We have previously written about how changes to Texas lien law may be on the horizon and how construction groups have lobbied for changes to Texas lien law. Well, it looks like some of those changes may be might be in the works. Earlier this month, House Bill 3065 and Senate Bill 1506 were introduced in the Lone Star State. The bills are identical, and would go into effect in May of 2018 if passed. This week, we will discuss the litany of changes that would occur under these proposed changes to Texas lien law. Because there are so many proposed changes to Texas lien law, we had to break them up into sections: The Basics; Lien Website and Filing a Lien; Notices; Liability and Priority; Waiver, Foreclosure, and Bonding Off a Lien; and finally Repealed Revisions and Recap.
This series will largely discuss the ways in which lien law will change. For more background on the current state of Texas lien laws, check out our Texas Construction Payment Resources.
Waiving lien rights represents a serious forfeiture. For this reason, states limit a party’s ability to waive them. Here are some of the changes that would take place regarding waiver under the proposed changes to Texas lien law.
Waiver and Release of Lien or Payment Bond Claim (53.281)
The new version of 53.281 would first clarify that section 53.287 is an exception to the limitations on waiver and release of a lien or payment bond claim. While this does not substantively alter Texas lien law, the clarity is welcomed. 53.281(a).
Subsection 53.281(c) states that a conditional waiver (52.284) may be combined with the bills-paid affidavit (53.085). Thus, a claimant could conditionally waive only the lien rights verified as paid by the bills-paid affidavit.
Unconditional Waiver and Release: Payment Required (52.283)
Two new subsections would be added under section 52.283. Under 52.283(b), a contractual requirement for a party to waive or release their lien rights for work that has not yet been performed is void. 52.283(c) would allow a party to agree to an unconditional waiver and release for payment before payment is received, but this waiver would have to be delivered in trust to a third party (an attorney, title insurance company, title insurance agent, or bank) acting as an escrow agent. The escrow agent may only deliver the waiver and release after the waiving party has confirmed receipt of payment in good and sufficient funds.
Forms for Waiver and Release of Lien or Payment Bond Claim (53.284)
The only real change regarding this section would be that if an owner has previously filed and posted a notice of commencement, the owner may require a conditional waiver in exchange for payment. This would only be available if the party who performed work had previously filed a notice of furnishing with the lien website.
53.154(b) would clarify that a suit to foreclose a lien must be brought in the county in which the property subject to the lien is located.
Period for Bringing Suit to Foreclose Lien (53.158)
Under a revised 53.158(a), the period for bringing suit would end exactly one year after the last date the claimant could have filed the lien claim. This would cut the current time to foreclose a lien (2 years following the last date a claimant could have filed the lien claim) in half.
53.158(b) would be rewritten to state that this time period may be extended by one year if the claimant enters into a written agreement with the property owner to extend the period to foreclose. This must be filed with the county where the lien is filed. 53.185(b).
The language limiting the foreclosure period on residential projects has been deleted, and residential projects would be subject to the same period for foreclosure described in 53.158(a) and (b).
Obligation to Furnish Information (53.159)
Under 53.159(a) and (b), an owner would only have a duty to furnish information if it had not been filed and posted as required by 53.125. This information would now also include the date that a subcontractor first performed labor/furnished materials on the project for which a claim is being sought. 53.159(c)(4). As mentioned in the Notices post in this series, this bill would do away with the monthly system – a claimant can no longer be required to provide an estimated amount due for each month the claimant performed labor or furnished materials. 53.159(d). Lastly, a person (other than a claimant described in 53.159(d)) who fails to furnish information and has failed to post the information to the lien website will be liable to a claimant for the costs of obtaining that information. 53.159(f).
Summary Motion to Remove Invalid or Unenforceable Lien (53.160)
The grounds for objecting to a lien claim now include failing to furnish a notice of furnishing to the owner or original contractor (rather than a notice of claim as previously required), and the notice of filed lien claim affidavit was not furnished to the owner or general contractor and the owner or GC was materially prejudiced by the violation (formerly had no requirement for prejudice). 53.160(b)(1-3). Some previous reasons for objection, particularly those regarding retainage, would be deleted.
Bonding Off a Lien
Bond Requirements (53.172)
Currently, if a lien exceeds $40,000, a bond to indemnify against lien must be in an amount 1.5 times the amount of the lien or the sum of $40,000 plus the amount of the lien, whichever is greater. Under the proposed bill, the threshold, as well as the amount to be added to the lien, would both be increased to $60,000. For liens that do not meet the threshold, a bond would still be twice the amount of the liens. 53.172(3).
Bond to Pay Liens or Claims (53.201)
53.201(b) would now state that when a valid bond has been filed, the owner may not withhold funds or pay a claimant on demand.
These changes, though straightforward, would seriously affect the back end of the lien process. As with all of the other proposed changes to Texas lien law that we discussed, these alterations, if adopted, would not go into affect until May of 2018. Considering they have just entered the legislative process, there is a good chance that the bills would look very different even if passed. Still, it’s important to understand what legislators are proposing in order to stay ahead of the game.