Perfecting Lien Rights

The Texas Mechanic's Lien laws are more complex than those of many states. Notice(s) must be given within specific time limits in order to properly perfect a valid lien. Furthermore, an Affidavit of Lien that meets the statutory requirements must be filed with the County Clerk of the county where the work was performed within the express time limitations set out. Only compliance with the technical requirements of the statute will perfect a Mechanic's Lien, giving contractors, subcontractors, and suppliers legal rights against the owner of the property, and, most importantly, negotiating leverage.

Texas Mechanic's Lien Laws

Since the enactment of statutory lien laws, Texas Mechanic's Lien laws have been the subject of many revisions. Formerly known as the Hardeman Act enacted in 1961, the Texas Mechanic's Lien laws have undergone major substantive revisions. The "Hardeman Act" is now codified in Chapter 53 of the Texas Property Code. Chapter 53 of the Texas Property Code has been amended and revised several times. It is always best to check what the lastest revisions of the law to see if any of the deadlines have changed. (The pertinent portions of Chapter 53 of the Texas Property Code which are cited in these materials are simply referred to by the section number.)

Due to the complicated statutes, ever evolving court decisions, and unanswered areas of the law, Claimants desiring to protect their rights are cautioned to seek competent legal advice. Even though Texas Courts have consistently held that Chapter 53 is to be "liberally construed for purposes of protecting laborers and materialmen," See Republic Bank Dallas, N.A. v. Interkal, Inc., 691 S.W.2d 605 (Tex. 1985), lien Claimants are strongly urged to strictly comply with the following statutory requirements.

Claimants

Notice requirements in the Property Code are mandatory for first-tier subcontractors and second-tier subcontractors, but notice is not required of an original contractor prior to filing a Mechanic's Lien. Therefore, it is essential for every Claimant to know its status on each Project.

Original Contractors

An original contractor is defined as "a person contracting with an owner either directly or through the owner's agent." The key in this situation is that the owner is a party to the contract. The original contractor is also known as a general or prime contractor. Although the prime contractor on a project is usually the party meeting the statutory definition, it is not uncommon to have more than one original contractor. For example, if the mechanical and electrical contractors on a project contract directly with the owner, then the mechanical and electrical contractors will both be considered original contractors under the Texas Mechanic's Lien laws.

Subcontractors

A subcontractor is defined as "a person who has furnished labor or materials to fulfill an obligation to an original contractor or to another subcontractor in performing all or part of the work required by an original contract." The subcontractor must comply with very detailed notice requirements pursuant to the Texas Property Code. Anyone furnishing labor or materials pursuant to a contract with another party other than the owner is a subcontractor or "Derivative Claimant" and is required to serve notices of unpaid balances as provided in the Property Code.

Subcontractors are divided into two tiers of contractors. The first-tier subcontractors are those contractors and suppliers having an agreement with the original contractor. On the other hand, second-tier subcontractors and suppliers do not have an agreement with the original contractor. These contractors are commonly referred to as sub-subcontractors. As you can see, material suppliers can either be in the first or second tier depending on whether they have a contract with the original contractor or with a subcontractor. The major difference between the first-tier and second-tier subcontractors is an additional preliminary notice that only second-tier subcontractors must give to the original contractor to perfect their lien rights.

Notice Requirements

Sending proper and timely notices performs two functions. First, notices are necessary for a lien Claimant to satisfy the requirements set forth in the Property Code in order to perfect a statutory lien. Second, notices serve to trap funds in the owner's possession which helps to avoid the potential for having a properly perfected lien discharged due to foreclosure of a subsequent lien and assists in receiving payment without the necessity of filing suit to foreclose a lien. Deadlines for these notices are directly related to the Claimant's classification on the construction tiers.

The Derivative Claimant has lien rights only to the extent that the Claimant traps construction funds in the hands of the owner by proper lien notice or funds which constitute his share of the statutory retainage fund. Unless funds which would otherwise be paid to the original contractor are trapped, a Derivative Claimant is limited to his share of the 10% statutory retainage required to be held by the owner. As such, a Claimant may only recover up to the aggregate of the statutory retainage plus any trapped funds. Put another way, an owner and his property will only be liable to lien Claimants for money paid to an original contractor after the owner receives proper notice containing the statutory warning.

The following discussion relates to construction projects performed on non-residential private property. To perfect a lien on residential property, see the discussion below, entitled "Residential."

