Quick Answers:
For Contractors:
- I’ve received proceeds from a loan. If I have past-due bills from a subcontractor, can I use the loan proceeds to buy more material for a project first? No, see “When does criminal liability kick in?”, below.
- My client paid me, and I have bills that need to be paid within the month. But I’m worried that my company’s account is running low. Can I hold onto the money? No, see “When does criminal liability kick in?”, below.
- Do I have to have a construction account? Yes, see “What is the Texas Construction Trust Funds Act?”, below.
- I paid $600.00 in urgent upcoming charges and I still have an outstanding invoice to a materialman from two months ago. Am I in trouble with the law? Yes, see “When does criminal liability kick in?”, below.
- Criminal charges were filed against me for misapplying TCTFA trust funds, and I paid all the beneficiaries within 30 days of the charge. Am I okay? Yes, see “What are a TCTFA trustee’s available defenses?”, below.
For Materialmen or Subcontractors:
- Does the law protect me if a contractor refuses to pay for my work? Yes, see “What is the Texas Construction Trust Funds Act?”, below.
- I work for a title company. Does TCTFA apply to me? No, see When does TCTFA apply, and when does it not apply?”, below.
- I believe my prime contractor negligently misapplied funds. Can I still sue him in a civil action? Yes, see “What about civil liability?”, below.
Introduction
So, you’re a contractor. You’re familiar with mechanic’s liens and bond claims, but you can’t seem to get these subcontractors or even sub-subcontractors from banging down your door, wondering where their money is for the work they’ve done. Can they come after you legally if you keep holding off on paying them?
Or maybe you’re a subcontractor. You know you’re on the low end of the totem pole compared to the owner or the prime contractor, but you perform valuable work and you deserve compensation for it. Despite many attempts, the prime contractor and the owner haven’t paid for work you performed three months ago, and you still see them buying new materials. Do you have a way to recover from them?
The Texas Legislature knew these sorts of disputes would arise in today’s hectic business landscape. Lawmakers specifically enacted a law to force a project’s funds to be distributed where they’re supposed to go—and if those funds don’t go to the right place, the person wrongly directing those funds has just opened herself up to both civil lawsuits and potentially jail time.
What is a mechanic’s lien?
Chapter 53 of the Texas Property Code (“Chapter 53”) is a comprehensive statute setting out mechanic’s, contractor’s, and materialmen’s lien rights in Texas.[1] The creation, perfection, and enforcement of mechanic’s liens in Texas is a highly technical multi-step process. Failure to strictly follow the statutory requirements of Chapter 53 can result in a loss of lien rights.
To address the different types of statutory mechanic’s liens for private construction projects recognized in Texas, Chapter 53:
- Separates the original contractor, subcontractors, and suppliers (claimants) into separate categories. Each category of claimant has its own set of rules and procedures to follow and deadlines to meet to perfect a valid lien claim.
- Contains different requirements to perfect a lien claim for:
- commercial property, referred to under Chapter 53 as nonresidential property;
- residential property; and
- homestead property.
How does one remove a mechanic’s lien?
There are four primary ways to remove a mechanic’s lien once it is filed of record:
- waiver and release,
- recording a document in the real property records,
- filing a bond, or
- the expiration of the statute of limitations.
An executed waiver and release of a mechanic’s lien or a statutory payment bond claim:[2]
- Can be required by a paying party before any payment is made.
- May be used:
- by the property owner before paying a progress payment to the original contractor to ensure that the original contractor is paying downstream subcontractors; or
- by the original contractor to ensure that the contractor’s subcontractors are paying their downstream workers or suppliers.
- Does not relieve:
- the owner of its obligation for statutory retainage; or
- the original contractor from any contractual retainage obligation.
- Is only effective to release the owner and the owner’s property from mechanic’s lien claims if:
- the format of the waiver and release substantially complies with one of the statutory forms in Sections 53.284(b) through (e) of the Texas Property Code;
- the document is signed by the claimant or its agent; and
- there is evidence of payment to the subcontractor, in the case of a conditional release.
Both the claimant and the property owner may request the removal of a mechanic’s lien under certain circumstances. A mechanic’s lien or an affidavit claiming a mechanic’s lien may be discharged of record by:
- Recording any of the following instruments:
- a lien release in a form sufficient to permit it to be filed of record signed by the claimant;[3]
- an original or certified copy of a final judgment or decree of a court of competent jurisdiction that provides for the discharge of the lien;[4] or
- a certified copy of the order that removes the lien, provided that no qualifying bond or deposit was filed by the claimant within 30 days after the date the order was entered.[5]
- The filing of a bond:
- The failure of the claimant to file suit to foreclose the lien within the time period prescribed by statute.[8]
If the debt for the labor or the materials provided on a construction project is satisfied, the claimant must furnish a release of lien no later than ten days after receipt of a written request to release the lien from either:[9]
- The property owner.
- The original contractor.
- Any other person making payment.
Conclusion
If you are a property owner making improvements, or in the construction or real estate business, and want to know how to protect yourself when making or receiving construction payments, the team at Hayes Hunter PC can help. Schedule a free consultation with one of our attorneys at (346) 363-0334, or fill out a contact form here.
[1] See Tex. Prop. Code §§ 53.001 to 53.287.
[2] Tex. Prop. Code § 53.281(b).
[3] Tex. Prop. Code §§ 53.152, 53.157(1)
[4] Tex. Prop. Code § 53.157(3)
[5] Tex. Prop. Code § 53.157(6).
[6] Tex. Prop. Code §§ 53.157(4) and 53.171.
[7] Tex. Prop. Code §§ 53.157(5) and 53.201.
[8] Tex. Prop. Code § 53.157(2).
[9] Tex. Prop. Code § 53.152(a).
