Contractors in the Lone Star State should be aware of mechanic’s liens, an important legal tool that can allow them to seek recovery for nonpayment of construction or repair projects.
Imagine, for example, that your company was hired to install new windows on a new commercial development in Houston. But at the end of the job, the owner (or the general contractor who hired you) fails to pay the full amount due and owing under the contract. Placing a lien on the property—known as “liening the job”—can give contractors some leverage with which to secure payment.
Filing a mechanic’s lien should never be your first step when faced with a dispute over payment. Most Texans are reasonable people, and you should do your best to negotiate with the property owner prior to filing a lien.
Of course, you should begin by mailing copies of your final invoice and/or statements. If that receives no response, telephone the owner. Send an email to create a paper trail. And then try writing a formal demand letter on your company’s letterhead.
Alternatively, hire a lawyer to write a demand letter on law firm letterhead, which will sometimes prompt a response more quickly. (After all, the mere fact that you have a lawyer might frighten a nonpaying owner or general contractor to pay up before a lawsuit is filed against the company.)
These initial steps demonstrate that you are serious about guarding your rights. You are clearly attuned to the breach of the agreement and that the property owner (or the owner’s contractor) owes you money. Strongly worded letters are often enough to save you the time, cost, and aggravation of a lien filing or lawsuit.
When calls, emails, and letters are not enough to force an owner or general contractor to pay for your work, you may need to turn to the legal system. Texas law allows you to sue a homeowner who has not paid you for simple breach of contract, or based on other related causes of action (such as quantum meruit). The same theories apply if you are a subcontractor or supplier suing a general contractor. But regardless of whether you are a general contractor, subcontractor, or supplier, the state also allows you to file a mechanic’s lien.
Texas is unique in that contractors’ rights to file mechanic’s liens are spelled out in the State’s Constitution. Article XVI, Section 37 of the Texas Constitution provides that “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 therefor.” The fact that liens are enshrined in the Constitution—in addition to legislation—shows how important they are within the state’s legal structure.
Most mechanic’s liens in Texas are governed by the more specific provisions of Texas Property Code, Chapter 53. As you will quickly see, however, the statute is somewhat long and dense. There are many potentially applicable deadlines depending on your role on the construction project and the type of project at issue. Nevertheless, it is important to understand the basics of the law if you plan to file a lien.
Under Tex Prop. Code § 53.001, almost any entity that participates in the “direct prosecution” of the improvement of real property is entitled to file a lien, as long as the strict requirements of the statute are obeyed. The statute allows contractors to file liens even if they have only contributed to landscaping, tree planting, or other aesthetic improvements.
(Separate laws apply if you did construction work directly for the State of Texas, rather than for a private property owner. Such work might include work on public schools, road, or parks. For public construction projects where you have a dispute with the State, you will need to consult the requirements of Texas Government Code Chapter 2253).
Texas’s mechanic’s lien statute refers to “general contractors” as “original contractors.” Essentially these are contractors that have a contract directly with the owner of the property (as opposed to a contract with another contractor who is overseeing the job).
If you are a general contractor, you must file an “Affidavit of Mechanic’s Lien” in the county clerk’s office in the county where the property is located. For non-residential projects, this document must be filed no later than the 15th day of the fourth month after the contract is terminated, or after you have completed your work on the project. For residential projects, it must be filed no later than the 15th day of the third month after you have completed work on the project.
These deadlines are very strict; make sure to put them in your calendar as soon as you stop work on a project, just in case something goes wrong with payment.
Unlike most states, Texas requires subcontractors to send various notices to property owners (and general contractors for whom they work) before any dispute emerges. The deadlines are somewhat convoluted, and subcontractors are advised to consult with experienced construction attorneys if they believe they will need to file a lien. Below are the general deadlines and prerequisites to filing a valid lien.
First, if you do not have a direct contract with the owner (i.e., if you are a subcontractor or supplier), you must send the owner and general contractor a “Notice of Contractual Retainage Agreement.” This notice must be sent by the 15th day of the second month in which your company is performing labor or providing materials to the project. This document spells out the amount of "retainage" that the owner or contractor is allowed to keep, if any. (Retainage is a percentage of the total amount owed to your company that is not paid until the end of the project, so as to ensure that all work is done.)
Second, within this same amount of time, you must send a “Notice of Specialty Fabricated Materials” if you are making or providing any materials that cannot be reused on another project. This preserves your rights to lien for items like customized tiles, moldings, metalwork, and so on.
Third, you must also send a “Notice of Unpaid Account” to the general contractor no later than the 15th day of the second month following each month in which you were not paid for labor or services. That’s a somewhat confusing deadline, so be sure to consider that date. Basically, the idea is that you should not go more than two months of being owed money without sending a formal notice to the contractor or owner.
Once you meet these various threshold notice requirements, you must file your Affidavit of Mechanic’s Lien with the office of the county clerk in the county where the real property is located. Sample forms are available online. Broadly speaking, the Affidavit must include your company’s name, the homeowner’s name, the location of the property, and the amount of money still due. You must also describe the labor or material you provided (in other words, how did you improve the property?).
You will see that your signature needs to be notarized, meaning that this form is a sworn statement—the legal equivalent of swearing to the veracity of the contents in court.
The lien becomes a cloud on the Texas owner’s title, meaning that the title, and any transfer of it, is subject to your company’s interest in it. This will make it difficult for the owner to sell the property or refinance it through a bank or other institutional lender. The result is that filing a lien can incentivize the owner to settle with you in order to get you to clear the title (or pressure the contractor to settle).
As you can see, the timing of lien filing and notice is perhaps the most critical piece of the puzzle. Texas’s legislature is clearly trying to push potential lienors to file (or settle) their claims quickly, and not allow liens to be filed years after a construction project is completed. While this gives owners some comfort in knowing that lien periods have expired, it means that you must act quickly to ensure that you do not lose any lien rights.
Remember that filing a lien, in and of itself, will not force the owner to pay you, nor will it force the general contractor to pay you if you are a subcontractor. The lien is merely a point of leverage, which gives you the ability to file a lawsuit to foreclose on the property—essentially a direct suit against the homeowner.
However, filing a lien will send an aggressive message. If you take this step, it might put the homeowner on the defensive, and encourage the homeowner to get lawyers involved, or to retaliate by publicly claiming that you did shoddy work. Perhaps this is the direction that you need to take, unfortunately, if the homeowner is refusing to pay.
Finally, remember that liens and the laws surrounding them in Texas can be extraordinarily technical. The statutory scheme in Texas is more complex than in most states, particularly with respect to the various deadlines and notice requirements. If you would like more detailed information, the Texas State Bar Association published a brief guide to liens in the state, available for free here. If you are owed a substantial sum of money, it might be worth your investment in a consultation meeting with an experienced construction attorney who can advise you of your rights.