Original Contractors

An original contractor is defined as a person contracting with an owner either directly or through the owner's agent. As discussed above, more than one original contractor may exist on a project. For an original contractor to properly perfect a statutory lien, the contractor must:

File an Affidavit in the property records in the county in which the property is located not later than the 15th day of the fourth calendar month after the earlier of the following events (See § 53.052 and § 53.053 ):

1. The last day of the month in which the original contractor receives a written declaration by the owner stating that the contract is terminated, or
2. On the last day of the month in which the original contract is completed, finally settled, or abandoned.

The contents of the Affidavit are set forth in §53.054 and are more fully discussed below. As a practical matter, Claimants should never rely upon punchlists or warranty work to be used for purposes of determining when the contract is completed.

After the filing of the Lien Affidavit, the Claimant must send a copy of the Affidavit by registered or certified mail to the owner or reputed owner at the last known business or residence address not later than one business day after the date the Affidavit is filed with the County Clerk (for original contracts executed before September1, 1999). However, under the 1999 changes to the lien laws, for original contracts executed on or after September1, 1999, a claimant must send a copy of the Affidavit not later than five (5) business days after the date of filing the Affidavit.

First-Tier Subcontractors

For a first-tier subcontractor to properly perfect a statutory lien, the first-tier subcontractor must provide notice; file and Affidavit; and provide notice of the Affidavit.

Provide Notice to Owner and Original Contractor

Send a registered or certified letter to both the owner or reputed owner and the original contractor informing them of any unpaid invoices not later than the 15th day of the third month following each month in which all or part of the first-tier subcontractor's labor was performed or material delivered. (§53.052). This notice is, obviously, referred to as the "third month notice." While the Property Code states that a copy of the first-tier subcontractor's statement or billing will be sufficient to satisfy the requirements set forth in this section, the first-tier subcontractor is strongly urged to use a formal letter to avoid disputes arising out of unclear invoices. Additionally, the required notice must contain the statutory language set out in §53.056 in order to properly "trap funds" in the owner's possession. The notice to the owner must state that:

"If the claim remains unpaid, the owner may be personally liable and the owner's property may be subjected to a lien unless:

1. the owner withholds payments from the contractor for payment of the claim; or
2. the claim is otherwise paid or settled."

File an Affidavit

The next step in properly perfecting a statutory lien by a first-tier subcontractor is to file an Affidavit in the property records in the county where the project is located not later than the 15th day of the fourth calendar month following the last day of the last month in which the first-tier subcontractor supplied work or material. To be conservative, many practitioners recommend that the claimant use the substantial completion date, rather than the date of performing punch list or warranty work, as the first-tier subcontractor's date of last work performed.

Provide Notice of the Affidavit

After filing a Lien Affidavit, the Claimant should send a copy of the Affidavit by registered or certified mail to the owner or reputed owner at the owner's last known business or residence address, and to the original contractor at the original contractor's last know business or residence address, not later than one business day after the date the Affidavit is filed with the County Clerk (for original contracts executed before September1, 1999). As discussed above, for original contracts executed on or after September1, 1999, a copy of the Affidavit must be sent to the owner and original contractor not later than the fifth business day after the date of filing the Affidavit.

Second-Tier Subcontractors

For second-tier subcontractors to properly perfect a statutory lien, the second-tier subcontractor must:

Provide Notice to Original Contractor

Send a registered or certified letter to the original contractor informing it that funds are due to the second-tier subcontractor not later than the 15th day of the second month following each month in which the second-tier subcontractor has supplied labor or materials. This notice is referred to as the "second month notice".

Provide Notice to Owner

Additionally, the second-tier subcontractor must also send a registered or certified letter to both the owner or reputed owner and the original contractor informing them of the unpaid balance not later than the 15th day of the third month following each month in which all or part of the second-tier subcontractor's labor was performed or material delivered. Again, the Property Code states that a copy of the second-tier subcontractor's statement or billing will be sufficient to satisfy the requirements set forth in this section. Claimants are urged to use a formal letter to avoid disputes arising out of unclear invoices. This notice should also include the "fund trapping" language set forth in §53.056. The notice to the owner must state that:

"If the claim remains unpaid, the owner may be personally liable and the owner's property may be subjected to a lien unless:

1. the owner withholds payments from the contractor for payment of the claim; or
2. the claim is otherwise paid or settled."

This is a "third month notice" and serves the same purpose as the third month notice described in subsection (2) above.

