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How to Bond Around a Mechanic’s Lien

April 16, 2012 By Leave a Comment

I received an email the other day asking if there was a standard form for bonding around a mechanic’s lien, so I thought it would be a good topic to write out how you actually go about bonding around a lien.  I think the first step is looking at all the options that are available to you.  This really isn’t in the scope of this article since every situation is different, but if you decide that this is the best way to proceed then the next step would be to find an insurance provider for the bond.

We really recommend going with a provider that does this in their normal course of business.  Yes, you may be able to get one of your current insurance agents to get you a bond, but in my experience, the understanding of the process and the time it takes for them to complete the process isn’t worth the trouble.  We know of a couple of local companies that we usually refer clients to, and I imagine most other construction attorneys have someone that they know is experienced with the bond process.

The next step would be to draft the Bond Affidavit.  The State of Texas does not have a bond form, but only has guidelines as to the amount of the bond and what has to be included in the bond.  Specifically, the Texas Property Code Sec. 53.172, Bond Requirements, states:

The bond must

(1)  describe the property on which the liens are claimed;

(2)  refer to each lien claimed in a manner sufficient to identify it;

(3)  be in an amount that is double the amount of the liens referred to in the bond, unless the total amount claimed in the liens exceeds $40,000, in which case the bond must be in an amount that is the greater of 1-1/2 times the amount of the liens or the sum of $40,000 and the amount of the liens;

(4)  be payable to the parties claiming the liens;

(5)  be executed by:

(A)  the party filing the bond as principal;  and

(B)  a corporate surety authorized and admitted to do business under the law in this state and licensed by this state to execute the bond as surety, subject to Section 1, Chapter 87, Acts of the 56th Legislature, Regular Session, 1959 (Article 7.19-1, Vernon’s Texas Insurance Code);  and

(6)  be conditioned substantially that the principal and sureties will pay to the named obligees or to their assignees the amount that the named obligees would have been entitled to recover if their claims had been proved to be valid and enforceable liens on the property.

After the bond is drafted and sworn to, it is filed in the county where the property in question is located.

While this process is not necessarily difficult, having a construction attorney and bond company that has repeatedly done this process can save you time and headaches, especially if your contracts require you to indemnify a person or entity by bonding around a lien and time becomes of the essence.  

Filed Under: Construction Law, Mechanics Lien Tagged With: ,

Mechanic’s Lien Research to Protect Yourself

February 6, 2012 By Leave a Comment

Have you ever gotten into a job and started hearing some bad rumors; such as, you might not get paid for your work? Or the GC on this job doesn’t pay retainage? Well a couple years ago I wrote this article:  Are you going to get paid ask a construction Lawyer to show that Attorneys can be used pro-actively instead of re-actively (which is the more expensive way). I’d like do a quick overview of something you can do yourself to pro-actively protect your business from trouble. Specifically, you can do your own research to determine if the person you are working for is having liens being filed against them currently.

As you might know, almost all larger counties have an online database you can search for deed records. However, you might not know that those same databases keep track of the lien affidavit filings as well. Here are links to the research databases around the DFW area:

Denton County Deed Record Search: https://www.dentoncounty.com/dept/county_clerk/recordsearch.asp

Dallas County Deed Record Search: http://roamdallaspropertyrecords.com/ailis/search.do

Tarrant County Deed Record Search: https://ccrecordse.tarrantcountytx.gov/RealEstate/SearchEntry.aspx

Collin County Deed Record Search: http://countyclerkrecords.co.collin.tx.us/webinquiry/

Each one works a bit differently but usually you can search for the name of the company in some form or fashion (sometimes it takes a little trial and error). Here is a search of somebody you may want to think twice before doing work for:


You will note that we put in the persons first and last name (you could have also put in a corporate name under the last name), and checked, land records. You will get results that look something like this:

As far as looking for Mechanic’s Liens that is the first highlighted area M/L AFDT, depending on the county it may say something different. It gets more interesting with the next two highlighted boxes. Abst Jdgmt means that they have lost in court and have a judgment against them and the abstract is in place to help the prevailing party secure their judgment on any real property owned by that person in that county, and I think we all know what it means when “USA” has a Fed Tax LN on someone.

This is just a quick example on how anyone can use public information to help protect their business. Obviously, if this is you and you are entering into business with someone who’s reputation you don’t know or may be a little dubious, it really pays to do your homework on the front end. If you would rather not do this yourself, then this is an example of what KMDA can do for you for all surrounding counties. We usually provide a report to our client that goes through the various businesses owned by that individual and tells you what type of Judgments and liens they might have against them.

Good Luck and Happy Researching!

Filed Under: Construction, Construction Law, General Business, Mechanics Lien Tagged With: , ,

Law Changes: Lien Waivers and Retainage Notices

January 3, 2012 By 2 Comments

In addition to the new indemnification laws that we discussed during the last blog post, there are other laws and bills that were passed that greatly affect the construction industry.  One of them is HB 1456 the other is HB 1390 you can find the full text of the new laws here: TX HB 1456 and TX HB 1390.

HB 1456 Goes into effect January 1st and pertains to Lien waivers.  You may recall it was just a few months ago I went over some of the pit falls of lien waivers in the blog post Lien Releases: Look Before You Leap.  Well HB 1456 changes how lien waivers are handled.  It provides standard forms for conditional and unconditional lien waivers.  It also fixes something that has plagued the building industry, trying to force sub-contractors to sign an unconditional waiver before payment has been made in full for the invoice or work in question.

Here is the text from the law that fixes that issue:

“A person may not require a claimant or potential claimant
to execute an unconditional waiver and release for a progress
payment or final payment amount unless the claimant or potential
claimant received payment in that amount in good and sufficient
funds.”

