SUMMARY OF MECHANICS’ LIEN LAW
FOR TEXAS
With Changes for 2012
Section Contents—Pre-lien Notice(s)
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•
•
•
Name of Notice
Who Must Use This Notice
When
How to Serve
Verified or notarized?
Section Contents—Mechanic’s Lien
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•
•
•
•
•
•
•
•
•
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Who is Entitled to a Lien?
When to File/Record
Where to File/Record
How to Serve
Amount of Lien
Property Subject to the Lien
Furnishing Information
Verified or Notarized
Priorities
Lien Release Bond
Miscellaneous Issues
Section Contents—Lawsuit to Foreclose Lien
•
•
•
•
•
Introduction
When
Where to File
Arbitration
Need a Lawyer?
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General Notes
Be Careful: The courts consider a mechanic’s lien to be a privilege and not a right. You
receive its benefits only if you strictly adhere to the state law requirements.
Bottom line: miss a deadline by one day and you have lost it. Unlike other areas
of the law where you can argue equities, find technical exceptions, and lawful
excuses, there is no forgiveness here. In this case, knowledge is not only power,
it’s a necessity.
In this State you will be writing down dates for at six documents: a) Third Month
Notice; b) Second Month Notice; c) Notice of Contractual Retainage; d) Notice of Specially
Fabricated Items; e) Mechanic’s Lien; and f) lawsuit to foreclose the mechanic’s lien. Write
down all the deadlines in your calendar. Use a highlighter or red pen. If you have a staff,
use a “fail safe” system by doubling up and putting it in their calendar also. This reminds you
twice. The first calendar entry should be two weeks before the due date as a preliminary
reminder.
On the second calendar entry, do a white lie to yourself. Put the due date as one
week before it is actually due as insurance in case you get busy or need legal advice.
Time is money. You will waste a lot of valuable time running around and doing it at
the last moment, as opposed to doing it early.
Because of the complexity of these notices, it is highly recommended that you consult
the chart on this website which is called: ”What Forms to Use and When“, for a detailed
description of what forms to use and their time limitations.
PRELIEN NOTICES
This state requires Notices be sent out before the mechanic’s lien is filed/recorded.
The basic information on these notices is as follows:
There are many different kinds of pre-lien notices in Texas. Because they vary,
including their time limitations and whether the project is residential or commercial, they will
described separately below.
Purpose of the
Notices:
One of the biggest dangers to an owner is paying the general, who in turn,
does not pay subs or suppliers. If this happens, the owner can pay twice if
those subs later file a mechanic’s lien. The purpose of the various Texas
pre-lien Notices is to prevent such a result. It informs the owner of one’s
lien rights and that the sub/supplier has not or may not be paid. After an
owner receives the Notice, he or she withholds monies unpaid to the
sub/supplier from the general—whether the unpaid amount under the base
contract or the retention--they are in essence frozen. These monies are
paid only upon settlement or if the sub fails to timely file a lien.
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How to Serve?
All the Notices are served by certified mail.
How Do They
Work?
The notices described above, including the Notice of Specially Fabricated
Items, Notice of Contractual Retainage, Third Month Notice, and the Second
Month Notice are all called “fund trapping notices”. The reason is that if done
properly, they “trap” money that is still in the possession of the owner and
prevent it from being paid to the general contractor if there are outstanding
claims of subcontractors or suppliers. It is like having the owner hold money for
your benefit. What would you rather have: a lien on the property that requires
the time and expense of bringing a lawsuit to foreclose or money sitting in an
account to cover your unpaid bills? These are powerful devices, but they have
their limitations: they are good only if the owner still owes the general at the
time he/she receives the Notice. If the owner has already paid the general,
there is nothing left to “hold”. That is why it is important not to wait too long
to serve. In the case of the Third and Second Month Notices, a long time is
given to serve—between two and three months. This has the effect of giving a
claimant a false sense of security—but watch out--the money may be gone in
the meantime.
This prevents the owner paying twice. A classic dilemma is when the owner
pays the general but the money does not filter down to the subs and suppliers.
A sub then files a mechanic’s lien and requests the owner to pay twice, by
remitting those funds directly to them. In Texas, unless a second or third month
notice is sent, the owner has a complete offense and does not have to pay
twice. The lesson is clear. Send out your notices so you can eliminate this
owner defense.
The best advice: serve your prelien notices early. How early should
that be? Recommendation: on the 30th day after non-payment. Here is a
common example. You work in February and send a standard billing on March
1st. It is now April 1 with no payment. Send out a second copy of your invoice,
marked unpaid, and in the same envelope send the prelien notice (whether a
third month or second month notice). Don’t wait any longer.
Remember, these notices have to be served no later than the 15th of the
second or third month, but they can be served earlier! For example, take the
second month notice. It is not a notice that is served on the second month—it is
served no later than the second month.
These notices are sent only after non-payment. Some people are confused
in thinking the notices have to go out every month, regardless of whether you
have been paid. In some states, such as California, you serve prelien notices
at the beginning of the job whether not you have been paid. In Texas these are
like collection notices and only go out during periods of nonpayment.
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What about sending the second and third month notice at the beginning of
the job—in other words, serving them early and getting them out of the way so
you do not forget? As stated above, this would not be required. It would also
cause a public relations nightmare because the owner and general would be
asked to trap funds before they have the obligation to pay.
Does an owner typically abide by the demand to withhold funds? You bet
your boots. The language in these notices is strong and states that if money is
not withheld to a sub or supplier, there can be both a mechanic’s lien and
holding the owner personally liable.
These notices are also a prerequisite for you eventually filing a mechanic’s
lien. As you know, this allows a lien to be placed on the owner’s property and if
it remains unpaid, to bringing a lawsuit to foreclose.
