Searching TX laws for fighting fraudulent mechanic's lien (we have signed release of lien from our contractor. Thank you
1 reply
Oct 21, 2019
There are a lot of Texas mechanics lien considerations in play here, and I'll do my best to touch on as many as possible. But, note that - on the whole - Texas subcontractors are generally entitled to mechanics lien rights, and a subcontractor may be entitled to file a lien even where there's a dispute as to what they're owed.
Can a Texas subcontractor file a mechanics lien when the general contractor has been paid in full?
Unfortunately, the answer to this question isn't quite cut and dry. If a subcontractor has sent the proper monthly notices required by Texas law, then the property owner is able to withhold some payment from their GC in order to pay potential lien claims.
As a result, if proper monthly notices were sent, then a subcontractor can file a mechanics lien claim against the owner - even where the owner fully paid their GC. But, if monthy notices weren't sent, then an owner won't be liable for amounts their GC failed to pay a sub, pursuant to § 53-084(b) of the Texas Property Code.
Note, though, that regardless of whether a GC is paid - a sub can't file a mechanics lien without sending the required notice. You can learn more about what notices are required here: Texas Preliminary Notice Guide and FAQs.
Is a general contractor responsible for their subcontractor's claim?
When a general contractor fails to pay their sub, and when that sub ends up filing a mechanics lien, the GC will typically be responsible for the claim in one way or another.
General contractors must defend Texas owners from subcontractor liens
First, pursuant to § 53-153 of the Texas Property Code, a general contractor is required to defend an owner from a mechanics lien claim if a suit is ultimately filed on the claim - be that an enforcement suit, a suit challenging the lien claim, or a combination of the two.
Further, if a contractor has submitted a Texas lien waiver, they've also warranted that they've either already paid their subs and suppliers, or that they'll use the funds given in exchange for the waiver in order to make those payments. Each one of Texas' lien waiver forms includes the warranty language. Plus, because Texas mechanics lien waivers must be notarized, the contractor has sworn that they've made the payment or will do so. As a result, this adds a second layer of protection for an owner - a contractor cannot breach their contractual warranty with the owner.
Challenging a Texas mechanics lien via "unofficial" means
As mentioned above, a Texas general contractor must defend the project owner from mechanics lien claims. So, reminding that contractor of their duty may be the first step toward fighting off a mechanics lien claim. If they fully understand that the lien is their issue too, they may be quick to jump in and resolve the dispute.
Further, identifying potential issues with a mechanics lien claim then demanding that the lien be released due to those flaws might be helpful, too. If it's clear that a mechanics lien won't stand when it's eventually challenged, an owner may be able to convince a lien claimant that proceeding with the lien claim would be futile, and it could be one way to get the lien removed without having to incur serious legal expense. An attorney letter demanding the release of the lien could go a long way here.
Challenging a Texas mechanics lien through official means
The first and most obvious way to procedurally challenge a lien claim is through legal action. Alleging defects with a mechanics lien claim via civil action (a lawsuit) is one of the more traditional ways of battling a lien claim. And, as you may recall, a general contractor must pay for the owner's defense of a Texas lien claim made by the contractor's subcontractor.
Beyond proving a lien claim to be invalid, note that Texas provides some seriously steep penalties for fraudulent mechanics lien filings. A lien claimant could be liable for the greater of (1) $10,000, and (2) actual damages, exemplary damages, attorney fees, and court costs. Note, of course, that there's a difference between fraud and an honest mistake - so, there's a chance a lien may be invalid while also not being deemed fraudulent and giving rise to these penalties.
Finally, note that Texas mechanics liens may be bonded off by either the property owner or the general contractor at any time. Once a lien is bonded off, the lien is removed from the property and recovery must be made against that mechanics lien bond. So, bonding off a lien won't make the claim disappear, but it will at least take the property title out of the dispute. And, considering a contractor must defend the owner from lien claims, an owner may be able to pressure their contractor into bonding off the filed lien claim.