The Texas law authorizing mechanic’s and materialman’s liens was intended as a useful self-help tool for contractors.  Unfortunately, though, the statute instead creates a minefield of procedural and substantive snares for the unwary.   

Mechanic’s lien “mines” are most commonly detonated by prospective lienors who fail to distinguish between “original contractors” and “subcontractors,” don’t comply with the law’s notice requirements (particularly with regard to subcontractors), or identify a property subject to a lien inaccurately.

Read forward to learn about three of the most common pitfalls associated with the Texas mechanic’s lien and how you can keep your organization in line with the Texas mechanic’s lien statutes. 

Tip #1: Choose wisely

According to Aristotle, knowing who you are is the beginning of wisdom.  And, if you’re looking to file a mechanic’s lien in the great State of Texas, that means knowing whether you are an “original contractor,” a “subcontractor,” or a “sub-subcontractor.”  Choosing the right category can be the difference between holding a valid lien that gets you paid and standing on the outside looking in as an unsecured creditor.

“Original contractor” doesn’t necessarily mean “general contractor.” Rather, under the Texas statute, an “original contractor” is someone who contracts directly with the owner of a project (or through an agent acting on behalf of the project-owner).  It’s not uncommon for large or complex projects to have more than one original contractor.  

A subcontractor, on the other hand, provides labor or materials pursuant to a contract with an original contractor.  The key distinction is that there’s no direct contractual link (or “privity”) between a subcontractor and the project-owner.   One more level removed, a “second-tier subcontractor” (i.e., “sub-subcontractor” or “sub of a sub”) contracts with a first-tier subcontractor—not with an original contractor or the project-owner.

Because Texas’s mechanic’s lien statute has different notice requirements and deadlines for original contractors, subcontractors, and sub-subcontractors, understanding which category you fit into for a given project is enormously important to protecting your lien rights.

Tip #2:  Be on time, always

Texas courts strictly enforce the notice requirements and deadlines applicable to mechanic’s liens.  Miss a deadline or fail to provide sufficient notice and there’s a good chance your lien will be held invalid.  With that in mind, savvy contractors usually implement a system from the start of a project designed to ensure that all lien requirements are met.

Before you can perfect a lien by filing a lien affidavit, you need to provide notice of the lien via certified mail, return receipt requested.  The precise notice requirements and recipients depend on which category of lienor you qualify as for the specific project.

First-tier subcontractors must provide notice of an unpaid claim to the project-owner and the original contractor.  The deadline for the “third-month notice,” as it is commonly called, is the 15th day of the third month following each month in which labor was performed or materials delivered.  The third-month notice’s purpose is to allow the owner the opportunity to “trap” the funds owed to the subcontractor to avoid the filing of the lien affidavit.

Second-tier (and lower) subcontractors likewise need to send the third-month notice, but they also must provide a “second-month notice” to the original contractor not later than the 15th day of the second month following each month in which the second-tier subcontractor supplied labor or materials.  The second-month notice gives the original contractor a chance to push for a resolution before the project-owner is formally served with notice of the lien claim.  A second-tier subcontractor is not absolutely required to provide the notice to the first-tier subcontractor, but copying the first-tier sub is often a good idea.

If providing the required lien notices doesn’t do the trick, the next step is usually filing an affidavit of lien—a notarized document recorded in the county land records to put prospective purchasers on notice of the outstanding lien. The deadline for filing a lien affidavit in Texas is unforgiving.  The affidavit must be filed no later than the 15th day of the fourth month after the month in which indebtedness accrues.  

Precisely when “indebtedness accrues” once again depends on whether you are an original contractor or subcontractor.  Amounts owed to an original contractor accrue on the last day of the month in which the contract is terminated, completed, settled, or abandoned.  For a subcontractor or sub-subcontractor, indebtedness accrues on the last day on which work is performed or materials supplied for the project. For mechanic’s lien purposes, labor and materials are not considered separately.  So, providing either additional labor or additional materials can extend the deadline for filing the affidavit.

Within five days after recording a lien affidavit, a contractor must send written notice of filing, along with a copy of the affidavit, to the owner via certified mail.  Subcontractors must provide the notice of filing to the original contractor, as well.

Another all-important deadline—the statute of limitations—comes two years after the lien affidavit is filed. If a lienor hasn’t instituted an action to enforce the lien through foreclosure within that two-year window, the limitations period expires, and the contractor is left essentially unsecured (absent some other security interest).

If a contractor (original or sub) is filing a lien on contractual retainage (another requirement of the Texas mechanic’s lien statute), additional deadlines and obligations apply.  

Tip #3:  Be accurate and complete

Along with being appropriately timed, a lien affidavit must meet the Texas statute’s precise substantive requirements, including a complete and accurate legal description of the property subject to the lien.  An affidavit that doesn’t set forth a compliant property description is invalid.  

Simply listing the street address is not enough.  The safest approach is to obtain a complete legal description of the property by pulling a copy of the deed from the county land records.  Although a district appraisal website can usually supply a truncated legal description, it might not be sufficiently detailed and accurate to comply with the statutory requirements.  Remember, the mechanic’s lien statute is interpreted strictly, so it’s much better to spend a little more time getting everything exactly right than to take shortcuts and run the risk of learning down the road that your lien is no-good. 

Notwithstanding the veritable minefield it creates, Texas’s mechanic’s lien law remains a valuable tool for contractors.  And, with the assistance of experienced counsel, the tricky statute becomes much less daunting. When you have a question about Texas lien statutes, don’t hesitate to lean on the professionals at Gerstle Snelson, LLP.  We are here to help!