanic's and materialman's lien against the leasehold interest. See Ogburn Gravel Co. v. Watson Co., 190 S.W. 205 (Tex. Civ. App.--Dallas 1916). The mechanic's and materialman's lien attaches to any interest in the real estate and fixtures held by or that later come into the hands of the person that contracted for the improvements. See Diversified Mortgage Investors v. Blalock, 576 S.W.2d 794 (Tex. 1978). The mechanic's and materialman's lien attaches to fixtures which the tenant is entitled to remove as well as those affixed to the property. See Summerfield v. King, 98 Tex. 332, 83 S.W. 680 (Tex. 1904).

Many leases contain a reversionary interest provision. This is a provision that provides that the tenant, upon termination of the lease, shall surrender the premises and all improvements thereon to the landlord. Lease agreements also frequently provide that all improvements constructed become the property of the landlord when constructed or become the landlord's property upon the termination of the lease. The inclusion of a reversionary interest provision in a lease agreement can defeat a mechanic's and materialman's lien. A tenant's contractors and materialmen have no lien against the leasehold improvements, even if the improvements are removable, if the lease contains a reversionary claim and if the lease is terminated prior to the foreclosure of the mechanic's and materialman's lien. See Schneider v. Delwood Center, 394 S.W.2d 671 (Tex. Civ. App.--Austin 1965, no writ).