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Didn’t foreclose on your Mechanic’s Lien? What should you do now?

June 29, 2010 By Kelly M. Davis Esq. 4 Comments

Last time we talked about the step one takes to foreclose on their Mechanic’s Lien and the foreclosure deadlines.  This month I wanted talk about what happens if you fail to foreclose on your mechanic’s lien within the time provided by law.   As luck would have it, I was in the process of finishing up this post, when I get a call about one of my clients two+ year old Mechanic’s Lien.  Now hopefully they will be receiving  full payment for the money they are owed.

In order to answer this question and how it was able to work out for my client, you have to know something about the recording process in Texas.  All deeds, liens, releases, and property records are filed in the records department of the county in which your property is located.  Most counties try to cross reference all document recordings through a Grantor, Grantee, and Property index.  What this means is that the document has a filer (which is the Grantor), a person to whom the record is being filed against (which is the Grantee), and attaches to a particular property through legal description and/or address.  In the mechanic’s lien context, the person filing the lien is the Grantor and the person or company to whom the lien attaches (who owns the property) is the Grantee.

Next, it is important to know how documents that have been filed are removed.  First of all, they are never really “removed.”  You can always see what was filed throughout the history of the property.  However, there are various instruments that can be filed to “release” a lien, “waive” rights to a claim, “cancel” a deed of trust, or “order” a lien to be invalid.  So, the question remains “What happens when you file a lien on a property which is not resolved through payment or release and which was never foreclosed upon?”

Throughout time, many people have given their legal opinion on this.  Legally, you have a deadline to file for foreclosure of your lien.  If you fail to foreclose, your lien is oftentimes considered “invalid.”  But is it truly “invalid?”  What happens if a first lien holder forecloses before you?  The law says that your lien is “foreclosed” out.  But does the lien go away?

The answer is that the only way to clear the title and “remove” the lien is to file a document removing such lien.  If you fail to timely foreclose on your lien, your lien document is still on file and is still attached to that property.  If a bank forecloses its’ superior lien, your lien technically is supposed to be foreclosed out, yet it is still on file in the county records and attached to that property.

So, as you can see, this is very complicated in practice.  What the law says is not necessarily what happens in reality.  The county clerk’s office does not have someone pulling liens that are no longer considered valid or that have been foreclosed out.

So, where does this leave you?  Many times, it leaves you with some bargaining power down the line.  Often times, I will have a title company contact me asking for a payoff amount for a lien I filed years before.  In this situation, there is rarely an argument as to whether the lien is still valid just how much my client will accept to release its lien.  This was the situation for the client I mentioned earlier in the post.

Other times, a bank will call us.  They foreclosed on their lien but there is still a cloud on the title which they need to remove (i.e. my client’s lien).  At that point, we enter into negotiations on how much it will take for my client to release the lien.

There are also those times where a demand is made upon you to remove your lien because you have failed to foreclose and the statute of limitations have passed.  In those situations, the lien claimant often times removes their lien without being paid.

Every situation is different.  There are some wins and some losses.  However, by understanding the filing process it helps mechanic’s lien holders understand that there are options past foreclosure.

Filed Under: Construction Law Tagged With: Construction Law, Foreclosure, Lien Release, Mechanic's Lien, Texas Mechanic's Lien

Are You Going to Get Paid? Ask a Construction Lawyer

March 4, 2010 By Kelly M. Davis Esq. Leave a Comment

We aren’t the biggest construction law firm in the DFW area, but it is funny how in our practice we get to see some industry trends developing first hand and probably even before most analysts do.  I’ve always told clients to keep up with their receivables in order to preserve their lien rights.  I’ve even gone as far as saying hey…if you don’t want to worry about deadlines just give me a monthly spreadsheet with your receivables and I can tell you which ones you have to worry about.  Usually I’m coming at it from the point of view of lien deadlines, but more and more I have another point of view.

Being an Attorney for many clients in the construction industry I get a broader industry perspective than the lone sole contractor, sub-contractor or supplier.  For instance, I usually know if residential construction projects are having more payment problems than commercial projects or vice versa.  I know what bond companies are easy to work with and which are not.

So the other day I was talking to a client about one matter when he just mentioned that he ‘may’ have another one for me.  I inquired more about it and when he was done, I told him that his ‘may’ was actually a ‘sure thing’.  His potential matter related to a specific General Contractor building an anchor store in Houston.  He was ‘promised’ that he would get paid and to just give it a month (which would have put him past his lien deadline).  What he didn’t know is the previous week I had filed a lawsuit to foreclose on a property in Dallas that the same General Contractor had built for the same retail chain.   So the odds that he would give up his lien rights and not get paid were actually pretty high.

So, yes, people can try and do liens themselves or use a online service to preserve their rights, but they give up something important (beyond probably not doing it right).  When you go to a law firm, experienced in the area of construction litigation and commercial collections, you have the added benefit of a wealth of knowledge regarding the financial viability of particular projects and General Contractors, Builders, Subcontractors and Suppliers in and around the DFW area and even in some cases, throughout the State of Texas.   Many times, we know who is paying, who is not, what jobs are having funding problems, which parties are known to be “slow pays,” “no pays,” or even continuously in litigation.  To most clients, this information is almost invaluable and is a benefit you can get from your law firm without having to spend any additional money.

Filed Under: Construction, Construction Law Tagged With: Construction Law, Texas, Texas Mechanic's Lien

Does your Work meet the requirements for a Mechanic’s Lien?