So in Texas, the owner can be personally liable for the debt of a sub or
supplier. This happens if the owner fails to withhold money due the general
after receiving the Notices described above. This is a material difference from
the majority of states that will not allow the owner to be personally liable—only
to subject the property to a lien.
Putting this all together, they are like a double barrel—trapping the money
and holding the owner personally liable--like a “Stop Notice”. In some states,
such as California, a subcontractor or supplier can serve the owner with a Stop
Notice which freezes the funds in the hands of the construction lender or owner.
Texas does not use that same phrase, but it has the same effect. Thus, once
an owner receives a “funds trapping” notice, unless the claim is settled or
released, he or she must withhold sufficient monies to take care of your claim.
Unless settled or otherwise released, the money has to be held until the time
expires for filing a mechanic’s lien. Of course, if you file the mechanic’s lien on
time, the money must continue to be withheld.
What about retention? There is also good news in this regard. Section
53.101 of the Property Code requires an owner to withhold at least 10% for 30
days after completion so there will be funds available.
Practically speaking, when should I serve them? To be safe, serve the
Notices at a point in which your invoices are 30 days delinquent. As an
example, assume you work in April and send out your invoice on May 1st. You
continue to do work but are not paid. On June 1st when you send out your
invoice for the unpaid work for April and May, include in the same envelope
your Notice for unpaid April work. There is simply no reason to wait any longer.
The following tables will help you determine the time deadlines for service of
the Third and Second Month Notices:
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THIRD MONTH NOTICE TIME DEADLINES
UNPAID LABOR OR MATERIALS FOR
THIS MONTH
DATE NOTICE IS SERVED
January
February
March
April
May
June
July
August
September
October
November
December
April 15
May 15
June 15
July 15
August 15
September 15
October 15
November 15
December 15
January 15
February 15
March 15
Important Note: For residential projects in which the owner occupies the property
(as opposed to residential work for a developer), the above time deadlines are shortened
by one month.
SECOND MONTH NOTICE TIME DEADLINES
UNPAID LABOR OR MATERIALS FOR
THIS MONTH
DATE NOTICE IS SERVED
January
February
March
April
May
June
July
August
September
October
November
December
March 15
April 15
May 15
June 15
July 15
August15
September 15
October 15
November 15
December 15
January 15
February 15
Important Note: For residential projects in which the owner occupies the property
(as opposed to residential work for a developer), the above time deadlines are shortened
by one month.
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As an example, assume you have performed services in April and are unpaid. This
could be for services during any period in that month—April 1 through 16; April 10
through 25, April 17 through 30, etc.—any periods for that month. Your Three Month
Notice is given on the 15th of the third month following the month those services were
performed.
In summary, if the notices are properly sent and the owner retains a 10% retention, there
may not be the requirement of a mechanic’s lien in the first place. You will have trapped the
funds which can be paid rectally to you. It also prevents a mechanic’s lien from being “wiped
out” after a construction lender forecloses on the property. Being paid directly eliminates filing
the lien in the first place.
SUMMARY OF PRELIEN NOTICES—RESIDENTIAL
Subs and suppliers who have a contract with the general (first tier subs--suppliers).
•
•
Second Month Notice (Notice of Unpaid Balance—residential)
Notice of Contractual Retainage (sub)
Sub-subs and suppliers who have a contract with a sub (2nd tier subs—suppliers and
below).
•
•
•
Second Month Notice (Notice of Unpaid Balance—residential)
Notice of Contractual Retainage (sub-sub)
(Same rules apply to sub-sub-subs—in other words, third and below tiers)
Suppliers of specially fabricated items.
•
•
Notice of Specially Fabricated Items
Same Notices as above, depending on whether you are a first or second tier supplier
Generals.
•
No prelien Notices required
SUMMARY OF PRELIEN NOTICES—COMMERCIAL
Subs and suppliers who have a contract with the general (first tier subs--suppliers).
•
•
Third Month Notice (Notice of Unpaid Balance and Demand for Payment-commercial)
Notice of Contractual Retainage (sub)
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Sub-subs and suppliers who have a contract with a sub (2nd tier subs—suppliers and
below).
•
•
•
•
Second Month Notice (Notice of Unpaid Balance-commercial)
Third Month Notice (Notice of Unpaid Balance and Demand for Payment-commercial)
Notice of Contractual Retainage (sub-sub)
(Same rules apply to sub-sub-subs—in other words third and below tiers)
Suppliers of specially fabricated items.
•
•
Notice of Specially Fabricated Items
Same Notices as above, depending on whether you are a first or second tier supplier
Generals.
•
No prelien Notices required
RESIDENTIAL PROJECTS
Prelien Notices for All Subcontractors and Suppliers
(1 , 2 , and below tiers—your contract is with a general contractor
or another subcontractor)
st
Name of Notice:
Who Must Use
this Notice:
Why is it Called
a Second Month
Notice?
nd
Second Month Notice (Notice of Unpaid Balance—residential)
All subcontractors and material/equipment suppliers who have a direct
contract with the general contractor or another subcontractor on a
residential project. Also, as to general contractors who do not have a direct
contract with the owner.
Because it must be served no later than the 15th day of the second
month following every month which has unpaid work. The name of the
Notice is confusing to many people because it implies you served it two
months after nonpayment. This is not the case. You can serve it anytime
after your invoices are unpaid, but not later than the 15th day of the
second month. In fact, if sent earlier than the second month (and this is
usually what happens), some people ask: “It is a second month notice–
why are you sending it now, it is not the second month?” For this reason,
the Notice is titled: “Notice of Unpaid Balance”. Actually, it is nothing
more than a glorified demand for payment or follow-up invoice. In fact,
7
©2012. NationalLienLaw.com. All rights reserved. (925) 899-8449. [email protected]. Revised 10-12
some people simply send a letter demanding payment with their last
invoice attached. But, the danger of doing this is that it will be invalid
unless it includes special statutory language. That is why the forms on
this website are in the form of a formal notice with that special language.