File an Affidavit

After all proper notices have been sent, the Claimant must file an Affidavit in the property records of the county where the project is located not later than the 15th day of the fourth calendar month following the last day of the last month in which the second-tier subcontractor supplied work or material. Remember, the date of performing punchlist or warranty work should not be used to determine the last day of work on which the second-tier subcontractor supplied work or material.

Provide Notice of the Affidavit

Finally, the Claimant must send a copy of the Affidavit by registered or certified mail to the owner or reputed owner at the owner's last known business or residence address, and to the original contractor at the original contractor's last known business or residence address, not later than one business day after the date the Affidavit is filed with the County Clerk (for original contracts executed before September1, 1999). For original contracts executed on or after September1, 1999, Claimant must send the copies of the Affidavit within five (5) business days.

Specially Fabricated Materials

A contractor, subcontractor, or material supplier who supplies specially fabricated material is given extra protection under the Texas Lien laws. However, in order to avail itself of this protection, the Claimant of specially fabricated materials must take additional steps to those described above in order to perfect a lien for materials which are fabricated, but not incorporated into the project. A fabricator of specially fabricated material must send notice by registered or certified mail to the last known business or residence address of the owner or reputed owner (for first-tier fabricators) and to the original contractor (for second-tier fabricators) not later than the 15th day of the second month after the month in which the Claimant receives and accepts the order for the material. Texas Propert Code §53.058 states that the notice must contain (1) a statement that the order has been received and accepted; and (2) the price of the order. Essentially, the Property Code requires a fabricator of specially fabricated material to give the owner and, if necessary, the original contractor additional time in which to halt production or become liable under a Mechanic's Lien which is properly perfected.

In addition to notice under §53.058 described above, the Claimant must give notice under §53.056 if delivery has been made or if the normal delivery time for the job has passed. Notices under §53.056 are discussed in the preceding pages. On the other hand, if the fabricator only gives the notices required by §53.056, but has failed to provide the preliminary notice required by §53.058, then a Mechanic's Lien will only be valid and perfected as to the materials actually delivered on the job.

After all of the proper notices have been sent, the Claimant for specially fabricated materials must file an Affidavit in the property records of the county where the project is located not later than the 15th day of the fourth calendar month from:

1. The last day of the last month in which materials were delivered;
2. On the last day of the last month in which delivery of the last of the material would normally have been required at the job site; or
3. The last day of the month of any material breach or termination of the contract by the owner, original contractor or subcontractor under which the speciality fabricated material was furnished.

Contractual Retainage Claim

When a Derivative Claimant supplies work or labor under an agreement which provides for retainage, and wishes to perfect a lien for such retainage amount, the Claimant may act at the inception of the work. Pursuant to §53.057, the Claimant must notify the owner or reputed owner of the retainage agreement by registered or certified mail at the last known business or residence address not later than the 15th day of the second month following the delivery of materials or performance of labor by the Claimant that first occurs after the Claimant has agreed to the contractual retainage. If the Claimant is a second-tier subcontractor, the same notice must also be given to the original contractor within the same time period. The notice must contain:

1. the sum to be retained:
2. the due date or dates, if known, and
3. a general indication of the nature of the agreement.

No further notice is required to perfect a lien on retainage if the Claimant provides the required notice under §53.057 and satisfies all other deadlines. Notwithstanding this, most practitioners believe that a Claimant can also perfect a lien on retainage by sending notices of earned, but unpaid, retainage every month as prescribed in the time limits of §53.056. However, the claimant must take into account whether monthly notices will cause a deteriorating relationship among the parties on the project.

Retainage

The Property Code requires owners to withhold 10% of each payment to the general contractor as retainage during the project and for thirty (30) days after completion of the work. These retainage funds are intended to secure payment for all persons who supply labor and material on the project. If the owner fails to retain the appropriate contract funds, an owner can be personally liable for an amount equal to the 10% retainage, even if the owner has paid the original contractor the full contract price. While, generally, an owner's liability will not exceed the required retainage, the owner can have additional liability depending upon whether funds were "trapped" by proper notices being sent pursuant to §53.056.

In order to properly perfect a claim on the retained funds or the amount which should have been retained, a Claimant must send all notices required by Chapter 53 and file an affidavit claiming a lien not later than thirty (30) days after the project is completed. If the Claimant fails to give proper notice and perfect the lien, the owner and owner's property may not be liable.