February 4, 2010 By Kelly M. Davis Esq. Leave a Comment

Every month, I get emails from various contractors wanting to lien a residential or commercial property. The problem is that not all work performed at a residence or building or on a property entitles the person to a mechanic’s lien pursuant to the Texas Property Code

To meet the definition, the work performed must be considered to be a fixture or financial benefit to increase the value of real property. For example, dental equipment, dish satellites, lawn mowing, property security, etc. would not increase the value of the property. Lawn mowing simply helps the aesthetic appeal of the property, property security provides a benefit to the owner and perhaps the contents within the property, and dental equipment is a benefit to the dentist but certainly not the property. Now, if sod had been planted or security cameras had been added, that would have improved the value of the property.

In these situations, the most the person would have would be a right to collect the monies due through civil litigation such as a demand letter or through small claims court.

Filed Under: Construction Law Tagged With: Construction Law, Mechanic's Lien, Texas

Mechanic’s Lien Reminders Tip of the Month – Warranty Claims

January 4, 2010 By Kelly M. Davis Esq. Leave a Comment

Last month, we talked about retainage claims and how you protect your ability to collect on retainage funds that are not timely paid to you.

This month, I wanted to discuss warranty claims.  Many clients believe that warranty claims can extend their mechanic’s lien deadlines.  For most clients, this would be generally untrue because the deadlines for their work performed or material supplied would not be calculated pursuant to the Substantial Completion rule, discussed below.  However, there is what may be referred to as a “loophole” that can be used to extend deadlines in very particular situations.  This would never be something I would recommend or could rely on with certainty as a court of law would have to determine its applicability to the particular circumstances.

That being said, in order to clear up some of the myths that are circulating relating to the extension of deadlines by warranty claims, it is important to understand the distinctions.  Most lien deadlines are calculated from the date that work was first performed.  Thus, doing more work does not generally extend the deadline. However, the lien deadlines are calculated by the earlier of the 3 / 4 months after work was performed (depending on whether it is considered a residential or commercial project) OR WITHIN 30 DAYS AFTER SUBSTANTIAL COMPLETION OF ENTIRE THE PROJECT (not just your portion), whichever is sooner.

So, while most subcontractors and suppliers fall within the normal mechanic’s lien deadlines, if you perform work at the end of the project (such as landscaping, which is generally one of the last aspects of a construction project), your lien deadline can be shorter than the typical 3 / 4 month time frames (as set forth in the “Deadline” portion of this email).

If you believe you are late on your mechanic’s lien or notice letter, there is quite a bit of case law that attorneys can and do use to argue around the deadlines. One such case law relates to warranty work. Warranty work can, in some instances, be the basis for arguing that substantial completion has not occurred, and thus a claimant is not late on a lien. Some courts have extended substantial completion deadlines to include punch and warranty work.

So, what does this mean to you?  If you are a subcontractor or supplier that performs work or supplies during the first or middle portion of the construction project, it means absolutely nothing because your lien deadlines are not dependent on substantial completion of the project.  However, if you perform work on what might be considered the later part of the project (about the last 4 months), your deadlines might be shorter than normal but, on the other hand, any warranty work that may have been performed on the project could possibly be used to extend the timeframe for you to properly perfect your lien.

There are a lot of companies out there filing their own liens and/or notice letters. As you can see, there is not one exact formula to the mechanic’s lien process. It depends on a variety of circumstances, all which must be taken in consideration to determine your deadlines and filing requirements. The best business practice is to meet with an attorney that understands your business and how your work fits within these deadlines. While the use of loopholes to extend your deadlines can be beneficial it certainly cannot be relied upon on a day to day basis.

Filed Under: Construction Law Tagged With: Construction Law, Lien Deadlines, Mechanic's Lien, Texas Mechanic's Lien, Warranty Claims

Retainage Claims

December 1, 2009 By Kelly M. Davis Esq. Leave a Comment

Did you know that if you are having any retainage withheld from your draws that you are required to send an additional Retainage Notice?  This is generally ONE notice that gets sent out towards the beginning of the project that protects your rights to lien the retainage later down the line if the Owner or General Contractor fails to pay it.

Like the other Mechanic’s Lien laws, there are specific deadlines you must follow:

  • First Tier-Notice to the Owner by the 15th day of the second month following FIRST MONTH of delivery / work
  • Second and Below Tiers-Notice to the Owner and the General Contractor by the 15th day of the second month following FIRST MONTH of delivery / work.

It seems like lately, and in this declining economy, contractors are “writing off their retainage” more and more frequently.  They are having a harder time getting paid the retainage amounts.  If, you do not want to lose the right to your retainage (which, a lot of times, are quite large amounts), you have to follow the retainage statute.  If you are having any retainage withheld and are not sending a Retainage Notice letter at the beginning of the project, as set forth above, you are not protecting your rights to this money!

A lot of people don’t understand this portion of the mechanic’s lien law.  The best way I can explain it is that the “typical” mechanic’s lien notice letters are not practical for retainage funds that are withheld.  Because most contractors submit multiple payment applications, instead of sending a notice letter every month (because you won’t get paid on the retainage until the completion of the job which is past all bond or lien deadlines), the code allows you to simply send one letter at the beginning of the project to cover all the monies withheld for retainage.  Then, if for some reason you are not paid upon final completion, you can make a bond or mechanic’s lien claim for the retainage amounts AND you have already fulfilled your “notice letter” requirements pursuant to the Texas Property Code.

Filed Under: Construction Law Tagged With: Construction Law, Mechanic's Lien, Retainage, Texas
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