When?
It cannot be any later than the 15th day of the second month following
any month that has unpaid work. For example, assume you have
performed work in January and February, but thus far have only been
paid for January. For the unpaid work in February, you must serve the
Notice no later than April 15. The same rule applies for any other unpaid
month. So, if you haven’t been paid for June, you would serve the notice
no later than August 15.
And remember, it doesn’t make any difference what days of the month
you performed your unpaid work. For example, it makes no difference if
you worked the first or the last week of February—you still have until
April 15. You count ahead to the fifteenth day of the second month
regardless. Finally, it is not two months from the date you last performed
the work—in other words if you last worked on June 20, you would not
be filing your Notice on August 20 (instead it would be August 15).
Nevertheless, it is recommended you send it earlier than the deadline.
First send a standard invoice or billing and if unpaid within two weeks,
serve the Notice. For example, if you have performed services in
February, send your invoice on March 1st, and if it has not been paid by
March 15, send the Notice right away and do not wait until April 15.
Why Serve it so
Early?
In Texas, a lien is good only in situations in which the owner is still
holding money due the general contractor when the Notice is received.
If the money has already been paid to the general contractor before the
Notices received, you are too late to file a lien and will end up with
nothing except the right to sue the general contractor for breach of
contract. For this same reason, an owner will be subjected to a
mechanic’s lien only if they ignore the Notice at a time in which they are
still holding the money.
Does it Have
to be Served Month
After Month as Long
As I Am Unpaid?
Yes, unfortunately. It has to be served by the 15th day of the second
month for every unpaid month. If the general contractor continues to
withhold money, you would have to file it for successive months. Again,
assume you have been unpaid for February and March. You would have
to send out a separate Notice for February and a separate notice for
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March. Of course, you could “lump the two months together” and serve
one Notice by April 15, but be careful about waiting too long.
Who to Serve?
Verified or
Notarized?:
Is an Invoice
Attached?
Serve both the owner and general contractor.
The notice does not have to be verified or notarized. It is in the form of a
letter and is simply signed by the claimant.
It is not required by statute but is nevertheless recommended. There’s
less chance of your being paid if there is uncertainty as to the items
being billed. Invoices neatly set out that information. It is also human
nature to think of any excuse possible not to pay. A well presented
invoice prevents that type of defense.
-----o-----Name of Notice:
Who Must Use
this Notice:
Why is it Called
a Third Month
Notice?
Third Month Notice (Notice of Unpaid Balance and Demand for Payment—
residential)
All subcontractors and material/equipment suppliers who have a direct
contract with the general contractor or another subcontractor on a
residential project. Also, as to general contractors who do not have a direct
contract with the owner.
Because it must be served no later than the 15th day of the third month
following every month which has unpaid work. The name of the Notice is
confusing to many people because it implies you served it three months
after nonpayment. This is not the case. You can serve it anytime after
your invoices are unpaid, but not later than the 15th day of the third
month. In fact, if sent earlier than the third month (and this is usually
what happens), some people ask: “It is a third month notice–why are you
sending it now, it is not the third month?” For this reason, the Notice is
titled: “Notice of Unpaid Balance and Demand For Payment”. Actually, it
is nothing more than a glorified demand for payment or follow-up invoice.
In fact, some people simply send a letter demanding payment with their
last invoice attached. But, the danger of doing this is that it will be invalid
unless it includes special statutory language. That is why the forms on
this website are in the form of a formal notice with that special language.
9
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Is This Required
By Texas Law?
The Second Month Notice (residential) is absolutely required and clearly
stated in the Texas Property Code. But, serving a Third Month Notice on
residential property is not as clear. Texas Property Code Section
53.251(b) in essence states that you must serve a Second Month Notice
and in addition (and not in lieu of), comply with other statutory
requirements stated elsewhere in the Code. Other provisions of the code
require a Third Month Notice for commercial property:
“A person must comply with this subchapter in addition to
the other applicable provisions of this chapter to perfect a
lien that arises from a claim resulting from a residential
construction project”.
Because this language is somewhat vague, it is recommended that you
seek the advice of a construction attorney for more details.
NationalLienLaw takes the position that the Third Month Notice is not
required.
Section 53.252(b) requires a Second Month Notice to be given to the
owner and original contractor. In Texas, service on both parties typically
refers to a Third Month Notice (53.056(b)). It would make no sense to
require a claimant to serve the Notice within two months and then turn
around and serve the identical Notice on the third month. Logically, the
Second Month Notice for residential replaces other notices, including the
Third Month Notice.
2nd tier subs and suppliers on commercial property are also required to
serve a Second Month Notice but again, it would make no sense to
serve the same notice twice at the same time.
On the other hand, there are those that espouse the theory: when in
doubt serve the Notice. It certainly wouldn’t hurt serving that follow-up
Third Month Notice.
When?
It cannot be any later than the 15th day of the third month following any
month that has unpaid work. For example, assume you have performed
work in January and February, but thus far have only been paid for
January. For the unpaid work in February, you must serve the Notice no
later than May 15. The same rule applies for any other unpaid month.
So, if you haven’t been paid for June, you would serve the notice no later
than September 15.
And remember, it doesn’t make any difference what days of the month
you performed your unpaid work. For example, it makes no difference if
you worked the first or the last week of February—you still have until
10
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May 15. You count ahead to the fifteenth day of the third month
regardless. Finally, it is not three months from the date you last
performed the work—in other words if you last worked on June 20, you
would not be filing your Notice on September 20 (instead it would be
September 15).
Nevertheless, it is recommended you send it earlier than the deadline.
First send a standard invoice or billing and if unpaid within two weeks,
serve the Second Month Notice. For example, if you have performed
services in February, send your invoice on March 1st, and if it has not
been paid by March 15, send the Second Month Notice right away. If it
is not paid by March 31, send right away the Third Month Notice with
another copy of the invoice.
