Home>Levelset Community>Legal Help>I am trying to help my friend collect outstanding receivables for completed residential construction projects. Some are outstanding for over 6 months. Can a Preliminary Notice still be used? Texas projects

I am trying to help my friend collect outstanding receivables for completed residential construction projects. Some are outstanding for over 6 months. Can a Preliminary Notice still be used? Texas projects

My neighbor owns a construction business he started about 30 years ago. The last couple of years has been a struggle for several reasons; his wife became very ill; projects were completed but not tracked for payment so he has both old and new debt that he wants me to help collect. His office manager of many years retired and the replacements have not worked out. I have some experience in debt collection but not construction. He has not been successful in finding the right person for this job and he is convinced I am the person that can turn this around. And, I think I can certainly do more than is being done but I need to know the most efficient and law abiding process to get cash flow to his company. Since some of these debts are up to 6 months past due can I still start the collection process with the Preliminary Notice.

1 reply

Apr 13, 2018

I'm really sorry to hear that. Collections in the construction industry are hard enough on their own without having to deal with roadblocks - especially in Texas. Regarding debts that preliminary notice was not sent on - when preliminary notice is not properly sent in Texas, a valid mechanics lien likely cannot be filed. Texas is quite stringent when it comes to notice requirements. However, that does not mean the debt is unrecoverable. Demand letters can be effective in recovering payment - especially when sent through an attorney. Further, depending on the client and/or property owner, sending a Notice of Intent to Lien can also be effective - even where there is question as to whether a mechanics lien is available. A Notice of Intent to Lien shows that a claimant will not go unpaid without first putting up a fight, and it serves as a warning shot - if the debt is not settled, a lien claim could be imminent. Of course, other recovery options - like a breach of contract claim or a claim in small claims court might also be available options. Taking legal action can get expensive, though, and small claims court can be very unpredictable. Changing gears a bit - creating a process to prevent cash flow issues is incredibly important for construction companies- particularly in Texas. Texas lien laws provide a great framework for securing payment. When navigated properly, they're more asset than liability for a construction business. When lien rights are preserved, an unpaid construction business has a powerful weapon in their back pocket to force payment when it's been slow or not forthcoming at all. Obviously, no one likes dealing with liens - their presence means both that a construction business is suffering and also that an owner's title is in jeopardy. But communicating via notices on a project and wielding the ability to file a lien prevents some issues from arising. Changing gears once again, the necessary process will vary depending on a number of factors, including the business' role on the project (i.e. general contractor, subcontractor, sub-subcontractor, supplier, etc.) and on the project type (i.e. public, private, residential, or commercial). Without getting too far into the weeds, Texas' notice requirements for subcontractors, sub-subcontractors, and suppliers apply on a monthly, rolling basis. Rather than one single date for sending notice, notice needs to be sent on the 15th day of the 3rd month following each month in which the contractor furnished labor/materials and went unpaid, and/or the 15th day of the 2nd month - and whether one or both of those deadlines apply will depend on both project role and on the type of project being performed. Also, the recipients of these notices will also depend on both role and type. This forum might not be a great location to discuss each requirement in great detail, but we've got helpful charts in our Texas Preliminary FAQs. Further, we've got calendars available to help keep track of all the necessary dates here: Texas Lien and Notice Deadline Calendars. Ultimately, tools to help keep track of all the required deadlines, requirements, and recipients are incredibly helpful (and sometimes even downright necessary).

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