Mechanics liens are among the most powerful tools for contractors to ensure they get paid what they’ve earned on a construction project. In Texas, contractors must send multiple notices and meet strict deadlines to preserve their right to a lien if they need to file one. However, if the project is on a homestead property, the Lone Star State has additional requirements to secure lien rights. Here’s everything you need to know about homestead projects — and how to securing lien rights on a homestead in Texas.
What is a homestead?
A homestead is a residential property owned by one or more individual that uses the property as their primary place of residence. The property can’t be owned by a business entity, and an individual or couple can only have one homestead. In short, a homestead property is an owner-occupied, residential property that is the owner’s principal home.
Related: How do you know if a project is on a homestead in Texas?
If the property being constructed or improved is indeed a homestead property, some additional requirements kick in.
But why the extra requirements? Well, homestead rights have been long established as a protection against “forced homelessness.” The designation not only provides tax benefits, but also prevents the forced sale of an individual or couples’ primary residence.
This is what’s known as a “homestead exemption.” Owners of a homestead are exempt from certain legal rules that other properties are subject to.
However, there are two notable exceptions to the homestead exemption: mortgage defaults and mechanics liens.
Rules & requirements for a homestead lien
Because a mechanics lien can force the sale of a homeowner’s primary residence, state law requires construction businesses to take some additional steps before they’re allowed to file a lien in Texas. Let’s take a look at the additional rules and requirements for securing a mechanics lien on Texas homestead projects.
General contractor requirements
General contractors on Texas homestead projects bear the most responsibility to ensure lien rights on the project. In addition to meeting the requirements of a standard residential project, the GC must meet very specific contract requirements in order to secure lien rights.
And these rules affect more than just their own lien rights. If the general contractor doesn’t satisfy each of these requirements, everyone working on the project can lose their right to file a lien.
Prime contract requirements
For general contractors on homestead projects in Texas, it all starts with the contract. To effective secure lien rights, the prime contract — the agreement directly with the homeowner — must set forth the terms of the agreement in writing, and be:
- Executed prior to provision of any labor or materials on the project
- Signed by both spouses (if the owner is married)
- Filed in the county clerk’s office of the county where the property is located
Residential disclosure statement
Furthermore, as with all residential project in Texas, the GC must also provide a Residential Disclosure Statement. This is a 2-3 page document that outlines a homeowner’s rights and best practices for handling a construction project.
Download a free Texas Residential Disclosure Statement form
The disclosure statement should be provided before the contract is signed — or included within the contract itself.
List of subcontractors and suppliers
Additionally, the general contractor may be required to provide a written list of each subcontractor and supplier they intend to use on the project. The list must include each sub or supplier’s name, address, and telephone number.
Furthermore, anytime a new sub or supplier is added to the project, the general contractor must provide the homestead owner with an updated list within 15 days.
The list should also include the required notice language under Tex. Prop. Code §53.256. Lastly, the owner may waive this right by signing a waiver which includes specific language under the same statute.
Note: If the GC fails to provide the residential disclosure statement or the list of subs and suppliers, they still retain lien rights. But they may be subject to civil penalties.
Notice requirements for subs and suppliers
Subcontractors and suppliers also have notice requirements. If they haven’t yet been paid, they must send a monthly notice, also known as a fund-trapping notice, by the 15th day of the 3rd month after the last day of each month they provided labor or materials on the project. (If the project began before January 1, 2022, the requirements are different.)
Subs and suppliers must also include specific language in each of the monthly notices. It should read as follows:
If a subcontractor or supplier who furnishes materials or performs labor for construction of improvements on your property is not paid, your property may be subject to a lien for the unpaid amount if :
- After receiving notice of the unpaid claim from the claimant, you fail to withhold payment to your contractor that is sufficient to cover the unpaid claim until the dispute is resolved; or
- During construction and for 30 days after completion of your contractor’s work, you fail to reserve 10 percent of the contract price or 10 percent of the value of the work performed by your contractor.
If you have complied with the law regarding the reservation of 10 percent of the contract price or value of work and you have withheld payment to the contractor sufficient to cover any written notice of claim and have paid that amount, if any, to the claimant, any lien claim filed on your property by a subcontractor or supplier, other than a person who contracted directly with you, will not be a valid lien on your property. In addition, except for the required 10 percent reservation, you are not liable to a subcontractor or supplier for any amount paid to your contractor before you received written notice of the claim.
Affidavit of lien requirements for homesteads
In addition to the regular mechanics lien rules in Texas, there is one more requirement to effectively file a mechanics lien on a homestead property.
But for homestead liens, the Affidavit of Lien itself must include the following sentence, in 10-pt, bold font:
NOTICE: THIS IS NOT A LIEN. THIS IS ONLY AN AFFIDAVIT CLAIMING A LIEN.
Texas is serious about homesteads
Before starting any residential project in Texas, it is critical to confirm whether or not the property is a homestead, and that you follow these additional requirements. If you’re unsure whether or not the project is indeed a homestead, or are still unclear about these requirements, reach out to a local Texas construction attorney to help answer any other questions or concerns you may have.
Here are some Texas mechanics lien resources:
- Free Download: Texas Affidavit of Lien for General Contractors
- Free Download: Texas Affidavit of Lien form for Subcontractors
- Texas Overhauls Lien Laws By Enacting HB-2237; Effective January 2022