Why Serve it so
Early?
In Texas, a lien is good only in situations in which the owner is still
holding money due the general contractor when the Notice is received.
If the money has already been paid to the general contractor before the
Notices received, you are too late to file a lien and will end up with
nothing except the right to sue the general contractor for breach of
contract. For this same reason, an owner will be subjected to a
mechanic’s lien only if they ignore the Notice at a time in which they are
still holding the money.
Does it Have
to be Served Month
After Month as Long
As I Am Unpaid?
Yes, unfortunately. It has to be served by the 15th day of the third
month for every unpaid month. If the general contractor continues to
withhold money, you would have to file it for successive months. Again,
assume you have been unpaid for February and March. You would have
to send out a separate Notice for February and a separate notice for
March. Of course, you could “lump the two months together” and serve
one Third Month Notice by May 15, but be careful about waiting too long.
Who to Serve?
Is an Invoice
Attached?
Serve both the owner and general contractor.
It is not required by statute but is nevertheless recommended. There’s
less chance of your being paid if there is uncertainty as to the items
being billed. Invoices neatly set out that information. It is also human
nature to think of any excuse possible not to pay. A well presented
invoice prevents that type of defense.
-----o----11
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Name of Notice: Notice of Contractual Retainage (for both subs and sub-subs). NEW
NOTICE AS OF 2011.
Rights to
Retainage:
Texas Property Code Section 53.101 requires that an owner retain 10% of
the contract price or 10% of the value of the work from the general
contractor for at least 30 days after completion. Section 53.102 states this
must be for the benefit of a general contractor, as well as subcontractors
and suppliers under their contracts.
In addition, it is industry standard for a 10% retention to be in most
construction agreements, enforceable under basic contract law.
So what notices are required to perfect the right to retention? It is called a
Notice of Contractual Retention. That Notice previously was served on the
owner and general by the 15th day of the second month after the month in
which the unpaid services were performed. If not, no retention could be
included in a mechanic’s lien. Unfortunate, many contractors either did not
know about this Notice or decided not to serve it. After all, serving a notice
well before completion seemed to many to be an inadvisable. Frankly, this
remedy did not make a lot of sense.
Fortunately the law has changed. Effective for contracts entered into
on or after September 1, 2011, under section 53.057(b), the Notice can
now be served within 30 days of the claimant’s completion of their contact.
The good news is the Notice can now be served at the end of the project,
but as seen in the next paragraph, the bad news is it may shorten the time
to file mechanic’s lien.
Caution: The general contractor can shorten the time of filing a
mechanic’s lien for retention. Section 53.052 requires a lien to be filed
on the 15th day of the fourth month (three months for residential) after
completion of your contract. But a general contractor may shorten this.
under 53.057(f). The time to file a lien is reduced to 40 days after receipt
by a sub of an affidavit of completion, termination, or abandonment of the
project. Be on the lookout for such an affidavit.
Alternatively, the time to file a lien can be shortened another way. The
owner can send a notice under Section 53.057(g) demanding the filing of a
lien and the claimant must file such a lien within 30 days of that demand.
Parenthetically, the demand must have a name and address of the owner
and a description of the property so the lien can be properly recorded.
You can then include the retention amount in the regular mechanic’s lien
filed by the 15th day of the fourth month. Service is on the owner and
general if you are a sub; to both the owner, general, and your direct
subcontractor if you are a sub-sub.
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Who Must Use
this Notice:
What is the
Purpose of
the Notice?:
Subcontractors and equipment/material suppliers who have a direct
contract with the general or another subcontractor. Also, as to general
contractors who do not have a direct contract with the owner.
As is commonly known, almost any project has a 10% retention on the
base contract amount. Thus, if the contract price is $10,000.00, there
would be a retention of $1,000.00. The idea is that this ”hold back”
amount is paid at the end of the job after the owner is assured all work
has been satisfactorily completed. If not, the 10% is used to correct
defective or incomplete items, including hiring a back-charge contractor.
So, if there are progress draws, they are paid only to the extent of 90%.
If you are not rightfully paid the retention, this can be included in your
mechanic’s lien. But the State of Texas does not want you to go to the
hassle of notifying the owner on each invoice of your right to receive a
lien on the retention. So, they require it to be served only once at the
beginning of the job--so as to apply to the overall job (Texas Property
Code 53.057 (b) and (e)).
There is some information being given that this notice has to be served
every month while you’re on the job. This is not the case.
When?
As of 2011 it is served within 30 days of the completion of your
contract. Notice it is completion of your portion of the contract, not the
overall project. Under previous law, it was no later than the 15th day of
the second month after first furnishing your labor or materials. So you do
not forget sending it out, it is recommended you serve it after your
contract is signed. If the owner or general contractor complains or ask
questions why are you are sending out the notice at the beginning of the
job before the obligation to make payment, simply inform them it is not a
reflection on their integrity but is simply a requirement under Texas law.
If you forget serving it at the beginning of the job, simply include it in the
same envelope in which you send out your second month or third month
notice. Or alternatively, when you send the first unpaid invoice.
Does it Have
to be Served Month
After Month?
No. You serve only once at the beginning of the job. This covers the
entire retention for the entire job.
13
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Who to Serve?
Is an Invoice
Attached?
Verified or
Notarized?:
If your contract is directly with the general contractor, you simply serve
the owner. If your contract is directly with another subcontractor, you
serve both the owner and the general contractor.
No. the 10% retention is not based on the unpaid balance under your
invoices, but the overall contract amount with change orders. In fact, it
might be confusing if you were to attach an invoice for unpaid work with
the Notice because the owner might think the10% retention applied to
the invoice amount instead of the overall contract amount.
The notice is in the form of a demand letter and, therefore, does not need to
be verified or notarized.
