Tag Archives: Mechanics Lien

Working Around a Mechanic’s Lien

People tend to freak out when a mechanic’s lien is filed on a project. Of course liens are never a good thing but they are not the end of the world. Calm down… you’ve got options.

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Construction Lien Tip: Get BOTH SPOUSE’S Signatures On Residential Jobs!!!

You have to be careful when doing residential projects. First, residential jobs generally come with a higher risk of litigation because a great deal of protection is given to homeowners and consumers under the Deceptive Trade Practices Act.

Secondly, in Texas, the Property Code requires that you jump through extra hoops to perfect a lien on a homestead. The first step is a written contract. This may seem like a “no brainer” but unfortunately, there are a number situations were contractors begin working without any written agreement only to be left holding the bag later.

The second step, and one that is often overlooked  is obtaining the signatures of both spouses on residential jobs. The Texas property code requires this to have been done before any lien can be perfected on a residential homestead. Unfortunately, many contractors don’t know this and file invalid liens. I discuss this a bit more below.

 

 

Do Not Pay Invalid Liens To Save Time

“Yea… some guy up and filed a lien out of nowhere. We’re probably just going to pay them and be done with it so that we can move on.”

Unfortunately, I hear this on a weekly basis. In construction, liens are a regular part of doing business. Sometimes, subcontractors file invalid liens on projects and general contractors must try to quickly resolve the lien in order to keep the project moving. Another scenario where a lien can be a headache is when it is preventing the sale of a property. These reasons and countless others result in contractors over paying for liens or paying to resolve invalid liens.

For the most part, the contractors’ reasons for paying invalid liens can be reduced to two things: time and money. General contractors figure that it costs too much and takes too long to contest a lien. This belief is based on their understanding of a typical litigation process. Undoubtedly, some of them have been through long, drawn-out litigation and believe that a lien contest situation will be the same. Others may not have personally experienced litigation, but have familiarized themselves with the process based on the media.

Of course, these beliefs are not completely false. Sometimes litigation can be a long and expensive process. However, what most contractors may not know is that it doesn’t always have to be. This is especially true when contesting an invalid lien. The Texas Property Code as well as flexible attorneys’ fees structures have greatly reduced the costs associated with lien removal.

Section 53.160 of the Texas Property Code is titled Summary Motion to Remove a Lien. Under this chapter, a contractor can contest  a lien by having their attorney file a verified motion attacking the lien’s validity. The motion can attack the lien on the following grounds:

(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.

Using this procedure, your attorney can set the motion for hearing after 21 days. Once the motion is set for hearing the burden is on the person claiming the lien to prove that the required notice and lien affidavit were furnished to the general contractor as is required by the Texas Property Code. The attorney can then argue that the lien is invalid for one of the seven reasons listed above. The statute then states that the court shall make a timely ruling and there is no ability to file an interlocutory appeal.

Essentially, by following this proceeding an attorney may be able to get an invalid lien removed as quickly as 21 – 30 days. Also, because the proceeding is not an actual trial and there is no need for the discovery process, the procedure can be done at a fraction of the cost of regular litigation.  No discovery means there are no depositions, no shuffling documents back and forth, and no hearings forcing the production of critical documents.  These things save contractors money.

In short, this procedure may be less expensive than simply paying for the lien and may not take as long as you think. In the future, when a lien is filed on one of your projects, weigh all the options and if you believe the lien is invalid, talk to your lawyer about this procedure. The more general contractors contest invalid liens, the less likely people are to continue to file them with the belief that they’ll immediately be paid so that the project can move along.

Nothing in this article is to be considered legal advice. If you have questions or need representation concerning a construction matter , please call 832-930-0529 or email us at info@stephensbell.com

When Dreams Turn to Nightmares: Why You Should Never Bet The Business On A Single Project

It’s the kind of project a Texas contractor would love to be involved in. There’s a huge plant going up. The project is approved by all required government entities. The state governor endorses it and it appears to be backed by more money than the Dallas Cowboys! What’s not to love right? Well, unfortunately, all that glitters is not always gold and for a number of Texas companies, this dream project became a nightmare.

