What are your legal remedies when a contractor or subcontractor places an improper lien on property?  Under what circumstances is the contractor or subcontractor liable for $10,000 for filing such a lien?  The Texas mechanic’s lien statute, found in Chapter 53 of the Texas Property Code, provides some of the answers.  Among those answers is filing a motion to remove the lien, bonding around the lien, and seeking $10,000 and punitive damages for a fraudulent lien.

1.    Summary Motion

The Texas mechanic’s lien statute, in particular Texas Property Code § 53.160, allows for a “summary motion” to remove invalid or unenforceable liens. This typically comes up on one of two ways.  In an existing lawsuit that a subcontractor brings to foreclose on a lien, the owner or original contractor can file a motion to remove the claim or lien.  If the lienholder has not already filed suit, the owner or original contractor can file suit to declare the lien invalid.  Both have the same effect—to have a court rule on the validity of the lien.

In its summary motion, the owner or original contractor can raise, among others, the following objections to enforcing a lien.

a.    Notice of claim was not furnished to the owner or original contractor.
b.    Lien affidavit failed to comply with or was not filed as required by statute.
c.    Notice of the filed affidavit was not furnished to the owner or original contractor.
d.    The owner complied with the requirements of the statute and paid the retainage and all other funds owed to the original contractor before:
i.    the claimant perfected the lien claim; and
ii.   the owner received a notice of the claim.

2.    Bonding Around the Lien

An often expensive, but quick fix to remove liens (whether they are invalid or not) is to purchase a bond to indemnify lien, also called the process of bonding around a lien.  A purchaser, insurer of title, or lender will typically give the same effect to a bond as a filed release of lien in the property records.

A few of the requirements for indemnity bonds, as found in Texas Property Code §53.171(b), are as follows.

1.    The bond must be filed with the county clerk in the county in which the property subject to the lien is located.
2.    The bond must refer to each lien claimed in a manner sufficient to identify it.
3.    The bond must be in the amount of twice the lien amount for liens up to and including $40,000 or 1 ½ times the lien amount for liens exceeding $40,000, and must be payable to the lien claimant.
4.    The county clerk must issue notice of the bond to all named obligees, i.e., the lien claimant.

3.    Fraudulent Liens

The Texas mechanic’s lien law pays special attention to fraudulent liens, requiring the lien claimant pay significant damages to the owner or original contractor.  The standard for fraud under the lien law is a contractor which files a lien with “intent to cause another person to suffer physical injury, financial injury, or mental anguish or emotional distress”.

If that standard is met, the individual that signed the lien affidavit is liable to each injured person for the following damages.

a.    The greater of:
i.    $10,000; or
ii.   the actual damages caused by the violation;
b.    Court costs;
c.    Reasonable attorney’s fees; and
d.   Exemplary damages in an amount determined by the court.

These are harsh penalties intended to deter the use of affidavits as tools to intimidate and harass.

In determining whether a lien recorded on a property is invalid, unenforceable, or fraudulent, it is always advisable to consult with legal counsel.  The attorneys in our Austin and Dallas offices are available to answer any questions you may have.

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