COMMERCIAL PROJECTS
Pre-lien Notices for 1st Tier Subcontractors and Suppliers
(Your contract is with a general contractor)
Name of Notice:
Who Must Use
this Notice:
Why is it Called
a Third Month
Notice?
Third Month Notice (Notice of Unpaid Balance—commercial)
All subcontractors and material/equipment suppliers who have a direct
contract with the general contractor on a commercial project. Also, as to
general contractors who do not have a direct contract with the owner.
Because it must be served no later than the 15th day of the third month
following every month which has unpaid work. The name of the Notice is
confusing to many people because it implies you served it three months
after nonpayment. This is not the case. You can serve it anytime after
your invoices are unpaid, but not later than the 15th day of the third
month. In fact, if sent earlier than the third month (and this is usually
what happens), some people ask: “It is a third month notice–why are you
sending it now, it is not the third month?” For this reason, the Notice is
titled: “Notice of Unpaid Balance and Demand For Payment”. Actually, it
is nothing more than a glorified demand for payment or follow-up invoice.
In fact, some people simply send a letter demanding payment with their
last invoice attached. But, the danger of doing this is that it will be invalid
unless it includes special statutory language. That is why the forms on
this website are in the form of a formal notice with that special language.
14
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When?
It cannot be any later than the 15th day of the third month following any
month that has unpaid work. For example, assume you have performed
work in January and February, but thus far have only been paid for
January. For the unpaid work in February, you must serve the Notice no
later than May 15. The same rule applies for any other unpaid month.
So, if you haven’t been paid for June, you would serve the notice no later
than September 15.
And remember, it doesn’t make any difference what days of the month
you performed your unpaid work. For example, it makes no difference if
you worked the first or the last week of February—you still have until
May 15. You count ahead to the fifteenth day of the third month
regardless. Finally, it is not three months from the date you last
performed the work—in other words if you last worked on June 20, you
would not be filing your Notice on September 20 (instead it would be
September 15).
Nevertheless, it is recommended you send it earlier than the deadline.
First send a standard invoice or billing and if unpaid within two weeks,
serve the Notice. For example, if you have performed services in
February, send your invoice on March 1st, and if it has not been paid by
March 15, send the Notice right away.
Why Serve it so
Early?
In Texas, a lien is good only in situations in which the owner is still
holding money due the general contractor when the Notice is received.
If the money has already been paid to the general contractor before the
Notices received, you are too late to file a lien and will end up with
nothing except the right to sue the general contractor for breach of
contract. For this same reason, an owner will be subjected to a
mechanic’s lien only if they ignore the Notice at a time in which they are
still holding the money.
Does it Have
to be Served Month
After Month as Long
As I Am Unpaid?
Yes, unfortunately. It has to be served by the 15th day of the third
month for every unpaid month. If the general contractor continues to
withhold money, you would have to file it for successive months. Again,
assume you have been unpaid for February and March. You would have
to send out a separate Notice for February and a separate notice for
March. Of course, you could “lump the two months together” and serve
one Third Month Notice by May 15, but be careful about waiting too long.
Who to Serve?
Serve both the owner and general contractor.
Is an Invoice
Attached?
It is not required by statute but is nevertheless recommended. There’s
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less chance of your being paid if there is uncertainty as to the items
being billed. Invoices neatly set out that information. It is also human
nature to think of any excuse possible not to pay. A well presented
invoice prevents that type of defense.
-----o----Name of Notice: Notice of Contractual Retainage (for both subs and sub-subs). NEW LAW
AS OF 2011.
See section above for details of the new law.
Pre-lien Notices for 2nd Tier and Below Subs and Suppliers
(Your contract is with a subcontractor)
Name of Notice:
Who Must Use
this Notice:
Why is it Called
a Second Month
Notice?
When?
Second Month Notice (Notice of Unpaid Balance—commercial)
All subcontractors and material/equipment suppliers who have a direct
contract with another subcontractor on a commercial project.
Because it must be served no later than the 15th day of the second
month following every month which has unpaid work. The name of the
Notice is confusing to many people because it implies you served it two
months after nonpayment. This is not the case. You can serve it anytime
after your invoices are unpaid, but not later than the 15th day of the
second month. In fact, if sent earlier than the second month (and this is
usually what happens), some people ask: “It is a second month notice–
why are you sending it now, it is not the second month?” For this reason,
the Notice is titled: “Notice of Unpaid Balance”. Actually, it is nothing
more than a glorified demand for payment or follow-up invoice. In fact,
some people simply send a letter demanding payment with their last
invoice attached. But, the danger of doing this is that it will be invalid
unless it includes special statutory language. That is why the forms on
this website are in the form of a formal notice with that special language.
It cannot be any later than the 15th day of the second month following
any month that has unpaid work. For example, assume you have
performed work in January and February, but thus far have only been
paid for January. For the unpaid work in February, you must serve the
Notice no later than April 15. The same rule applies for any other unpaid
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month. So, if you haven’t been paid for June, you would serve the notice
no later than August 15.
And remember, it doesn’t make any difference what days of the month
you performed your unpaid work. For example, it makes no difference if
you worked the first or the last week of February—you still have until
April 15. You count ahead to the fifteenth day of the second month
regardless. Finally, it is not two months from the date you last performed
the work—in other words if you last worked on June 20, you would not
be filing your Notice on August 20 (instead it would be August 15).
Nevertheless, it is recommended you send it earlier than the deadline.
First send a standard invoice or billing and if unpaid within two weeks,
serve the Notice. For example, if you have performed services in
February, send your invoice on March 1st, and if it has not been paid by
March 15, send the Notice right away and do not wait until April 15.
Why Serve it so
Early?
In Texas, a lien is good only in situations in which the owner is still
holding money due the general contractor when the Notice is received.