The notice of a retainage agreement and timely filing of an Affidavit claiming a lien will properly perfect a claim for the retainage. If notice of a retainage agreement pursuant to §53.057 is not given, a claim for retainage can still be made up to the required 10% retainage, if filed within thirty (30) days after substantial completion of the project. However, recent court cases and the Property Code appear to require that notice of claims for retainage be sent under §53.056.

Section 53.056 requires preliminary notices to be sent to the owner via second month and third month notices, depending upon the Claimant. Thus, a literal interpretation of the Property Code and the recent case law would require, if the retainage agreement notice is not sent pursuant to §53.057, that a retainage Claimant send unpaid notice claims to the owner and original contractor throughout the job, even when payment has been prompt and in full, except for the contractually allowed retainage. While the intent of the Texas legislature in this matter is unclear, there are no cases directly on point. Unfortunately, the latest amendments did not address the ambiguity or inconsistencies in Texas case law. Therefore, a Claimant who fails to give notice of a retainage agreement as provided in §53.057 should be safe by giving periodic notices of unpaid retainage as if the claims were covered by the notice requirements in §53.056.

Architect-Engineer Liens

The 1995 Legislative amendments to the Property Code made it much easier for architects, engineers and surveyors to secure a lien for their work. The amendments eliminated the cumbersome requirement that the design professional's contract be filed prior to commencement of work. Now design professionals need only to have a written contract and properly file their lien.

Section 53.021 only requires that an architect, engineer or surveyor who prepares a plan or plat under or by virtue of a written contract with the Owner or the Owner's agent, trustee, or receiver in connection with the actual proposed design, construction, or repair of improvements on real property or the location of the boundaries of real property has a lien on the property. As long as the engineer/architect/surveyor has a written contract with the owner and has actually prepared the plan or plat, the engineer/architect/surveyor has the right to a lien regardless of whether construction on the property actually occurred. The notice requirements for an original contractor apply to an engineer, architect, and surveyor.

Landscaper Liens

The 1999 amendments to the Property Code added a subsection (d) to Section 53.021, which provides the following:

A person who provides labor, plant material, or other supplies for the installation of landscaping for a house, building, or improvement, including the construction of a retention pond, retaining wall, berm, irrigation system, fountain, or other similar installation, under or by virtue of a written contract with the owner or the owner's agent, trustee, or receiver has a lien on the property.

Thus, a person who provides the landscaping work and/or materials described above has a lien right as long as he/she has a written contract with the owner or the owner's agent, trustee, or receiver. Based on the wording of the statute, it appears that a landscaper that does not directly contract with the owner (i.e., a subcontractor to the general contractor) does not have the right to file a lien. Again, this lien right only applies to landscapers whose original contracts are executed on or after September1, 1999. The notice requirements for an original contractor apply to a landscaper perfecting a lien.

Fund Trapping

All of the above-described notices have one goal in mind. The primary goal in sending notices by contractors, subcontractors and material suppliers to the owner and original contractor is to authorize an owner to withhold funds due and owing to the original contractor. A derivative claimant must provide these notices to the owner by registered or certified mail. All derivative claimants must send third month notices to the owner stating that:

"If the claim remains unpaid, the owner may be personally liable and the owner's property may be subjected to a lien unless:

1. The owner withholds payments from the contractor for payment of the claim; or
2. The claim is otherwise paid or settled."

Although the statute states that a copy of the Claimant's statement or billing in the usual or customary form is sufficient to satisfy the notice requirements in the Property Code, all Claimants are advised to include the statutory language described above. Unless the funds are properly "trapped," a Claimant's recovery will be limited to its proportionate share of the 10% retainage required of the owner. Once an owner receives a "fund trapping" letter, the owner must withhold sufficient funds until the claim is settled, indemnified, or the time for filing the Affidavit claiming a Mechanic's Lien has passed.

Section 53.083 of the Property Code is probably a derivative claimant's best friend. Pursuant to §53.083, a derivative claimant may make demand upon the owner for payment. Such a claim must be made within the time in which the claimant would have to secure a lien for the claim. The demand must give notice to the owner that all or part of the claim has accrued under §53.053 or is past due. A copy of the demand must also be sent to the original contractor, who then has thirty (30) days to notify the owner if the original contractor disputes the claim.

