The first one is, of course, the easiest.  How does an owner, etc. remove a lien which is technically considered valid (meaning, the lien was filed timely and properly perfected in accordance with the Texas Constitution and the Texas Property Code and is a valid assertion of non-payment) and which is not disputed.  The typical way to handle these liens is to work out a settlement with the lien holder for full or partial payment in return for a sworn affidavit releasing the lien which is then filed with the county in which the property is located.

The second one is a bit tougher.  There are many reasons why a lien can be disputed or considered invalid.  One being that a lien can be invalid because the proper procedures/language/timeframes weren’t followed per the Texas Constitution and the Texas Property Code (Texas sometimes can be as picky as Virginia: read here at Construction Law Musings).  Another reason for which a lien can be invalid is due to reasons of fraud (such as a contractor falsely/fraudulently placing a mechanic’s lien on a property) or because the lien amount is disputed.

Regardless of why you dispute the lien or believe it is invalid, you follow the same general steps.  Typically, I would start with a demand letter explaining why the lien is invalid or disputed and demanding that the lien be removed.  Usually, it involves threats to file a trespass to try title, fraud, breach of contract, or similar suit to remove the lien.  I have been successful with just a demand letter in many cases.  The success of a demand letter depends many times on whether the Claimant has an attorney that knows and understands the quagmire of Texas’ Mechanic’s Lien statutes and is really willing to look at the facts and give their client the opinion that ‘yes this deadline/notice, etc. was missed so the lien is invalid’ or ‘you failed to include the mandatory language in your notice letter or lien,  you should remove the lien or be possibly subject to substantial damages and attorney’s fees in a lawsuit.’  Sometimes the Claimant is just misinformed, got bad advice, and is just dead set on not removing the lien.

If they still aren’t willing to remove the invalid or disputed lien the last recourse is to file a suit to remove the lien.  You could also possibly bond around the lien, which is rarely done, should be done with caution, and is probably the subject of another blog post.  Both of these options require that you follow through with your threat as contained within your demand letter.  If you file a lawsuit, it could vary in timeframe and costs depending on the facts of the case.  If it was obvious the lien holder didn’t follow the deadlines, didn’t have the right statutory language in the notice or the lien, or did not fit the definition of a service which qualifies for a lien (see blog post Does your work fit the requirements for a mechanic’s lien), etc., the process is relatively simple but can sometimes be a lengthy time before you actually get your case heard by a Judge.  If the situation involving the dispute is a disagreement with the GC or contractor due to costs, it may be a very fact intensive case based on the events that lead up to non-payment.  However, on the other hand, you might get lucky and have a case where you file the lawsuit and actually get a default judgment removing the lien because the Defendant never responds.  If you prevail you will be able to file the judgment with the county to remove the lien.

So as you can tell, depending on the facts, the fight to remove the lien may not always be an easy one.  Next time I’ll go over what you would need to do to clear the title of old liens that are past the statute of limitations timeframe.

How to Remove a Mechanic’s Lien is a post from: Kelly M. Davis & Associates, LLC - Dallas Construction Attorney

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.

Why You File Mechanics Liens is a post from: Kelly M. Davis & Associates, LLC - Dallas Construction Attorney

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.

Didn’t foreclose on your Mechanic’s Lien? What should you do now? is a post from: Kelly M. Davis & Associates, LLC - Dallas Construction Attorney

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.

Does Your Work Meet the Requirements for a Mechanic’s Lien? is a post from: Kelly M. Davis & Associates, LLC - Dallas Construction Attorney

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.

Mechanic’s Lien Reminders Tip of the Month – Warranty Claims is a post from: Kelly M. Davis & Associates, LLC - Dallas Construction Attorney

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.

Protecting Your Receivables is a post from: Kelly M. Davis & Associates, LLC - Dallas Construction Attorney

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.

Retainage Claims is a post from: Kelly M. Davis & Associates, LLC - Dallas Construction Attorney

Definition-Residential

A single family house, duplex, triplex, or quadruplex or a unit in a multi-unit structure used for residential purposes that is owned by one or more adult persons and is used or intended to be used  as a dwelling by one or more of the owners.

As an example, work on a residential house or multiunit structure is not necessarily a “Residential Project” when it comes to mechanic’s lien laws.  Specifically, if it is a spec or tract house and the builder or general contractor who owns the house does not intend to occupy it as a primary dwelling then, technically, this type of project falls under the mechanic’s lien rules for commercial projects.

Another easy hint is, does a corporation own the house or is it for an investment?  If so, it can never be “residential” for the purposes of the mechanic’s lien laws.

Once you know what type of Claimant you are and whether or not you are working on a residential or commercial project, refer to the Deadline Chart, within this email, for the current timeline on the lien process.

REMEMBER -   IF YOU ARE A 2ND TIER CLAIMANT OR ARE WORKING ON A RESIDENTIAL PROJECT, YOUR NOTICE LETTERS AND AFFIDAVITS ARE DUE 1 MONTH EARLIER THAN 1st TIERED CLAIMANTS ON COMMERCIAL PROJECTS.

November Mechanic’s Lien Deadlines

Commercial Projects

1st Tiered Claimant:

Your notice letters are timely for work done any time after August 1, 2009.
Your mechanic’s liens are timely for work done any time after August 1, 2009.

2nd Tiered Claimant:
Your notice letters are timely for work done any time after September 1, 2009.
Your mechanic’s liens are timely for work done any time after August 1, 2009.

Residential Projects

For all Claimants:

Your notice letters are timely for work done any time after September 1, 2009.
Your mechanic’s liens are timely for work done any time after August 1, 2009.

November Mechanic’s Lien Reminder is a post from: Kelly M. Davis & Associates, LLC - Dallas Construction Attorney

I always like to see the process work.

The “Irremovable Lien” is a post from: Kelly M. Davis & Associates, LLC - Dallas Construction Attorney

• One who works directly for, or supplies materials directly to, the original contractor
• Has a contract, written or not, with the original contractor, but not with the owner

2nd Tier Claimant:

• One who works directly for or supplies directly to any first tier or other lower tier subcontractor
• Has a contract, written or not, with a first tier or lower tier subcontractor

If you have a contract directly with the Owner, technically, under mechanic’s lien laws, you are considered an original contractor.  Pursuant to the lien laws, the project can have many original contractors on a job.

Once you know what type of Claimant you are refer to the Deadline Chart, within this email, for the current timeline on the lien process which depend on the type of property the work was performed on – Commercial or Residential.

REMEMBER -   IF YOU ARE A 2ND TIER CLAIMANT, YOUR NOTICE LETTERS AND AFFIDAVITS ARE DUE 1 MONTH EARLIER THAN 1st TIERED CLAIMANTS ON COMMERCIAL PROJECTS.

October Mechanic’s Lien Reminder is a post from: Kelly M. Davis & Associates, LLC - Dallas Construction Attorney