If the money has already been paid to the general contractor before the
Notices received, you are too late to file a lien and will end up with
nothing except the right to sue the general contractor for breach of
contract. For this same reason, an owner will be subjected to a
mechanic’s lien only if they ignore the Notice at a time in which they are
still holding the money.
Does it Have
to be Served Month
After Month as Long
As I Am Unpaid?
Yes, unfortunately. It has to be served by the 15th day of the second
month for every unpaid month. If the general contractor continues to
withhold money, you would have to file it for successive months. Again,
assume you have been unpaid for February and March. You would have
to send out a separate Notice for February and a separate notice for
March. Of course, you could “lump the two months together” and serve
one Notice by April 15, but be careful about waiting too long.
Who to Serve?
Verified or
Notarized?:
Serve only the owner (not the general contractor).
The notice does not have to be verified or notarized. It is in the form of a
letter and is simply signed by the claimant.
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Is an Invoice
Attached?
It is not required by statute but is nevertheless recommended. There’s
less chance of your being paid if there is uncertainty as to the items
being billed. Invoices neatly set out that information. It is also human
nature to think of any excuse possible not to pay. A well presented
invoice prevents that type of defense.
-----o------
Name of Notice:
Who Must Use
this Notice:
Why is it Called
a Third Month
Notice?
Third Month Notice (Notice of Unpaid Balance and Demand for Payment—
commercial)
All subcontractors and material/equipment suppliers who have a direct
contract with another subcontractor on a commercial project.
Because it must be served no later than the 15th day of the third month
following every month which has unpaid work. The name of the Notice is
confusing to many people because it implies you served it three months
after nonpayment. This is not the case. You can serve it anytime after
your invoices are unpaid, but not later than the 15th day of the third
month. In fact, if sent earlier than the third month (and this is usually
what happens), some people ask: “It is a third month notice–why are you
sending it now, it is not the third month?” For this reason, the Notice is
titled: “Notice of Unpaid Balance and Demand For Payment”. Actually, it
is nothing more than a glorified demand for payment or follow-up invoice.
In fact, some people simply send a letter demanding payment with their
last invoice attached. But, the danger of doing this is that it will be invalid
unless it includes special statutory language. That is why the forms on
this website are in the form of a formal notice with that special language.
When?
It cannot be any later than the 15th day of the third month following any
month that has unpaid work. For example, assume you have performed
work in January and February, but thus far have only been paid for
January. For the unpaid work in February, you must serve the Notice no
later than an May 15. The same rule applies for any other unpaid month.
So, if you haven’t been paid for June, you would serve the notice no later
than September 15.
And remember, it doesn’t make any difference what days of the month
you performed your unpaid work. For example, it makes no difference if
you worked the first or the last week of February—you still have until
May 15. You count ahead to the fifteenth day of the third month
regardless. Finally, it is not three months from the date you last
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performed the work—in other words if you last worked on June 20, you
would not be filing your Notice on September 20 (instead it would be
September 15).
Nevertheless, it is recommended you send it earlier than the deadline.
First send a standard invoice or billing and if unpaid within two weeks,
serve the Notice. For example, if you have performed services in
February, send your invoice on March 1st, and if it has not been paid by
March 15, send the Notice right away.
Why Serve it so
Early?
In Texas, a lien is good only in situations in which the owner is still
holding money due the general contractor when the Notice is received.
If the money has already been paid to the general contractor before the
Notices received, you are too late to file a lien and will end up with
nothing except the right to sue the general contractor for breach of
contract. For this same reason, an owner will be subjected to a
mechanic’s lien only if they ignore the Notice at a time in which they are
still holding the money.
Does it Have
to be Served Month
After Month as Long
As I Am Unpaid?
Yes, unfortunately. It has to be served by the 15th day of the third
month for every unpaid month. If the general contractor continues to
withhold money, you would have to file it for successive months. Again,
assume you have been unpaid for February and March. You would have
to send out a separate Notice for February and a separate notice for
March. Of course, you could “lump the two months together” and serve
one Third Month Notice by May 15, but be careful about waiting too long.
Who to Serve?
Is an Invoice
Attached?
Serve both the owner and general contractor.
It is not required by statute but is nevertheless recommended. There’s
less chance of your being paid if there is uncertainty as to the items
being billed. Invoices neatly set out that information. It is also human
nature to think of any excuse possible not to pay. A well presented
invoice prevents that type of defense.
-----o-----
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Name of Notice: Notice of Contractual Retainage (for both subs and sub-subs). NEW LAW
AS OF 2011.
See discussion above as to details.
Prelien Notice for Suppliers of Specially Fabricated Items (Residential and
Commercial).
Name of Notice: Notice of Specially Fabricated Items.
Who Must Use
this Notice:
Material suppliers only (not general contractors or subs) that fabricate a
special item that cannot be used in any other projects. These persons are
also required to service the Notice of Contractual Retainage, along with
either a Third Month Notice or Second Month Notice.
When:
See Time Deadlines table.
How to Serve:
Serve the owner and general contractor by certified mail, return receipt
requested.
Verified or
Notarized?:
Since it is in the form of a demand letter, it does not need to be notarized or
verified.
MECHANICS’ LIENS
Who is Entitled
to a Lien:
A mechanic’s lien is primarily for general contractors, subcontractors,
laborers, as well as material/equipment suppliers. But it also covers
architects, engineers, and surveyors. Material/equipment suppliers must
have their materials delivered to or used in the project in order to receive a
lien. The exception is specially-fabricated materials that receive a lien even
if the material is not delivered or incorporated.
When to File/
Record:
See Time Deadlines table.
The basic rule for a general is to file the lien on the 15th day of the fourth
month (third month for residential) after completion of the overall project.
The basic rule for a sub or supplier is to file the lien on the 15th day of the
fourth month (third month for residential) after completion of your specific
contract.