If the original contractor fails to notify the owner of the dispute, the original contractor is deemed to have assented to the claim and the owner "shall" make payment to the claimant. As a matter of practice, all derivative claimants should include a demand under §53.083 to the owner in all third-month notices. Therefore, while properly fulfilling the notice requirements of the Property Code, the derivative claimant is also able to make demand upon the owner for the claim. When the original contractor fails to notify the owner that the claim has been disputed, the owner is, at least by the statute, authorized to release the money to the claimant.

Residential

Texas is known as a debtor state. Under the Texas Constitution, a person's homestead is protected from foreclosure sale, except under limited circumstances for specific debts. The amount of protection afforded to a homestead is based upon the size and location of the homestead. The homestead can only be foreclosed upon for purchase money, taxes, and home construction improvement debts. In order to establish a perfected lien on homestead property for home improvement debts, the Texas Constitution and the Property Code require that additional technicalities be strictly followed.

The Subchapter K of Chapter 53 of the Texas Property Code applies to all residential projects, homestead or otherwise. In order to properly perfect a Mechanic's Lien on residential property, the requirements set forth below must be strictly followed.

Notices and Perfecting Lien

In all residential projects, lien Claimants must satisfy the notices and Affidavit requirements of Chapter 53.

Original Contractors

As with commercial projects, an original contractor is not required to send a notice to the owner or reputed owner prior to filing an Affidavit in the property records of the county in which the property is located. For an original contractor to properly perfect a statutory lien on a residential project, the contractor must:

1. File an Affidavit in the property records with the County Clerk in the county in which the property is located not later than the 15th day of the third calendar month after the earlier of the following events:
   • The last day of the month in which the original contractor receives a declaration by the owner that the contract is terminated, or
   • On the last day of the month in which the original contract is completed, finally settled, or abandoned.
   • The contents of the Affidavit are set forth in §53.054 and are discussed in detail below.
2. Finally, the Claimant must send a copy of the Affidavit by registered or certified mail to the owner or reputed owner at the owner's last known business or residence address not later than one business day after the date the Affidavit is filed with the County Clerk (for original contracts executed before September1, 1999), or not later than five (5) business days for original contracts executed after September1, 1999.

Subcontractors

For a subcontractor to properly perfect a statutory lien on a residential project, the subcontractor must send an additional notice to fulfill the requirements set forth in §53.252. There is no distinction between first or second-tier subcontractors. A subcontractor must:

Send a registered or certified letter to both the owner or reputed owner and the original contractor at the person's last known business or residence address informing them of the unpaid balance. The Claimant must give the required notice not later than the 15th day of the second month following each month in which all or part of the Claimant's labor was performed or material or specially fabricated material was delivered. Again, the Property Code states that a copy of the subcontractor's statement or billing in the usual or customary form is sufficient as notice under this section to satisfy the requirements set forth above. However, the subcontractor should use a formal letter to avoid disputes arising out of unclear invoices and include the required warnings. The notice should contain the required statutory language that:

"If a claim remains unpaid, the owner may be personally liable and the owner's property may be subjected to a lien unless:

1. The owner withholds payments from the contractor for payment of the claim; or
2. The claim is otherwise paid or settled."

In addition, notices required to be given to the owner by derivative claimants for homestead property must include the following statement:

"If a subcontractor or supplier who furnishes materials or performs labor for construction of improvements on your property is not paid, your property may be subject to a lien for the unpaid amount, if:

1. After receiving invoice of the unpaid claim from the Claimant, you fail to withhold payment to your contractor sufficient to cover the unpaid Claimant until the dispute is resolved; or
2. During construction and for thirty (30) days after completion of construction, you fail to retain ten percent (10%) of the contract price or ten percent (10%) of the value of the work performed by your contractor.

If you have complied with the law regarding the ten percent (10%) retainage and you have withheld payment to the contractor sufficient to cover any written notice of claim and have paid that amount, if any, to the Claimant, any lien claim filed on your property by a subcontractor or supplier, other than a person who contracted directly with you, will not be a valid lien on your property. In addition, except for the required ten percent (10%) retainage, you are not liable to a subcontractor or supplier for any amount paid to your contractor before you receive written notice of the claim."

Next, the Claimant must file an Affidavit in the property records with the County Clerk in the county in which the property is located not later than the 15th day of the third calendar month following the last day of the last month in which the claimant supplied work or material. The contents of the Affidavit are set forth in §53.054 and are discussed in detail below.

