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Dispute Or Remove An Invalid Mechanic’s (Construction) Lien – Texas

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Lovein Ribman is a Texas based construction law firm that represents the construction industry in every county throughout the entire state of Texas. Our firm is led by Board-Certified Construction Attorneys (an honor held by only 135 attorneys in the state) who have been assisting Property Owners and Contractors with disputing or removing invalid mechanic’s liens for over 15 years. Texas mechanic’s liens laws are among the most complex lien laws in the Nation. To compound the complexity, Texas courts require the lien Claimant to strictly follow the lien laws in order to perfect a valid lien against a Property. Despite that, the County Clerk’s Office (the location where liens are filed) will not review the lien affidavit prior to recording it to determine whether the lien Claimant is entitled to a lien or has satisfied all of the lien laws. As a result, thousands of invalid liens are recorded on a monthly basis. If you are disputing a lien claim or believe an invalid lien has been filed against your residential or commercial Property or Project, please contact us for a free consultation by calling our toll-free number at (888) 368-2483 or by submitting the Contact Form. Read below to learn more about how to remove an invalid mechanic’s lien.

TEXAS MECHANIC’S LIEN LAWS

Given the complexity of our lien laws, it is not uncommon for attorneys, online lien filing services, and Contractors to wrongfully threaten, actually file, and/or maintain an invalid and unenforceable mechanic’s lien. Unfortunately for the Property Owner or an Original Contractor whose subcontractor has filed a lien, once a lien has been filed, valid or not, it will likely prevent the Project from closing out, final payment to the Original Contractor, the Property Owner from selling or refinancing the Property, or converting a construction loan to a conventional loan. For a commercial tenant, the lien will likely place the tenant in default of its lease and prevent the release of any tenant finish-out monies. For Original Contractors, when a Subcontractor or Material Supplier files a lien, it will typically place the Original Contractor in breach of its contract and suspend future payments. In fact, as required under the Texas Property Code, Chapter 53, an Original Contractor is required to defend and indemnify the Property Owner against a mechanic’s lien; meaning the Original Contractor is legally obligated to pay for the removal of the lien. With that said, you can see how powerful mechanic’s liens can be for a lien Claimant; however, when a lien Claimant threatens to file or files an invalid lien, the power shifts to the Property Owner in that the courts will impose harsh sanctions against a lien Claimant who knowingly files and/or maintains an invalid lien as leverage for payment.

HOW TO INVALIDATE A MECHANIC’S LIEN

Below is a list and brief discussion of the most common ways in which a lien claim is found to be invalid and unenforceable.

Subcontractor’s Failure to Serve or Timely Serve a Notice of Claim (“Intent to Lien” or “Pre-Lien Notice”): All Subcontractors, Material Suppliers, Vendors, and Laborers must timely serve a Notice of Claim, also referred to as an “Intent to Lien”, “Pre-Lien Notice” or “Pre-liminary Notice” before recording the Lien Affidavit. Original Contractors (anyone hired by the Property Owner) are not required to serve this Notice before recording a mechanic’s lien. Failure to timely serve the Notice will render the lien invalid.

On residential Properties, the Notice must be served on the Property Owner and the Original Contractor by no later than the 15th day of the second month, from each and every month, the lien Claimant provided unpaid labor/material/equipment to the Property. For example, if the lien Claimant provided unpaid work in January and again in April, then the Notice for work provided in January must be served by no later than March 15th and the Notice for work provided in April, must be served by no later than June 15th.

On commercial projects, a 1st tier lien Claimant (anyone hired by the Original Contractor) has an additional month to serve the Notice, or the 15th day of the third month from each and every month that the lien Claimant provided unpaid labor/material/equipment to the Project.

To add one other layer of complexity, anyone not hired directly by the Property Owner whose work is performed at the end of a Project, must serve the Notice before the Property Owner releases final payment to the Original Contractor, even if the deadline to serve the Notice has not passed. A Property Owner may release all construction funds within after 30 days from achieving substantial completion if it has not received a valid Notice of Claim.

