In many states, filing a fraudulent mechanics lien can result in a hefty amount of damages coming your way. The reason many states allow such damages to be awarded is to deter and prevent parties from abusing the power a mechanics lien gives to construction parties. Possessing the ability to obtain an interest in a property is nothing to bat an eyelash at. This power is serious and creates a lot of options for mechanics lien claimants. Therefore, this power must be kept in check to prevent abuse. Fraudulent mechanics liens can arise a variety of ways. One way particular in Texas was recently covered by an appellate court.
We’re Right, You’re Wrong…
The facts of the case are rather simple. A mechanics lien was filed in 2007 on a home improvement project. This lien was to recover an amount of $30,000. The homeowners convinced the lien claimant to settle this alternatively and release the lien in 2009. Unfortunately, only $2,000 was paid to the contractor. The contractor decided to refile a mechanics lien in 2013. Anyone that knows how mechanics liens work can already sense that something wrong was done here.
Well, in Roberts v. Dixon, Texas Court of Appeals, 12th District, 2016, the court barely flinched at any arguments presented by the lien claimant. His main argument was actually pretty reasonable. The claimant argued that the trial court found his lien fraudulent based off of provision TEX. GOV’T CODE ANN. § 51.901(c)(2)(B), which reads
(c) For purposes of this section, a document or instrument is presumed to be fraudulent if:
. . . .
(2) the document or instrument purports to create a lien or assert a claim against real or personal property or an interest in real or personal property and:
. . . .
(B) is not created by implied or express consent or agreement of the obligor, debtor, or the owner of the real or personal property or an interest in the real or personal property, if required under the laws of this state, or by implied or express consent or agreement of an agent, fiduciary, or other representative of that person[.]
The lien claimant contended that the homeowner still had a property interest when the 2013 mechanics lien was filed, and he supported the mechanics lien affidavit. Therefore, this provision was not violated, and the lien was not fraudulent. The court completely disagreed. The only evidence the court saw as relevant was that the mechanics lien was released on 2009. This fact was uncontested. Beyond that, the 2013 mechanics lien could not resurrect an already released lien. Therefore, the court awarded the homeowner $12,049.11 based off Section 12.002 of the Texas Civil Practice and Remedies Code.
Where Did That Come From?
I am not simplifying the court’s decision. All that was held was that a released mechanics lien cannot be resurrected, and an attempt to do so qualifies as a fraudulent mechanics lien. This particular appellate court cited another case, Apex Fin. Corp., 7 S.W.3d at 830, which essentially holds the same reasoning. The issue with these two decisions is the courts base their judgments off of § 53-157 of the Texas Mechanics Lien Statute. Before I explain why basing these decisions off of this specific provision makes no sense, read the provision for yourself:
A mechanic’s lien or affidavit claiming a mechanic’s lien filed under Section 53.052 may be discharged of record by:
(1) recording a lien release signed by the claimant under Section 53.152;
(2) failing to institute suit to foreclose the lien in the county in which the property is located within the period prescribed by Section 53.158, 53.175, or 53.208;
(3) recording the original or certified copy of a final judgment or decree of a court of competent jurisdiction providing for the discharge;
(4) filing the bond and notice in compliance with Subchapter H;1
(5) filing the bond in compliance with Subchapter I;2 or
(6) recording a certified copy of the order removing the lien under Section 53.160 and a certificate from the clerk of the court that states that no bond or deposit as described by Section 53.161 was filed by the claimant within 30 days after the date the order was entered.
Bottom line, this provision says absolutely nothing about the resurrection of a mechanics lien or even fraud. This provision simply discusses how a lien may be discharged. In other words, the court’s reasoning is based off… nothing. I am not saying the ultimate outcome is not entirely incorrect. The mechanics lien should be invalid because the statute of limitations has far passed by the time the mechanics lien has been resurrected. There are also no provisions that extend the statute of limitations for a released lien. The only question left is whether the mechanics lien is fraudulent or not. These courts have failed to bolster their arguments with statutory law or case law. As a matter of fact, the provision that this court based its damage award off of, Section 12.002 of the Texas Civil Practice and Remedies Code, specifically states that any mechanics lien filed is not liable to the provision unless an “intent to defraud” exists. No discussion of intent was stated in either court decision.
What to Learn
Despite my criticism of these cases, they are still law. Therefore, the decisions should be heeded. As of this moment, if you try to resurrect a mechanics lien in the manner stated above, you will most likely be held liable for a fraudulent mechanics lien. Until the Texas court system or legislature says otherwise, these decisions stand, so beware of them.
There is another huge lesson that jumps out of this case: do not release your mechanics lien with no formal legal protection. It is unfortunate, but trusting in someone’s word or a handshake and a smile is not highly recommended. Actually, a strong majority of the time, this strategy will get you burned. Do not be shy to exercise your mechanics lien rights to the fullest extent. Many people misinterpret mechanics liens as aggressive acts or declarations of war. Mechanics liens are simply a legal tool afforded to you by the law to make sure you are treated fairly as a party on a construction project. In principle, exercising your mechanics lien rights is no different than exercising your rights under the 1st Amendment. The benefits mechanics liens afford construction parties are insurmountable.