Finally, the Claimant must send a copy of the Affidavit by registered or certified mail to the owner or reputed owner at the owner's last known business or residence address, and to the original contractor at the original contractor's last known business or residence address, not later than one business day after the date the Affidavit is filed with the County Clerk, or five (5) days after the date of filing for original contracts executed after September1, 1999.

Contractual Notice

For homestead property, the Constitution and the Property Code require a written contract to be signed by both the husband and the wife (if the homestead is community property). Chapter 41 of the Property Code requires a contractor to place the following warning in 10 point bold-type next to the owner's signature on home construction or improvement contracts:

IMPORTANT NOTICE: You and your contractor are responsible for meeting the terms and conditions of this contract. If you sign this contract and you fail to meet the terms and conditions of this contract, you may lose your legal ownership rights in your home. KNOW YOUR RIGHTS AND DUTIES UNDER THE LAW. (§ 41.007).

Failure to include the warning constitutes a false, misleading or deceptive act or practice under the Deceptive Trade Practices Act.

Execution and Filing of Contract

Section 53.254 further requires that the written contract for residential homestead projects be entered into before work commences and that the contract be filed with the County Clerk of the county where the property is located. A contract made and recorded by an original contractor inures to the benefit of all persons who perform labor or furnish materials for the original contractor. Therefore, unless the original contractor satisfies the requirements of §53.254, neither the original contractor nor any subcontractors or suppliers will, most likely, have any lien rights on the homestead.

Affidavit Warning

Moreover, any Lien Affidavit, according to §53.254, filed on private property homestead must contain the following notice, conspicuously printed, stamped, or typed in at least 10 point bold-face or computer equivalent type, at the top of the lien:

NOTICE: THIS IS NOT A LIEN. THIS IS ONLY AN AFFIDAVIT CLAIMING A LIEN.

Relation Back Doctrine

Failure to strictly comply with the technical requirements for residential projects may not be waived or ratified by the owner. Fortunately, because of the relation back doctrine which states that a lien is created at the inception of the work no matter when the lien has actually been filed, a Claimant who commences work on property which is not homestead, but acquires homestead status during the performance of the work is not required to comply with the homestead laws for perfecting a lien. However, the time deadlines apply to all residential projects.

Affidavit

Due to the strict requirements of the Property Code, a Claimant who has time should make written requests of the owner, original contractor and/or subcontractor, as soon as possible, for the following information:

1. A legal description of the property;
2. Whether there are any prior recorded liens or security interests on the real property, and if so, the name and address of the person having the lien or security interest;
3. The name and last known address of the owner and the original contractor;
4. Whether the owner, original contractor or subcontractor have furnished or have been furnished a payment bond, and if so, the name and last known address of the surety and a copy of the bond; and
5. A copy of the original contract, and, if applicable, subcontract.

This information can be requested pursuant to §53.159. If the person from whom the information is sought does not have a direct contractual relationship with the Claimant, the Claimant should also offer to reimburse the person supplying information for actual costs of up to $25.00.

Legal Requirements

Section 53.054 states that a Lien Affidavit must be signed by the person claiming the lien or by another person on the claimant's behalf and must contain substantially the following (Experienced lien claimants should take notice that the legal requirements for a Lien Affidavit have been amended):

1. A sworn statement of the amount of the claim;
2. The name and last known address of the owner or reputed owner;
3. A general statement of the kind of work done and materials furnished by the Claimant; and for a Claimant other than an original contractor, a statement of each month in which the work was done and materials furnished for which payment is requested;
4. The name and last known address of the person by whom the Claimant was employed or to whom the Claimant furnished the materials or labor;
5. The name and last known address of the original contractor;
6. A description, legally sufficient for identification, of the property sought to be charged with the lien;
7. The Claimant's name, mailing address, and if different, physical address; and
8. For a Claimant other than an original contractor, a statement identifying the date each notice of the claim was sent to the owner and the method by which the notice was sent.

The Property Code states that a Claimant may attach to the Affidavit a copy of any applicable written agreement or contract, as well as a copy of any notice sent to the owner. However, this attachment is not necessary and many practitioners do not attach such documents to the Mechanic's Lien affidavits.

The Property Code further states that the Affidavit is not required to set forth individual items of work done or material furnished or specially fabricated. An Affidavit may use any abbreviations or symbols customary in the trade. However, Texas Courts have held that the statute contemplates a description which is meaningful and intelligible. In fact, in one specific case, Haden Company, Inc. v. Mixers, Inc., the description of labor and materials furnished by the Claimant as "5-12'2" x 14'1" O.H. Std M.G." was held to be insufficient and "gibberish" and the lien was held invalid. In other words, the more specific and "understandable" the description, the less risk a Claimant takes in a Court finding that the lien is insufficient.

