Tackle mechanic’s lien laws in Texas

In construction, the mechanic's lien is an important legal instrument protecting laborers and suppliers. Without it, contractors and subcontractors lose legal protection, resulting in significant losses.

From the labyrinth of statutory requirements to the pitfalls of strict deadlines, we'll explore why Texas stands out as one of the most challenging states in the nation for lien filings.

Why it matters: It is important to understand that asserting claims in Texas on construction projects is more complicated than most states.

Before agreeing to provide labor or materials for any construction project in Texas, the credit department should have the customer fill out a job information sheet, said Matthew Jameson, Esq., attorney at Jameson and Dunagan, P.C. (Dallas, TX).

"The job information sheet will provide basic information about the project and identify the parties involved in the construction chain, such as the owner, the general contractor (GC), the subcontractor and the surety if there is a bond involved," he said. "Having this information on the front end is crucial to putting yourself in a position to comply with the Texas mechanic's liens and bond claims laws in Texas. You need this information because it will dictate who you need to provide notice to of your claim."

If a client doesn't pay, contractors can lodge a Notice of Lien at the local county clerk's office, enabling potential property foreclosure to ensure payment. However, the process isn't as straightforward as completing a form.

"Both the type of notice and the timing of the notice depend on two factors: the type of project (private or public) and the position in the construction chain (first tier, second tier or lower)," said Randall Lindley, Esq., partner at Bell Nunnally & Martin LLP (Dallas, TX). "On a private project, subcontractors or suppliers must typically give notice to the GC and the owner on or before the fifteenth day of the third month following the month of delivery or the performance of work (labor)."

A mechanic's lien should be filed within four months of when the job was finished or when work stopped. If filed any later, the lien could become unenforceable.

In Texas, Property Code Chapter 53 allows for three different types of parties to file mechanic's liens. These include:

1. Any party who furnishes labor or materials
2. Parties who fabricate specialty materials
3. Design professionals

Once a lien is filed, its payment priority depends on its status and filing date. Typically, contract holders with the non-paying party get higher priority. Hence, prompt and correct action will optimize debt collection.

"If this claim continues to be unpaid, then the subcontractor or supplier must also file an affidavit claiming lien no later than the fifteenth day of the fourth month following the month of the last delivery or the performance of labor," Lindley said. "Actually, this rather complicated statutory notice scheme is a tremendous benefit to creditors because, upon receipt of notice, both owners and GCs must hold funds until the lower-tier parties are paid. This makes the Texas lien laws an extremely effective tool for creditors in the construction industry."

Failure to follow the smallest procedure can leave contractors and others without the legal might of a lien to obtain rightful payment. "Because of this, it is incredibly important that anyone seeking to file a mechanic's lien do so with the help of an experienced construction lawyer," reads a Feldman & Feldman article. "General contractors are not subject to this pre-lien notice requirement but should still speak with a legal professional."

Lien waivers are standardized in the Texas Property Code in Chapter 53 Section 284. "That being said, waivers which do not follow the verbiage set out in the Property Code are still accepted so signor, be wary," said Andrew Estes, CBF, district credit manager at Hajoca Corporation (Overland Park, KS). "Notaries are no longer required. Per HB 2237, lien waivers no longer need to be notarized in Texas as long as the original contract between the owner and GC was signed after January 1, 2022."

What credit professionals are saying: "Texas lien laws are among the strictest in the nation," said Estes. "Assume materials are billed January through June on a project and they are never paid," he said. "In Utah, we would send one notice out in January as it only requires one notice (which is sent within 20 days of first furnishing material). But in Texas, we would have to send notices out in March, April, May, June, July and August."

"In my opinion, Texas is the most difficult state to deal with from the standpoint of a material supplier or a subcontractor because you have to know each and every month that you've supplied material services or labor," said Chris Ring of NACM's Secured Transaction Services (STS). "Texas law is highly equitable as it significantly requires material suppliers and subcontractors to comprehend and comply with nonpayment notice regulations. The good news is, if you follow the rules in Texas, the property owner has little recourse to challenge the validity of the lien."

The potential saving grace: There is a little known and underutilized statute in Texas called The Texas Trust Fund Statute. If you fail to serve notices timely or at all and fail to file the mechanic's lien timely or at all, all may not be lost. A material supplier or subcontractor can sue the property owner under the Texas Trust Fund Statute claiming they were in privity of having lien rights and are due monies. Like any other suit action, the amount of monies owed are going to drive whether or not you proceed.

The bottom line: The mechanic's lien in Texas is critical for safeguarding payments and mitigating financial risk. It requires accurate filing under professional legal guidance.

-Jamilex Gotay, editorial associate