The Texas Court of Appeals, San Antonio, last month reversed a trial court decision tossing a mechanics lien in Sanchez v. Schroeck. The case breathes new life into a mechanics lien filed by a contractor seeking just $1,456.
In Sanchez, a contractor’s mechanics lien was disregarded when a lender foreclosed on the subject project. The lender disregarded the mechanics lien because it claimed priority over it, arguing that the deed of trust was filed before the mechanics lien arose. The lien claimant argued that the lien actually had priority over the deed of trust since work began before the deed of trust was recorded.
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Lien Priority in Texas revolves around the “relation-back doctrine.” As explained by the Sanchez court:
For the purpose of determining whether a mechanic’s lien is superior, “[a]s a general rule, a properly perfected mechanic’s lien ‘relates back’ to a time referred to as the inception of the lien for the purpose of determining lien priorities.” Diversified Mortgage, 576 S.W.2d at 800. In general, mechanic’s liens whose inception is subsequent to the date of a deed-of-trust lien will be subordinate to the deed-of-trust lien. Id. at 806.
However, if there is a general contract regarding the construction of improvements to the property, courts apply the relation-back doctrine to determine the time of a mechanic’s lien’s inception. Oriental Hotel v. Grifiths, 33 S.W. 652, 653—54 (Tex .1895). Under this doctrine, the inception date of subsequently perfected mechanic’s liens will relate back to the date of a general contract for a building or other improvement between the owner of the land and a contractor for the construction of which the mechanic contributed. Id. at 653.
The lien claimant argued that a general contract actually existed before the deed of trust was recorded, and accordingly, their lien relates back to pre-exist the deed of trust.
Without determining whether the lien claimant was right or not, the appeals court found that there was a good enough argument to let the case move forward. In lawyer-talk, there was a “genuine issue of material fact.”
As a result, the mechanics lien survives to fight another battle. The parties will go back and put on a trial as to whether the general contract did or did not exist pre-dating the deed of trust. In all likelihood, however, this case is going to settle since it’s for such a nominal amount. At least, one would hope so…
For those lien claimants in Texas, the case serves up a great discussion on the relation back doctrine, and reminds claimants that their lien claim may have more priority than understood at first glance.