Legal Description of Property Subject to Lien

While the courts have continually reiterated that there is no clear and fast rule as to what constitutes a legally sufficient description of property for purposes of Mechanic's Liens, the Texas Supreme Court has held that there must "appear enough in the description to enable a party familiar with the locality to identify the premises intended to be described with reasonable certainty, to the exclusion of others." Scholes v. Hughes , 77 Tex. 482, 14 S.W. 148 (1890). In fact, Courts in the State of Texas have continually cited the holding that:

"The descriptive words in an instrument should be given a liberal construction, in order that the writing may be upheld, and parol evidence admitted to describe the descriptive words and to identify the land; but the instrument itself must contain a nucleus of description. The parol testimony must directly be connected with the descriptive data, and when more than this is required, the description is insufficient."

Now that you have the general rule, applying such a rule can, however, be problematic. For example, describing property only by quantity and as part of a larger tract is generally void for uncertainty. Yet, a Claimant may add additional information to the description through the introduction of evidence which makes the property identifiable by someone familiar with the area may be sufficient. A Claimant should never use street addresses alone. Further, descriptions of rural routes and box numbers in the absence of appropriate evidence is insufficient. Claimants should always endeavor to use metes and bounds or lot, block and subdivision descriptions whenever possible.

Jurat

Section 53.054 requires that all Lien Affidavits contain a sworn statement of the claim, including the dollar amount of the claim. An "Affidavit" which contains only an acknowledgment by a Notary Public will not be adequate and is insufficient to satisfy the requirements of Chapter 53. Case law is abundant in holding that the Affidavit of Mechanic's Lien must be sworn to before a Notary.

Lien Amount

Full Performance

When money is owed to a contractor, subcontractor, or material supplier, Chapter 53 authorizes the Claimant to file a lien. When the Claimant has fully performed its contractual obligations without compensation, the Claimant is entitled to file a lien up to the full amount of the money owed under the contract, plus any charges for extra work performed. Sales tax on items which have been incurred in the process of completing the project may also be included in the lien amount. However, attorneys' fees and prejudgment interest may not be included as part of the lien. Furthermore, any items which are returned or repossessed by the Claimant may not be a part of the amount included in the lien.

Partial Performance

If, on the other hand, the Claimant only substantially completes its work, the Claimant is entitled to recover and place a lien on the property for the contract price, plus extra-work performed, less the cost to complete the work. When the project is not fully complete, a contractor's profit may be included in the lien amount to the extent that the profit is considered compensation for services actually rendered as opposed to the Claimant's entire lost profits.

The amount of a contractor's lien may not exceed:

1. An amount equal to the proportion of the total contract price for labor performed, materials furnished, materials specially fabricated, reasonable overhead costs incurred, and proportionate profit margin; minus
2. The sum of previous payments received by the Claimant on the contract.

Simply stated, a contractor may file a lien for the actual costs of its labor and materials furnished, plus any proportionate portion of reasonable overhead and profit for the job.

Notice of Filed Affidavit

Section 53.055 requires that a Claimant who files an Affidavit must send a copy of the Affidavit by registered or certified mail to the owner or reputed owner at the owner's last known business or residence address not later than one (1) business day after the date when the Affidavit is filed with the County Clerk for original contracts executed before September1, 1999, or within five (5) business days for original contracts executed on or after September1, 1999.

If the Claimant is not an original contractor, but a derivative claimant, a copy of the notice of the filed Affidavit must also be sent to the original contractor at the original contractor's last known business or residence address within the same time period.

Failure to send the notice within the time period established by §53.055 will void the lien. No lien will be perfected if a copy of the Lien Affidavit is not sent to the owner. As a practical matter, a notice of the filed Affidavit should be sent to the owner, and the original contractor if the Claimant is a derivative claimant, on the same day the Lien Affidavit is filed with the County Clerk in the county in which the property is located. The Property Code does not require that the copy of the Lien Affidavit being sent to the owner, and if applicable to the original contractor, be a file-stamped copy or show recordation.

