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In Texas, does Foreclosure wipe out a contractor's mechanics lien?

I filed a mechanics lien against a property where we completed work and were never compensated for. Recently, we found out that the owner foreclosed on the home. The lender has now put it up for sale and is under contract. We contacted the lender to inquire if title company is aware of the lien on the property and he notified us that his foreclosure wipes out our lien. I proceeded to check with the county clerk and out lien is still recorded but he insists that they can in fact sell the house with clear title because the foreclosure wipes out our lien. Is this correct?

3 replies

Apr 18, 2018

This is a really good question, and it ties back to the priority of mechanics liens and other encumbrances. "Priority" refers to a sort of "line" of parties holding encumbrances (such as liens and mortgages) against a property. The higher the priority, the closer to the front of the line a party is. In Texas, like most other states, the line of parties holding encumbrances generally follows the order in which the encumbrance was filed. Here's a crude example - if a mortgage is recorded on Monday, and a lien is created on Wednesday, the mortgage would have priority over the lien. But if the tables were turned, and the lien were created on Monday and mortgage on Tuesday, then the lien would have priority over the mortgage - the lien would be at the front of the line. However, there's another wrinkle - for priority purposes, Texas mechanics liens "relate back" and are considered created at the time that construction is commenced or materials are delivered to the project site (as long as those improvements/materials are visible). If the project has a Notice of Commencement filed, the lien would relate back to the time the Notice of Commencement was filed - so the lien would be considered "created" at the time of that Notice of Commencement filing. Anyway, when a property is foreclosed, the encumbrance with the highest priority will generally be paid first. Once that encumbrance has been paid in full, the next highest priority will be paid, and so on. Thus, if the party with the highest priority is paid in part (or in full) and there are no funds left over from the foreclosure action, the parties with lower priority may end up empty handed. Worse yet, their liens, mortgages, or other encumbrances will be wiped out, leaving a clear property title. So, it's possible that a mechanics lien could be wiped out by some other foreclosure, but each situation is unique. Thus, more investigation may be necessary. Keep in mind, this is just a very general overview of lien priority in Texas - to get a clear outlook on your situation, it would be wise to consult a Texas bankruptcy attorney. They will be able to asses the circumstances surrounding your situation and provide options for moving forward.

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Oct 12, 2019

Hello, Are you familiar with Texas Construction Law ? I own a commercial property that I hired a General Contractorand paid him $125,000 as the first payment per contract, to build a warehouse on, he delivered a faulty foundation slab, I stopped the project, and paid a lab + a structural engineer to asses the foundation slab, the result is that this slab is NOT fit for construction, meaning it needs to be ripped out. The GC put a lien on my property asking for additional payment of $57,000 Currently, the GC is threatening to foreclose on my property, claiming that the law in Texas states that whoever files a lien on a property has the right to foreclose on it within 2 years. Your input is greatly appreciated.

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Sep 30, 2020

if the law is similar to that in new york, the "right to foreclose" means only the right to commence a foreclosure proceeding in court. the lien would expire if a foreclosure action is not commenced during that 2 years. if there is a mortgage on the property, the mortgagee (lender) may well intervene and notify you that you must satisfy it pursuant to the terms of your loan agreement. you would then be obligated to (i) satisfy the amount of the lien; (ii) post a bond to secure the lien; or (iii) deposit the required amount with the local court office designated to receive same. if an action is commenced, you would then be able to raise any number of defenses including "breach of contract", "negligence", "breach of warranty", "failure to comply with local laws/guidelines" etc. as defenses. you would also be in the position to raise a counter-claims against the gc to recoup all monies you paid them as well as other consequential and actual damages stemming from lost time and extra sums required in its demolition and replacements, etc. good luck.

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