The amount of rules and regulations surrounding construction notices and liens is immense. That makes sense, though, because of the enormous power mechanics liens hold.
A mechanics lien allows a party to encumber somebody else’s property – even if the lien claimant didn’t contract with the property owner – and foreclose on the property and force its sale to get paid. That’s a pretty significant right, so it makes sense that they are governed by strict requirements. In this same vein, it makes sense that some states have different – and more stringent – requirements for liens against residential or owner-occupied residential property.
Since the ultimate power of the mechanics lien is based on the ability to force the sale of property to satisfy a debt – extra precautions seem reasonable when the property that may be sold is someone’s home, literally, the very place that where they live.
One question that is occasionally troubling for construction participants who are trying to understand their notice and lien requirements, though, is whether there is any difference in requirements dependent on whether a project is a residential project or an owner-occupied residential project. Or even whether there is any difference in those project types at all.
While specific definitions are generally set forth in the statutes of the state in which the project is located (and each state’s statutes are different!), there can be some generalities made about any difference between residential and owner-occupied residential projects. The distinction is the addition of one crucial piece of information – in an owner-occupied residential project, the property owner must reside in the property being improved.
While a residential project could be a house that the property owner uses as a rental or vacation home (i.e., it would be subject to residential permitting requirements, but the owner doesn’t live there), an owner-occupied residence must be the owner’s primary residence.
This means that an owner-occupied project is a subset of the more-broad “residential” project category. In other words, all owner-occupied residential projects are residential projects, but not the other way around.
When classifying a project, it would go:
Private Project –> Residential Project –> Owner-Occupied Residential Project
Note, however, that some states do not draw this distinction and treat all residential projects the same – whether or not the property owner lives there.
Do the Distinctions Matter?
Whether or not the distinction between a residential and owner-occupied residential project matters comes down to the state in which the project is located (like so many other aspects of lien law). While some states don’t make a distinction between these project types, others do, so it’s important to understand the rules specific to the state that the project is located in. And, in some cases, while there may not be any difference to the notice procedures, there may be additional different requirements that must be met.
For example, in Texas, in order for a claimant to retain the ability to file a valid and enforceable mechanics lien against a homestead (an owner-occupied residential project) the claimant has additional requirements that must be met prior to the notice and lien requirements even beginning. In order to fix a Texas mechanics lien on homestead, the person who is to furnish labor and/or material and the owner must execute a written contract setting forth the terms of their agreement.
There are multiple requirements for this executed contract:
- 1) The contract must be executed before any labor or material is furnished
- 2) If the owner is married, the contract must be signed by both spouses
- 3) The contract must be filed with the county clerk of the county in which the homestead is located
Generally, as one would expect, the most stringent requirements are for owner-occupied residential projects. So, in the situation in which the distinction matters, but the claimant doesn’t know what type of project s/he is on, following the requirements for an owner-occupied residential project (while potentially being overkill) will likely be the best practice to ensure remaining in a secure position.