Construction Lien Basics and Collection Tools
The construction industry has been hit very hard by the economy. Construction has slowed as consumers and businesses find ways to save money and delay construction that is not absolutely essential. This environment has also created an aggressive market for collections in the construction industry. Contractors, subcontractors, and vendors are having to ensure prompt and proper payment as margins shrink more and more.
This environment has also created issues where construction professionals are undertaking collections themselves, using only what they believe to be correct or what they may find on the internet. The internet can be an excellent source of information, however there is also a lot of misinformation that can create liability for improper liens and collections undertaken improperly.
The mechanics and materialmens lien, or construction lien, is a very powerful collection tool. When used properly, it is very effective at ensuring payment to the contractor, sub, or vendor. Texas law is unique from every other state in the Union when it comes to construction liens. If you are researching lien law in Texas, using forms and information from other states is not recommended.
Texas has very specific requirements, found in Chapter 53 of the Texas Property Code, that must be strictly and precisely followed in order to properly lien property that has been improved by construction. Failure to abide by and follow the deadlines, notice requirements, and contract requirements of the Texas Property Code will result in the lien being invalid. The possible penalties for filing a fraudulent lien are harsh, and they start at minimum statutory damages of $10,000 per Section 12.002 of the Texas Civil Practices & Remedies Code.
The requirements are also written in a way that is difficult to understand. For example, in order to calculate the notice and filing deadlines, a subcontractor must know when the indebtedness he is seeking payment for accrues, or becomes due. This is not determined when the subcontractor invoices the work performed or labor/materials provided, but instead, the Property Code states that “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.”
This is important, because it means that a subcontractor that performs labor or work on a project over several months may not be able to lien all of that work unless he/she has sent proper notices and made timely filings as the work progressed.
Many clients ask me why we can’t just post or provide a deadlines calendar and list on our website. The answer is that it would be difficult to do, and even more difficult to follow, because deadlines and notice requirements vary depending upon whether you are a general contractor, a subcontractor, one of multiple subcontractors, or a provider of specially fabricated materials. These deadlines also vary depending upon whether the project is a commercial project, residential/homestead project, or a public works project. There are so many variables and contingencies, that it such an undertaking would be difficult at best.
The dangers of not knowing the specific notice and lien deadlines and requirements for your scope of work and your specific project can be illustrated like this – Let’s say you are a contractor that ordinarily does commercial roofing, but with the economy you have undertaken a few larger residential roofs, one or two of which are homestead. In order to effectively lien homestead property, among the many other requirements, a contractor must have a written contract for the work, if the property owners are married then both spouses must sign it, and the contract must be filed in the real property records of the county in which work is to be done.
These are not required for commercial projects, and if you do not ordinarily do residential/homestead work you may not be aware of these additional requirements. Danger lurks here because if these requirements are not met, any lien filed against the property is invalid and subjects the contractor to possible statutory penalties for filing a fraudulent lien, as well as possible damages to the homeowner for clouding the title to the property. And, simply filing a release of the lien does not moot or undo the damages.
This law firm represents and assists construction companies and professionals with the lien process and collections. It is well worth the investment to meet with a qualified lawyer to understand and learn the lien process for your specific business. A lawyer can help you understand your deadlines, can undertake efforts to send timely notices of intent to lien with proper language that notices must have, can prepare proper lien affidavits, and give you the tools you need to successfully collect payment for your hard work.
It takes only one fraudulent lien to create significant liability exposure to your company, and that’s before we get to the legal costs to defend and resolve that situation. Take advantage of the tools in your toolbox, but know when you need a professional and it’s not a “do it yourself” job.