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Be careful: The time can be shortened:
A. 40 days. A general contractor may shorten this for a lien that claims
unpaid retention under 53.057(f). The time to file a lien is reduced to 40
days after receipt by a sub of an affidavit of completion, termination, or
abandonment of the project. Since most mechanic’s liens include retention,
and you typically only file one lien, this can be very important. Be on the
lookout for such an affidavit.
B. 30 days. The owner can send a notice under Section 53.057(g)
demanding the filing of a lien and the claimant must file such a lien within
30 days of that demand. Parenthetically, the demand must have a name
and address of the owner and a description of the property so the lien can
be properly recorded.
Where to
File/Record:
How to Serve:
Amount of
Lien:
Property
Subject to
the Lien:
The Lien Affidavit must be filed with the county clerk of the county in which
the property is located.
Within 5 days of filing the Lien Affidavit, service is made by certified mail,
return receipt requested. If you are a general contractor, you only need
serve the owner. For all others, you must serve the owner and the general
contractor.
Primarily for unpaid labor, material, and equipment supplied. Attorney’s
fees, although they cannot be in the lien, can be awarded to the successful
party in a lien foreclosure action.
A mechanic’s lien applies only to private projects. No lien is allowed in
public projects against government property.
A lien in an urban area extends to the entire lot upon which the work is
done, while a lien in rural areas is limited to a total of 50 acres.
Furnishing
Information:
Verified or
Notarized?:
Upon request, the general should furnish others with information about the
owner so the required notices and lien can be filled out properly.
A verified notice simply means you sign it and are representing the
contents are true and accurate. A notarized notice is signed in front of a
Notary Public or other official. The lien must be both notarized and
verified. Note also that the verification must be by someone who has
personal knowledge of the monies claimed.
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Priorities:
Lien Release
Bond:
A mortgage has priority over mechanics’ liens only if it is recorded before
the “first spade of dirt is turned”. In other words, if it is recorded before any
work begins on the project. On the other hand, if it is recorded after work
begins by any persons or trade, the lien claimants take priority. The only
exception is that architects, engineers, and surveyors have a lien priority
based on when their Lien Affidavit is recorded. Since all lien claimants,
whether general contractors, suppliers, or subcontractors, have the same
priority which relates back to the time the work first commences, in most
cases contractors have priority over design professionals.
Once a lien is recorded against the property, the owner can clear it by
posting a surety bond for twice the amount of the lien claim up to $40,000
and 1½ times the amount if the lien exceeds $40,000. You then proceed in
court to prove your case and if you prevail, you will receive your money
directly from the surety company.
Miscellaneous
Issues:
Residential Contracts.
Residential construction contracts between the owner and general
contractor must be in writing before the project starts and a copy of the
contract must be filed with the county clerk. There are also special fund
trapping letters which apply, with special statutory language of warning to
the owner. The correct form must be used in residential projects.
Subs and suppliers that do not have a direct contract with the owner, are
also required to serve both the general and the owner with a special letter
on residential projects that warns the owner: 1) the owner and that persons
property can be personally liable if the claims are not paid, 2) the owner is
required to withhold funds due the general after receiving a timely pre-lien
notice, and 3) the owner is must hold the required retention for the benefit
of the claimants.
Notice of
Completion:
An owner can file with the county clerk a “Notice of Completion”. After
filing, it must be sent to the general contractor and to every lien claimant
who has sent out notices for unpaid claims. Finally, a subcontractor or
supplier who requests a copy of the Notice of Completion must receive one.
Except as to a general contractor, copies of the Notice of Completion must
be sent within 10 days of receiving the subcontractor’s notice letter (letter
requesting a copy of the Notice of Completion). These copies must be sent
by certified mail. The actual form is titled, “Affidavit of Completion”.
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In many states, the time in which to file a mechanic’s lien starts running
after the Notice of Completion is filed or recorded. Not so in Texas.
Regardless of when the Notice of Completion is filed, lien claimants on nonresidential property must file on the 15th day of the 4th calendar month after
completing their portion of the work (the 3rd calendar month for residential).
Lien Waivers:
NEW LAW IN 2012. For contracts signed from and after January 1, 2012,
Texas has four new statutory forms of lien waiver under Sections 53.281 and 53.282. It
rectified the past problem of signing a waiver indicating full payment, but never receiving the
promised check or getting one that never cleared. In the meantime third parties would rely
upon the waiver and the contractor found it almost impossible to extricate from that waiver.
Now, for the waiver to be valid, it must be signed by the claimant or authorized
representative, on a standard statutory form, and notarized. Additionally as to conditional
waivers, the statute makes it clear there must be “evidence of payment” for the waiver to be
valid. The waivers follow the California scheme and can be summarized as follows:
Step1: First Progress Draw--Conditional Waiver on Progress Payment #1. The
contractor signs the waiver and receives progress draw #1 waiving lien rights, but
“conditioned” on receipt of good funds.
Step 2: Second Progress Draw —a) Unconditional Waiver on Progress Payment #1
and b) Conditional Waiver on Progress Payment #2. At this point, the check on draw #1 has
cashed and the contractor signs an unconditional. At the same time, contractor signs a
waiver on draw #2, also conditioned on receipt of good funds. This process continues draw
by draw throughout the project until time to receive final payment.
Step 3. Final Payment--Conditional Waiver on Final Payment. The contractor
receives the final payments and signs a waiver for the entire job, conditioned on the funds
clearing the bank.
Step 4. Final Payment Close Out--Unconditional Waiver on Final Payment. The
funds have now cleared the bank and the contractor signs a final and unconditional waiver.
As a result, a contractor does not waive lien rights unless signing the statutory form
with the right language. Exception: Under new Section 53.282(a)(3) there can be a “no lien”
contract between the owner and the general contractor or between the general contractor
and sub, as to residential property defined as single-family, townhouse, or do duplex
(existing home, spec, or custom). But the contract waving future lien rights must be signed
before the work starts. However, no lien contract do not apply to material suppliers who do
not perform labor or installation (53.282 (c)). So watch what you sign.