One other item the new law provides are conditional and unconditional waiver forms that must be substantially complied withto be valid.

The law that arose from  HB 1390 pertains to how retainage notices were to be handled since September 1, 2011.  Back in 2009 (view it here: retainage claims) I wrote about when Retainage notices are due.  HB 1390 now allows the notices to be given at the end of the project instead of requiring the contractors and/or subcontractors to give Retainage Notices at the beginning of the project.  This is important because I very rarely saw the retainage notices being timely sent, if at all.

I am VERY excited about the changes in these laws.  These go so far in protecting the Texas Contractors and takes care of many of these issues that have come up in my legal practice almost daily in the past few years.  Again, the lawmakers have gone a long way to strengthen some of the loopholes that have been used time and time again by the unsavory.

Filed Under: Construction Law, Lien Waiver, Retainage

Beware of the Changes in the Contractual Indemnification Laws in Texas

November 14, 2011 By Leave a Comment

On January 1, 2012, a new law will go into effect that is known as the Anti-indemnification Bill (HB 2093).  This will affect most construction contracts that are currently being used.

Currently, most contracts that the General Contractor requires sub-contractors to sign have an indemnification clause that limits the GC’s own liability and holds it squarely in the hands of the sub-contractor.  The great news is that those parts of any contract signed after January 1, 2012 will be void (with a few exceptions of course).

Here is a more thorough breakdown of how this law will change the way contracts need to be written:

  • A GC can no longer require a subcontractor to indemnify the GC of their own sole or partial negligence.  Indemnity clauses violating this prohibition will be void and unenforceable.
  • Unless you enter into a “Joint Defense Agreement” after a claim has been asserted, a GC’s contract can no longer require a subcontractor to defend the GC from claims based on the GC’s own negligence.
  • Additional Insured endorsements to a subcontractor’s liability insurance policy that purport to provide coverage for the GC’s sole or partial negligence, so long as the claim arises from the Subcontractor’s work, are also no longer enforceable.  It is very likely that ISO specific Additional Insured endorsement forms will be prepared to cover this in Texas (but see below).
  • NOTE:  These restrictions on indemnification (both with regard to claims and defense of claims) and on Additional Insured endorsements do NOT apply to on-the-job employee personal injury claims.  Accordingly, a GC can still make a Subcontractor defend and indemnify the GC for the Subcontractor’s own sole or partial negligence for a personal injury claim by an employee of the GC (or even other subcontractors of the GC).   This means that the current broad form intermediate or additional insured endorsements will still be enforceable in situations where personal injuries occur on the job in Texas.

The good news is that, so far, it looks like the lawmakers got it right this time.  They finally put some laws in place to give equal bargaining power to general contractors and subcontractors.  If you are a General Contractor and you are depending on these provisions to protect yourself, as of January 1st, you need to think again.  And as for Subcontractors, you no longer have to sign contracts with these provisions in them.

Filed Under: Construction Law

Lien Releases: Look Before You Leap – Part 2

August 2, 2011 By Leave a Comment

Last time I started to talk about the pitfalls that may arise from not reading lien releases more carefully. You can read it here: Lien Release – Part 1. This time I continue to expand on more issues that might arise from lien releases.

Prohibiting yourself from collecting on additional work performed was one of the concerns raised in the Addicks case disussed last time due to a release or waiver with broad language. Another concern can be other disputes that you may have regarding a project. For example, I represented a client who contracted to remove stone veneer from an apartment complex and install new stone veneer. Problems arose and my client was terminated from the project and believed that he was entitled to breach of contract damages including lost profits. However, in an effort to mitigate his damages, he sold the stone and installation materials to the subsequent contractor that was hired to perform such work. At the end of the job, the owner requested that the subsequent contractor obtain a waiver for final payment from my client and provided the subsequent contractor with the waiver. The waiver was presented to my client as simply a waiver of liens in exchange for final payment for the material my client had provided to the subsequent contractor. However, after reading the waiver closely, my client realized that such waiver stated that he was agreeing to release any and all claims that he had against the owner and the property. Such waiver may have barred my client’s claims for lost profits against the owner. It is likely that the owner intended to sneak this waiver by my client to protect itself from the claims which it expected my client to file.

It is also important to consider whether the waiver or release is conditional or unconditional. A conditional waiver or release means the waiver or release is conditioned upon some additional requirement being met before the waiver or release is effective to waive or release a contractor’s rights. Typically, the “condition” in a conditional release is payment. For instance, the waiver from the Addicks case, quoted above, is a conditional release because it states, “This waiver constitutes a representation by [Contractor] that the payment referenced above, once received, constitutes full and complete payment…”. The document does not constitute a representation of full payment until payment is received. This is an important distinction. An unconditional release does not contain a condition and, therefore, is effective upon execution. If a contractor were to execute an unconditional release with a payment application and then never receive payment (or the payment bounced), the contractor may be stopped from later trying to collect on the payment because he unconditionally released his or her rights. Another scenario in which an unconditional release can create problems is when additional work, not contemplated by the original contract, has not been billed or paid. However, this can also be a problem with a conditional lien as discussed above.

It is extremely important that you understand any waivers or releases that you execute. Make sure that that you understand exactly what is being waived or released. The best rule of thumb is that if there is any work which has been performed or goods which have been provided which are not a part of a particular payment, make sure that you specify in writing on the same document (and on each and every waiver that you subsequently sign) that the waiver or release does not cover such goods or services. If you are in doubt, consult an attorney regarding the language of the waiver or release. The short time that it takes to discuss the waiver or release may pale in comparison to the costs of claims you may inadvertently waive or release.

Filed Under: Construction Law Tagged With: ,
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