Failure to serve or timely serve this Notice is one of the most common ways to defeat or reduce the amount of a mechanic’s lien.

Failure to Include the Required Statutory Language in the Notice of Claim: A Notice of Claim must include certain statutory language in order to be valid. On commercial properties, this requirement is easily satisfied by advising the Property Owner that if it fails to withhold the amount claimed owed from the Original Contractor, it may become personally liable for the debt and made to pay twice. On residential homestead properties, the statutory notice requirements are more substantial and consist of three lengthy statutory notices, which are rarely included in the Notice unless prepared by a Construction Attorney.

Failure to Timely Record the Lien Affidavit: On residential Properties, a Direct Contractor (one hired by the Property Owner) has until the 15th day of the third month from completion, abandonment, termination, or suspension of the work to record a statutory lien affidavit. On commercial Properties, the Direct Contractor has an additional month, or the 15th day of the fourth month from completion, abandonment, termination, or suspension of the work. However, most direct contractors are also entitled to file a Texas Constitutional lien, which can be recorded within 4 years from completion, abandonment, termination, or suspension of the work. To be entitled to a Constitutional lien, the direct contractor must have provided labor or materials to improve the actual structure and the Property must not have been sold to a good faith purchaser (someone who was not aware of the debt) before the lien is recorded. A Direct Contractor does not have a right to record a Constitutional lien for the following type of work: design services, architectural services, engineering services, earth work, fencing, pool construction and maintenance, landscaping, irrigation, water wells, or paving exterior to the structure.

Subcontractors, Material Suppliers, Vendors, and Laborers must follow the same deadlines as general contractors, but their deadline begins to accrue when they have completed their portion of the work, or have been terminated or abandoned the Project, as opposed to when the overall Project was completed (unless their claim is for unpaid Contractual Retainage, in which case their deadline begins to accrue once the overall Project has reached substantial Completion and must be filed by no later than the 15th day of the third month from substantial completion of the Project). A Subcontractor’s deadline to file its lien affidavit, can also be reduced when the Original Contractor has been terminated from the Project.

Failure to Include the Necessary Information in the Lien Affidavit: A properly prepared lien affidavit must include: (1) the identity of the Claimant; (2) the identity of the Property Owner; (3) a description of the Property, such as address, lot/block, metes and bounds; (4) the amount owed; (5) a description of the unpaid work; (6) identification as to when the unpaid work was performed or completed; (7) if the lien Claimant is a Subcontractor, the date and method for serving the Notice of Claim and who it was served on; and (8) a notarized sworn statement that the information contained in the affidavit is true and correct. Generally, failure to include any of the aforementioned information will invalidate the lien.

Failure to Follow the Homestead Requirements: It is not easy to perfect a lien against a homestead Property and most liens filed on a homesteaded Property are in fact invalid. However, if the rules are followed, then a lien Claimant can actually foreclose (sell) a residential homestead Property to pay the amount of the lien affidavit. With that said, the most important requirements for perfecting a statutory lien against a homestead Property are: (1) the Original Contractor must have a written Contract signed by both spouses (if a married couple) before any work has been performed. If the lien being filed is a constitutional lien (as opposed to a statutory lien), then the contract must have been signed at the office of a lender, title company, or attorney and contain a notice allowing the Property Owner to rescind the Contract within three days of execution; and (2) the Contract must be recorded with the County Clerk’s Office (although this can be done at any time). If these requirements have not been satisfied then the Original Contractor and anyone working under the that Contractor, do not have lien rights against the Property. Additionally, if the lien Claimant was not hired by the Property Owner, then the Claimant must have also timely and properly served the required Notice of Claim in order to perfect a lien against the Property.

Failure to Timely Serve the Lien Affidavit: After the lien has been recorded, the lien Claimant must serve the Property Owner and Original Contractor with the lien affidavit by certified mail, or its equivalent, within 5 business days from recording the lien. Failure to do so will invalidate the lien.

