Do we have lien rights if we are storing goods that our customer now owns, per our FOB terms, but has not paid for?

3 weeks ago

We are a supplier on a commercial project in TX. We created a custom ceiling for the developer/owner. Typically we ship FOB factory, with title passing at time of shipment. Occasionally, when customers are not ready to receive the goods, they will have us store them temporarily. In this case, the customer asked us to store the completed goods. We consider that title passed when we put the goods into storage, so we issued the invoice. Does TX agree with that? Can we send the preliminary notice though we still have physical possession of the specially-made goods?

Corporate Credit Manager H&E Equipment

I would check with a local attorney, however I believe you have rights and should send the prelim. See this link: https://statutes.capitol.texas.gov/Docs/PR/htm/PR.53.htm

Senior Legal Associate Levelset

I’m inclined to agree with Kurt’s answer above. Let’s take a look at some relevant Texas requirements, to be sure…

First, it’s worth noting that, under § 53-021(b) and § 53-023(2) of the Texas Property Code, parties who specially fabricate materials can ultimately file a mechanics lien even if the materials aren’t delivered or incorporated into the project. As I’ll explain below, notice must still be sent to preserve the right to later file a mechanics lien.

However, the ownership of the materials and FOB status of an order, by themselves, won’t have any bearing on whether a notice can or should be sent or whether a mechanics lien right will be available for those materials. Lien rights generally arise when materials are actually furnished to the improvement. So, when materials are actually delivered and used, those materials will be lienable. When the materials are fabricated but not actually delivered or used, under § 53-058 of the Texas Property Code, a supplier will need a timely Notice of Specially Fabricated materials in order to file a valid and enforceable lien (if that ultimately becomes necessary).

When timely sent, a “Notice of Specially Fabricated Materials“, also known as a “Specially Fabricated Materials Notice”, will preserve the right to later file a mechanics lien for materials that are fabricated but not necessarily used in an improvement. The notice must be sent before the 15th day of the second month after the when the contract for the specialty materials is agreed to/the order for materials is accepted.

Regarding monthly notices – a monthly notice should still be sent even if the materials haven’t made it to the job site. Under § 53-058(e) of the Texas Property Code, monthly notices must be sent in addition to the Notice of Specially Fabricated Materials to preserve the right to file a lien for materials that are fabricated but not delivered or incorporated.

For more information on Texas notices, here’s a great resource: About Texas Notices.

CEO Levelset

This question about Texas lien rights, notice requirements, specially fabricated material supply, and ownership transfer timing has a few issues built into it. I’m going to focus on the issue of your lien rights with respect to these “specially fabricated materials.”

In Texas, there is special treatment for “specially fabricated materials.” Since it sounds like you supply these types of materials often (and in different parts of the country), you may want to consult this blog post of ours which goes into the special rules for this type of material supply: Specially Fabricated Materials and Mechanics Lien Rights – An Overview.

The good news is that there are special protections for companies like yours in this exact situation. Under normal circumstances, you only have lien rights if materials are installed. However, for specially fabricated materials, since the materials are likely useless to you, many states provide specific rights after they are fabricated…before they are installed…and even if – like is happening here – you are storing them!

But, pay close attention. There is almost always specific notices you must send. And it’s not just the ordinary “preliminary notice.” Many states require these special notices. And that is the case in Texas.

What are specially fabricated materials?
Very generally speaking, specially fabricated materials are materials that are unsuitable for use on other projects.

What type of protection is available in Texas?
You have the right to lien for any specically fabricated materials in Texas “even if the material has not been delivered or incorporated into the construction or repair.” The Texas law covers this exact case!

But you must send a “Notice of Specially Fabricated Items”
If you are providing materials that are specifically fabricated and made for the project, then you’ll need to serve a specific notice for this. To preserve this right, however, suppliers must send a Notice of Specially Fabricated Materials after executing their material contract.

Here is the form: Texas Notice of Specially Fabricated Materials.

When is the Notice of Specially Fabricated Materials Due in Texas?
This is the tricky part, because Texas notice deadlines are an absolute nightmare. The short answer for you is to send it NOW! The specific rule says this: “The notice of specially fabricated material must be sent by the 15th day of the second month following the month in which the claimant received the order for the material.”

So, to calculate this deadline, look at the MONTH when you received the order. Then add 2 months to that month. The notice is due on the 15th day of that second month.

So, if you received your order in May 2019, you will add two months (June, July), and then the notice is due on the 15th of July.

You can find a chart of these monthly deadlines and an explanation of all the confusing Texas notices in this blog post: Texas Monthly Notices Explained.

Good luck!

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