Filing an Affidavit for Mechanic's & Materialman's Lien

For commercial property, the Lien Affidavit must be filed with the County Clerk in the county in which the property is located not later than the 15th day of the fourth calendar month after the day on which the indebtedness accrues. For residential property, the Lien Affidavit must be filed with the County Clerk in the county in which the property is located not later than the 15th day of the third calendar month after the day on which the indebtedness accrues. Although the County Clerk is required to record the Affidavit in the proper records for each respective county, failure of the County Clerk to properly record and index a filed Affidavit does not invalidate the lien. However, the Courts have held that the deadlines established for filing of Lien Affidavits pursuant to the Property Code are mandatory.

Filing deadlines are dependent upon the different classification of Claimants. Deadlines for filing begin to run from the accrual of indebtedness which varies for each classification of Claimant.

Original Contractors

Indebtedness to an original contractor accrues:

1. On the last day of the month in which a written declaration by the original contractor or the owner is received by the other party to the original contract stating that the original contract has been terminated or
2. On the last day of the month in which the original contract has been completed, finally settled, or abandoned.

First-Tier Subcontractors

Indebtedness to a first-tier subcontractor accrues on the last day of the last month in which labor was performed or material furnished.

Second-Tier Subcontractors

Indebtedness to a second-tier subcontractor accrues on the last day of the last month in which labor was performed or material furnished.

Specially Fabricated Materials

Accrual of indebtedness for fabricators of specially fabricated materials accrues on:

1. The last day of the last month in which materials were delivered;
2. On the last day of the last month in which delivery of the last of the material would normally have been required at the job-site; or
3. The last day of the month of any material breach or termination of the original contract by the owner, original contractor or subcontractor under which the specially fabricated material was furnished.

Consequently, depending upon where the fabricator of specially fabricated materials fits within the construction tiers, the time period for filing a Lien Affidavit will vary. However, actual delivery of specially fabricated materials will trigger the calculation of the accrual period, even though the date was later than the date on which the material should have been delivered.

Constitutional Liens

In addition to the specific statutory scheme outlined above, the Texas Constitution provides a self-executing lien for improvements to property by an original contractor in direct privity of contract with the owner. The original contractor need not comply with the requirements of Chapter 53 of the Property Code to enforce such a Constitutional lien. This right, however, is very limited. Art. XVI, §37 of the Texas Constitution provides:

"Mechanics, artisans, and materialmen, of every class, shall have a lien upon the buildings and articles made or prepared by them for the value of their labor done thereon, or materials furnished therefore; and the legislature shall provide by law for the speedy and efficient enforcement of said liens."

On the other hand, subcontractors and suppliers not contracting directly with the owner do not have a Constitutional lien, and are relegated to statutory liens and bond claims.

Although a Constitutional lien exists without the necessity of a Lien Affidavit, certain circumstances which would bar collection of the debt can prevent enforcement of the lien. For example, a Constitutional lien cannot be enforced against a good faith purchaser of the property who had no knowledge of the lien claim. Notwithstanding the absence of an explicit requirement to file an Affidavit claiming a Constitutional lien, in order to preserve such a claim against a subsequent good faith purchaser, Claimants are encouraged to file a Lien Affidavit in the county records for the property in question. Such a filing of the Lien Affidavit is relatively simple and will put prospective purchasers of the property on notice of the lien.

While a valid Constitutional lien requires direct contractual privity with the owner, certain provisions of the Texas Property Code (§53.026) concerning "sham contractors" may allow a subcontractor or supplier to prevail on such a claim if the Claimant can show that the original contractor was a corporation effectively controlled through the ownership of voting stock, directorships or otherwise by the owner of the property, or visa versa. As a further caveat, because of the strict interpretation of the Constitutional lien, many types of construction work are not covered, which may be covered by the statutory lien.

The Constitutional lien is only valid for articles or buildings and the land necessary to its enjoyment. Suppliers of materials such as refrigerators which are not "incorporated" into the project may not acquire a Constitutional lien, even if ordered directly by the owner. Because of the limitations of the Constitutional lien, Claimants should not rely on the Constitutional lien to protect their rights. A statutory lien or bond claim, whichever is applicable, should always be perfected in order to preserve claims. The Constitutional lien is a remedy of last resort for the original contractor who fails to timely perfect the statutory lien or bond claim.

Wrap-Up

There are precise requirements for perfecting a Mechanic's Lien in Texas. It is fatal to the lien if the proper procedures and deadlines are not followed. Always check for the latest revisions to Texas Property Code Chapter 53 for the latest information about the deadlines and requirements.