Failure to File a Lawsuit to Foreclose: Recording and serving the lien affidavit is not the last step. A lien Claimant must also file a Lawsuit to foreclose the lien; meaning prove up it is actually entitled to the money claimed owed and that it followed all applicable lien laws. The Lawsuit must be filed within 1 year from the last date that the lien affidavit could be filed. Generally speaking, this deadline tends to run approximately 1 year from when the lien was recorded since most lien Claimants wait until the last date to record the lien. If a Lawsuit is not filed within these deadlines (unless on commercial properties the Property Owner has agreed to extend the deadline up to two years), then the lien becomes invalid even if all other lien requirements have been satisfied. However, unless formally removed/released, title companies, lenders, and purchasers, will assume the lien is valid, which will prevent the transaction from closing. Therefore, if an invalid lien has been filed against your Property, you should always take the necessary steps to have it removed.

METHODS WE USE FOR DEFEATING AND REMOVING AN INVALID LIEN CLAIM

Informal Demand to Release Lien: By far, the most expeditious and least expensive method to defeat a Contractor’s threat to file an invalid lien or remove an already filed invalid lien, is to prepare and send the lien Claimant a demand that thoroughly outlines the lien laws, defects with the lien documents, and the sanctions that will be sought and imposed by the Court if the invalid lien is filed and/or not immediately removed. Over the years we have found this option to be very effective.

Lawsuit to Remove an Invalid Lien: Although this is a more expensive and time-consuming option, it may be necessary if the lien Claimant will not voluntarily release the lien. Through this process, a Lawsuit is filed against the lien Claimant, along with a Motion to Remove the lien. At a minimum, this process can take up to 3 – 4 months. If the Court grants the Motion, the Plaintiff is typically entitled to recover its attorneys’ fees and costs incurred to remove the lien. In addition, if it is demonstrated that the lien claimant knowingly filed or refused to release an invalid lien with the intent to cause harm, then you may be entitled to a minimum $10,000.00 in sanctions or actual damages if higher than $10,000.00, plus reimbursement of attorneys’ fees and costs.

Motion to Deposit the Lien Amount in the Court’s Registry:: Property Owners may potentially remove a lien from their property if they deposit all “trapped funds” and reserved funds that are subject to a Notice of Claim for unpaid labor or materials and/or for unpaid contractual retainage into the Court’s registry. This process is only available if the Lien Claimant is a Derivative Claimant, i.e., not hired by the Property Owner. To initiate this process, the Property Owner would file a lawsuit in the county where the Property is located, followed by filing a Summary Motion to Remove the Lien and requesting a hearing on the motion. If the motion is granted, then the Lien would be removed and the Lien Claimant would have a right to recover against the deposited funds.

Bond Around the Lien: It is possible to purchase a bond from a Surety that stands in place of the lien. This process is commonly referred to as “bonding around the lien”. Upon recording the Bond with the County Clerk’s Office, the lien is released and the lien Claimant can no longer foreclose its lien against the Property, but instead must assert a timely claim against the bond. To purchase such a bond, you generally need to deposit 1.5 – 2 times the lien amount with the Surety or provide a Letter of Credit in the same amount. Bonding around a lien can be very expensive and is generally reserved for commercial Property Owners who have sufficient assets to purchase the Bond and pay to defend the Surety against a Claim to enforce the Bond.

Motion to Deem the Lien Unenforceable: If the lien is undisputedly invalid, but you cannot locate the lien Claimant or you cannot afford to “Bond Around the Lien”, a Motion can be filed with the Court to deem the lien unenforceable. This is different than a Motion to Remove a Lien, in that although the Court will issue an Order stating that the lien is invalid and/or unenforceable, the Order will not actually release the lien. As such, this is a last resort measure, but typically satisfies lenders, title companies, and Buyers and allows the Property Owner to refinance, close out a loan, or sell the Property.

IF YOU HAVE BEEN THREATENED WITH A LIEN OR NEED TO REMOVE A LIEN, PLEASE CONTACT US TO DISCUSS HOW WE CAN ASSIST YOU. FOR NO CHARGE, WE WILL: (1) ANALYZE THE LIEN CLAIM, (2) ANSWER ANY LIEN QUESTION, AND (3) RECOMMEND A COURSE OF ACTION.

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