The residential market in the Lone Star State is booming. As a current or prospective homeowner, your home is not merely a place to live, but also a valuable investment. At some point, you may wish to sell or refinance it. To increase its value—and make it a more comfortable place to live—you may conduct some home renovations sometime after you buy.
Unfortunately, mechanic’s liens can result from disputes with contractors, and liens on your property can halt your efforts to sell or refinance. A lien is a mechanism for construction-type companies to secure their financial interests without immediately filing a formal lawsuit in the local Texas District Court. What exactly is a mechanic’s lien, and what can you do if one is placed on your home after your renovation project?
As a Texas homeowner, you have hopefully never encountered a “mechanic’s lien.” These legal documents are somewhat obscure, and many homeowners have not heard of them at all.
A lien is a document that gets publicly filed in the Texas county clerk’s office, in the county where your property is located. Note that there are 254 counties in Texas, more than any other state. The contractor would file the lien in the county where your home is (not necessarily the county where his or her business is based). The lien, once filed, becomes a cloud on your title, meaning that the title is subject to the contractor’s stated financial interest in it.
To understand how a lien functions, consider this example: You hire a brick company to redo the exterior of your Dallas home. After the contractor finishes the work, the two of you argue over the agreed-upon payment amount. The company tries to charge you $7,000 more than the original contract, or claims that you asked for additional brick work, when you did not. You refuse to pay the additional sum. The contractor could then file a $7,000 mechanic’s lien with the local Texas county clerk. This essentially means that anyone who buys your property would buy it subject to owing the contractor that $7,000. This will make it difficult for you to sell or refinance the property, since no one would want to take property that is subject to this claim (and the accompanying potential litigation). Contractors therefore use liens as a means of incentivizing you to pay.
To get a sense of what a lien actually looks like, search for sample Texas versions of the form online (though the version filed on your home might look slightly different). Filing liens is intended to be a fairly simply procedure, as compared to filing a lawsuit.
The standard Texas form includes, among other pieces of information, the contractor’s company’s name, the property owner’s name, the location of the property (your home, in this case), and the amount of money still allegedly due to the contractor. The contractor must also describe the labor or material provided to the property.
In most cases, you should be able to avoid the nuisance of mechanic’s liens on your property by engaging in a reasonable negotiation with your Texas contractor before the lien is filed. Liens are typically a sign of frustration. The contractor believes you are either ignoring payment requests, or simply intend to “stiff” him or her for the work. Filing a lien is a way of protecting their interests.
Texans care about respect. If your contractor asserts that he or she is owed an extra sum of money, do not just ignore the phone calls or invoices. This might be viewed as a sign of disrespect, as well as a sign that you have no intention of honoring the request. While you might think that this “strong signal” will convince your contractor to simply go away, the contractor is just as likely to dig in his or her heels and cause legal trouble for you, either through a lien or a lawsuit (or both).
You and the contractor may have a good faith disagreement about whether certain work was part of the contract, or about the quality of that work. Rather than ignoring the issue, have a frank discussion about it, or consider going to mediation.
In mediation, a third-party neutral (often an attorney or individual with experience in the construction industry) can help you and your contractor to negotiate a fair settlement. In both negotiation and mediation, be open to clever settlement strategies. Rather than paying a lump sum of money, for instance, perhaps payments could be made over time. Rather than a monetary settlement, maybe you could offer the contractor a public endorsement or reference. Rather than fighting in court, you could offer the contractor discounted payment in exchange for a limited scope of ongoing work. The creative possibilities are endless.
Naturally, there are legal remedies available to Texas homeowners with which to fight a lien after it is filed. However, you are likely to save time and money if you find a way to settle the payment dispute beforehand. This does not mean you need to give into all of the contractor’s monetary demands, but it does mean that you should keep in mind the costs of legal action if the contractor files a lien.
Not surprisingly, Texas law permits contractors to sue you directly for breach of contract (or related causes of action such as quantum meruit) if they believe you have failed to pay them for their labor or materials. However, the state also allows the contractor to file a mechanic’s lien.