In 2011, Mossi & Ghisolfi Group, an Italian petrochemical company decided to bring a multibillion dollar plastic plant to Corpus Christi. The project started in 2013 and was supposed to be finished in 2016 but stalled due to non-payment issues. Now, over 40 mechanic’s liens worth more than 100 million dollars have been field on the project and Texas contractors are suffering.

As is the case in many of these situations, contractors cannot make payroll due to the fact that they scaled up their workforce for the project. Some are on the brink of going under due to the situation. For others the lack of cash flows has required them to turn down other work and they are forced to due small jobs to survive.

In looking at these situations, the question that we are typically asked is whether this situation is preventable and the unfortunate answer, is probably not. On a project this large, everything normally checks out during due diligence and contractors feel secure doing the project. Also, because the project is so large, it is unlikely that an owner or General Contractor will be willing to issue a lump sum payment. Progression invoices and payment applications (pay apps) are the standard in these situations.

The only silver lining is that with such a big company, solvency should not be an issue. If the liens are properly perfected and the contractor has good representation, they should eventually be able to collect payment. The challenge for the contractors will be in finding enough liquidity to afford to hire counsel and wait out the litigation.

It is not uncommon in these situations for a large non-paying entity to contest the quality of the work done by the contractor and use this as a reason to reduce the total amount owed. This is also grounds for the lien to be contested and litigated. A typical strategy is to try and drain the cash strapped contractor until it taps out by accepting a fraction of their original invoice in exchange for a lien release.

When this happens, it is important that the contractors stand behind the quality of their work and if necessary foreclose on their liens if they want to be paid in full. This is also why it is good practice for contractors to keep a pool of retained earnings and allocate a portion of the budget to dispute resolution.

Nothing in this article is to be considered legal advice. If you have questions or need representation due to nonpayment on a construction project , please call 832-930-0529 or email us at info@stephensbell.com

M&M Liens: Pesky Perfection Problems

Any subcontractor who has been in business for quite some time has probably attempted to perfect an M&M lien. However the M&M perfection process is simply not subcontractor friendly and often times, subs miss perfection due to non-compliance with the statutes.

There are many of examples of difficult situations where a subcontractor will have to comply with statutory requirements in order to protect its interest but compliance with those requirements are sometimes nearly impossible. For example, let’s say a subcontractor begins a project in January that is expected to take eight months to complete and payment in full is due upon completion. Now let’s say that upon completion in September, the subcontractor is not paid. If the subcontractor is contracted directly with the primary contractor, the subcontractor has likely missed its opportunity to secure payment through perfection. How can this be?

Well, according to the Texas Property Code, the subcontractor must send a letter by certified mail, return receipt requested, to the owner and the primary contractor informing them of the unpaid claim not later than the 15th day of third calendar month following each month in which labor was performed or material delivered. Tex. Prop. Code § 53.056(b). This means that in order to protect it’s interest, the subcontractor would have had to predict that it would not be paid and sent notice to the primary contractor and the owner no later than April 15 to protect its interest for the labor done in January. The same would have to be done for the remaining months.

So why not simply send notice on every project? That’s a good question. The short answer is that a subcontractor will likely run a foul with the primary contractor and make the owner nervous. No construction professional or owner wants unnecessary payment concerns during their project and any sub that raises these concerns without a reason to raise them could find themselves in hot water. Think about it, would you want the holder of your car note to send you repossession notices every month even though you pay on time?

Our firm understands the frustration of subs in these situations and are familiar with strategies and statutory remedies that allow subs to feel secure about collecting payment. We’d love to sit down and discuss them with any subcontractor having problems.

Give us a call at 832-930-0529 today!

 

The Statutory Mechanic’s Lien: Perfection Is Key

This article will be the first of a series of articles on the Statutory Mechanic’s Lien. We will discuss the process of filing and perfecting the lien under The Texas Property Code. We will also discuss some common errors that occur when filing and how those errors could result in major problems for your company.