As to an unconditional waiver, partial or final, you cannot be forced to sign one unless
it is substantially in the statutory form. And, even if signed, it is ineffective if the payment does
not clear (53.283).
But what if you sign an unconditional waiver through a certain date and there are
contested and unpaid change orders? Do you waive all claims as of that date? Can you later
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file a lien for these amounts? You can, and it will not be considered slander of title. But
under Section 53.282(b), the owner or general contractor may send a letter explaining why
the waiver was valid, with a copy of the waiver and a request to release it within 14 days. If
not so released, it will be invalid. A highly unsatisfactory result as being one-sided. What if
the demand to release is not in good faith or the contractor has a legitimate argument for the
change order?
Attorneys fees:
The prevailing party in an action to enforce a mechanic’s lien is typically
allowed attorneys’ fees only if there is an attorney’s fees clause in the contract. Not so in
Texas. Under new Section 53.156 as of August of 2011, the court may award attorney’s fees
and costs to either party as “equitable and just”.
As to a residential homeowner, the court is not required to award such
costs, even if that person loses! Regrettably, under the American system, there is still a
predisposed mindset that the homeowner is more innocent than the contractor. Take it from
our construction attorney who has tried over 400 cases--this is definitely not the case. In
fact, by and large, contractors are more honest than homeowners. Homeowners typically try
to get something for nothing off the sweat of the brow of the contractor. Is anyone listening?
LAWSUIT TO FORECLOSE LIEN
Introduction:
Your lien is not valid forever. Because it directly affects the owner’s title, it
has a limited shelf life and must be enforced within a short period of time.
That enforcement is done by filing a lawsuit to foreclose. Just like the time
deadlines for a Pre-Lien or Mechanic’s Lien, the courts strictly construe
these time limits which are called statutes of limitation. Again, if you are
literally one day late, the lien is ineffectual.
When:
For non-residential projects, within 2 years of the lien claimant’s deadline to
file his or her mechanic’s lien, or 1 year from completion or termination of
the entire construction project. For residential projects, it is 1 year from the
lien claimant’s deadline for filing a mechanic’s lien, or 1 year after
completion or termination of the entire project.
Where to File:
In the county where the project is located.
Arbitration:
Many construction contracts state that all disputes will be decided by
binding arbitration, as opposed to a court proceeding by judge or jury. In
fact, it has long been a tradition to do so in the construction industry.
Arbitration is usually quicker and less costly, especially because it cuts
down on expensive discovery. The decision is final and binding, with no
right to appeal. You lose your right for a jury trial, but few contractors want
that in the first place. You usually pick an experienced construction
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attorney or retired judge to hear the case in their conference room. It is just
like a court proceeding with the same general rules of evidence, but more
informal.
On the other hand, you can only foreclose your lien through a court
proceeding, not arbitration. So, how do you keep your arbitration rights and
at the same time preserve your lien rights? Simple. You bring a lawsuit to
protect the lien and then immediately request the court to stay the court
proceedings. When arbitration is done, you go back to court and turn the
arbitration award into a judgment.
Need a Lawyer?
In this country, every individual has the statutory right to represent
themselves. This means they can prepare all necessary papers, appear at
hearings, and actually try the case. In so doing, the court considers you to
be acting either in “pro se” or “pro per”. Before making this decision,
consider the following factors:
1.
You are a professional and thoroughly know the ins and
outs of not only the construction industry but of the project itself. The best
lawyer on his or her best day will probably not know more than 50% of
what you know.
2.
How is your public speaking abilities? If you are
uncomfortable speaking to a group, you will even more uncomfortable in
court or arbitration. You could be the “sharpest wit in town” but may not be
able to present your arguments. Remember, appearing uncomfortable is
perceived as having deficiencies in your case. People usually think that if
you are not comfortable about your own facts, then they must not be that
strong.
3.
If the other side has a lawyer, you might want to think twice
about representing yourself. You will certainly know the facts quite well,
but you may be blindsided by legal technicalities.
4.
You may also want to think twice if this is a really nasty and
emotional case. In other words, if the other side is going for “blood”.
Having a lawyer can shelter you from this emotional trauma. No matter
how strong you are, lawsuits are taxing not only on your time, but on your
physical and emotional energies.
5.
If you have a good case in which you have complied with
technicalities and performed good work, you are essentially engaging in a
collection action. These actions are typically very simple because there
are few defenses or defects alleged by the other side. It makes it easier for
you to represent yourself because it is more a question of when and how
much they will pay as opposed to whether you will win at all.
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6.
If you have a binding arbitration provision, you may
consider representing yourself. These proceedings are much more
informal and the arbitrator tends to give you more leeway. There are also
fewer rules and not they are usually not quite as strict.
7.
You could consider representing yourself but get advice
along the way from a lawyer. It is much cheaper that way. On the other
hand, the lawyer cannot watch over every move and you might slip up.
Many times lawyers can also help you with preparing the forms, simply
putting your name on the pleading. You can also bring in your lawyer at
the end to actually try the case.
8.
Judges and courts do not give legal advice. They only help
you with what forms to use. However, clerks can be invaluable in steering
you in the right direction as far as where to file, time limitations, the nature
of the form or pleading, etc. But, remember when it comes right down to
the ultimate advice, they cannot help you.
9.
Judges usually treat you the same as an attorney which
means they expect strict compliance with the rules. Although some judges
give you more slack, don’t count on it.
10.
The biggest dilemma is whether you should hire an
attorney for a smaller case, typically in the $5,000 to $10,000 range. You
have to watch this because you may eat up that amount in attorney’s fees.
You never make money on lawsuits, only lawyers do. Try to settle for the
best price you can get and move on.
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