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Why You File Mechanics Liens

July 1, 2010 By Kelly M. Davis Esq. Leave a Comment

I know contractors aren’t happy that they have to pay an Attorney collect money they are owed.  And I don’t really blame them, in a perfect world that money should go straight to their bottom line.  But since it isn’t a perfect world, I try to explain to my clients why this remedy is beneficial to them.  A good article on the subject has been written recently by Scott Wolf Jr., “what happens when you file a mechanic’s lien“.  In the article he goes over some of the reasons it’s good to have a Mechanic’s Lien on your side.

Here are three of the reasons he gives in his article:

- “Without a mechanics lien, you can only sue the party you contracted with. With a lien, you can sue the property owner, those up the contracting chain from you, and the surety bonding the project.

- A mechanics lien can prevent a property from being sold, transferred or refinanced.

- Without a mechanics lien, you have no security when you file suit on your breach of contract claim. With a lien, your claim has the property as security.”

I would probably add that a Mechanic’s Lien can survive Bankruptcy in some circumstances.  Since it’s tied to the property, not the person, unlike a lawsuit or judgment.

Filed Under: Construction Law Tagged With: Construction Lien Blog, Foreclosure Mechanics Lien, Lien Law Summaries, Mechanic's Lien, Scott Wolfe Jr., Wolfe Law Group

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

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

Protecting Your Receivables

December 17, 2009 By Kelly M. Davis Esq. Leave a Comment

Here is something I wrote after the residential housing bubble burst in order to help my clients protect themselves.  Over the last few months we have seen a size able up-tick in commercial clients having trouble getting paid, so I thought I would re-post it here.  Even though the Dallas local economy is “good” compared to other parts of the country I think right now you can’t be too cautious in protecting your business.

1) Require a Credit Application

Whether your clients are other businesses or individuals, if your client has an open account with you in which you are supplying a good or service prior to getting paid, you must first require a completed credit application. The credit application should include:

* Full legal name   
* Address   
* Social Security or Tax Identification Number

If your client fails to pay their account, your costs in collecting will be much lower if you have adequate information.

2) Require a Personal Guarantee

If you enter into contracts with other companies, you should always require a personal guarantee from the person acting as principle of the company. If your client fails to pay on the account, or otherwise breaches your contract, the principle is personally responsible to you as well as their company.

3) Receivable Turn-Around

Re-structure your companies billing cycle to issue invoices immediately or, at the very least, monthly. Also, shorten the due-date. Your companies accounting will operate much more smoothly without a 45 – 60 day lag in receivables. You will also be able to more accurately estimate your income for operating.  This also helps companies that can use Mechanic’s liens to recover money owed by being able to notify and file within the deadlines of the statutes.

Filed Under: General Business Tagged With: Contracts, Mechanic's Lien, Receivables
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