Today we will start with the Affidavit. With regard to the affidavit, The Texas Property code reads as follows:

53.052. Filing of Affidavit

(a)  Except as provided by Subsection (b), the person claiming the lien must file an affidavit with the county clerk of the county in which the property is located or into which the railroad extends not later than the 15th day of the fourth calendar month after the day on which the indebtedness accrues.

(b)  A person claiming a lien arising from a residential construction project must file an affidavit with the county clerk of 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.

(c)  The county clerk shall record the affidavit in records kept for that purpose and shall index and cross-index the affidavit in the names of the claimant, the original contractor, and the owner. Failure of the county clerk to properly record or index a filed affidavit does not invalidate the lien.

It is important to understand that Chapter 53 of the Property code is very specific and requires knowledge of the statutory definitions of the phrases used in the code. For example, in the portion above, “the day on which the indebtedness accrues” is important. It actually helps to mark the filing deadline. However, “indebtedness accrues” is not a general term. Texas Property Code § 53.053 explains when indebtedness accrues.

53.053. Accrual of Indebtedness

(a)  For purposes of Section 53.052, indebtedness accrues on a contract under which a plan or plat is prepared, labor was performed, materials furnished, or specially fabricated materials are to be furnished in accordance with this section.

(b)  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.

(c)  Indebtedness to a subcontractor, or to any person not covered by Subsection (b) or (d), who has furnished labor or material to an original contractor or to another subcontractor accrues on the last day of the last month in which the labor was performed or the material furnished.

(d)  Indebtedness for specially fabricated material accrues:

(1)  on 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)  on the last day of the month of any material breach or termination of the original contract by the owner or contractor or of the subcontract under which the specially fabricated material was furnished.

(e)  A claim for retainage accrues on the earliest of the last day of the month in which all work called for by the contract between the owner and the original contractor has been completed, finally settled, terminated, or abandoned.

As you can see, a lack of understanding could cause you to miss your deadline. Please check back next week as we continue the series and outline the specific requirements of the affidavit.

Nothing here is intended to be legal advice and should not be interpreted as such. Please consult a lawyer for any and all of your legal questions. Please feel free to call us at 832-930-0529 with any issues your company may be having. You can also visit our website www.StephensBell.com

FUNDAMENTAL CONTRACTOR PROTECTION UNDER THE TEXAS CONSTITUTION

FUNDAMENTAL CONTRACTOR PROTECTION UNDER THE TEXAS CONSTITUTION

In Texas, Article XVI, Section 37 of the Texas Constitution reads as follows:

“Mechanics, artisans and material men, 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 therefore…”

WHAT DOES THIS MEAN?

The Texas Constitution may protect you from nonpayment for your labor and materials. Texas’ Constitution grants certain qualifying contractors an automatic lien if they are not paid on a project. The beautiful thing about this type of lien is that it does not require the contractor to serve any specific kind of notice nor does the contractor have to file an affidavit. It is also important to mention that the Texas Practice & Remedies Code allows contractors to recover attorneys’ fees in a claim for rendered services, performed labor or furnished material.

WHO QUALIFIES?

In order to qualify for the Constitutional lien:

  1. Contractors/ subcontractors must be in privity of contract with the owner.
  2. The project cannot be a public works project or building.
  3. The project cannot consist of landscaping and other similar work.

BE CAREFUL!

Despite the protections under the Texas Constitution, it would be prudent for every contractor to follow the Texas Property Code and perfect a statutory lien. This is because if a third-party purchases property without knowledge of the contractor’s constitutional lien and the third-party does not have actual or constructive notice of the lien, the Constitutional lien will be unenforceable. This is in contrast to statutory liens filed pursuant to the Property Code.

IN A NUTSHELL

The constitutional lien is a basic form of protection for qualifying contractors. However, to cover all bases and afford yourself maximum protection, comply with the Texas Property Code and perfect all liens.

Should you have any questions regarding your business, please feel free to reach out to our office at 832-930-0529 or info@kestephenslaw.com.

None of the information given here is intended to be legal advice and it should not be construed as such.