Webinar: 3 Texas Mechanics Lien Mistakes You Should Avoid

The Mechanics Lien is a powerful tool for ensuring payment, when done right. How can you make sure your Texas Mechanics Lien gets you paid? What are some of the common mistakes you should avoid?

In this webinar, we’ll cover:
– Protecting your lien rights
– Conforming to document format requirements
– Finding the correct project details

Our Experts for this session are:
– Haven Massey – Attorney, Lovein Ribman PC & LienGurus.com
– Seth Bloom – Senior Director of Attorney Services, Levelset

Full Transcript

Seth: Well, I think we’re ready to go. My name is Seth Bloom and I’m here at Levelset. I’m the senior director of attorney services. I’m helping putting together the expert center, which is a national network of construction lawyers and construction industry experts. So one of the things we do to PR to help participating attorneys and help people in the construction industry is put on webinars. So, today I look forward to hearing what Haven has to say. Feel free to ask some questions, we’ll try to get to a bunch of them. And also if you can’t get to those questions, put them on our expert center and Haven or someone else will answer them. So without further ado, Haven, I’ll turn it over to you.

Haven:
Thank you, Seth. Can you hear me?

Seth: Loud and clear.

Haven: All right, great. So thank you all for being here. I appreciate the opportunity. Like Seth said, I’m a partner at the law firm of Lovein Ribman PC. We are a full service law firm that specializes in construction law throughout the state of Texas. And I’m board certified in construction law and have been since that certification has been offered.

Haven: So, when Levelset came to me and said, “We want to do a webinar of lien issues regarding mistakes that may be made.” I tried to think outside the box and think of things that might not be information that you could typically find. Things like deadlines and things like that. So, I tried to think of three mistakes that I see a lot of times from clients that maybe you wouldn’t get somewhere else. And so I’m hopeful that this will really help you avoid these three mistakes. And to the extent you have questions, feel free to stop me throughout and I’m happy to answer any.

Haven: So, the three mistakes that I pointed out that I see a lot are, one, failing to correctly identify the owner and legal description of the project. And so through my experience, I’ve filed liens now for several years throughout the state of Texas and I’ve developed a unique set of tools to identify the owner and the legal description of the project, which both are required in order to validly perfect a lien. So, they weren’t things that I learned from reading a manual or had somebody teach me. They were things that I’ve learned from years of trial and error. And so I’m going to help you be able to correctly identify the owner and the legal description of the project, to make sure that your lien is properly perfected.

Haven: The second one is failing to serve notice of specially fabricated materials and or a contractual retainer’s agreement. Those are two notices that have to go out towards the beginning of the project before you’ve actually incurred costs and are owed money. And so, a lot of times I see that clients don’t do that and it can really adversely affect your lien rights, which I’ll show you as we go through today.

Haven: And then third, another mistake that I commonly see is failing to include all the required information that you need in your lien affidavit. Texas has very complicated rules and there’s different rules for subcontractors, for prime contractors, there are different rules for residential versus commercial. And so hopefully by the end of today you will have a good idea of the different requirements that you need to follow.

Haven: And so the first thing we’ll start off with is identifying the owner and legal description and the first step in doing that is really identifying what the property is that you can claim a lien against. And so that really comes down to when you’re doing a project that may be owned by a tenant, a leasehold project as I’ll refer to it, versus a fee simple project where the owner of the project actually owns the dirt. They’re not leasing it, they own the property, they’re constructing a new building on that property, and that would be considered a fee simple owner. But you also have projects where maybe you’re doing a tenant finish out of a restaurant or an office building where you’ve contracted directly with a tenant. And so in Texas the law is that your lien can only attach to the interest of the owner who has contracted with the prime contractor.

Haven: And so if the tenant has retained the prime contractor, your lien can only then go against the leasehold interest, which is not as good as the fee simple interest because a leasehold interest can be terminated if the lease is terminated. And so really what you’re limited to going against is what’s called removable items, and removables are things that can be removed from the property without materially injuring it. Things like HPAC equipment, kitchen equipment, plumbing fixtures, things like that would be, if you actually sued to foreclosure on your lien once it’s filed, those are what you would be going after as opposed to actually owning the dirt in the building, the improvements.

Haven: And that last bullet point down there under number A where I said, “When in doubt you want to name both the landlord and the tenant as owners.” And that’s because a lot of times when you are a second tier or a lower tier subcontractor, you may not know who that owner is. You may not know if they’re a tenant, you may not know if they own the dirt.

Haven: And so if you’re ever in doubt, I always named both. You can always go back and amend and reduce your lien. Say you claimed it against the fee simple and you’re only entitled to claim it against the leasehold, you can always go back and change that or reduce it. But you can’t go back and claim more after the fact. And so if there’s ever a doubt, you want to act as if you’re filing it against the fee simple. And name both of them, both the landlord and tenant, as owners.

Haven: So, the tools I’ve developed as resources to identify owners and legal descriptions are down there in letter B, and I’ve tried to make the process a step by step approach because I always do better when I have a step by step approach that I can follow to find things. And so the resources, or first, the appraisal district of the county where the property is located. Whenever a client comes to me with a lien that needs to be filed or a project, that’s usually the first thing I go to either find the owner’s name, the address, and or the legal description.

Haven: The good news is that here recently appraisal districts have been updating the records to where now, they’ve always had this property search function where you can go on there and type in the owner’s name or type in the address and bring up properties, but what they’ve developed here recently in the last few years is an interactive map feature, which I find is really the best method to identifying the owner and or the legal description.

Haven: And the reason for that is when you do a property search and you search by the owner’s name, you may not have their legal name. And so when you search it may not come up or if you search an address, the appraisal district may have an abbreviation in the street address or it may be a new construction project and they just don’t have that address in their system yet. And so a lot of times I find when you search by an owner’s name, unless you have the full legal name, sometimes your search will come up empty. And the same thing with addresses.

Haven: And so, I always really rely on the interactive map feature, which I’ll show you here in a little while. But basically what that is, is a Google map and you can find the tract on where your project is located and click on it and it’ll bring up all the information. And so I find that’s very helpful. Another website that I think is very useful is a Texasfile.com. That is an online resource that has all of the real property records throughout most of the state of Texas. There are a few very rural counties that are not included in that, but for the vast majority you can go on and find real property records for just about any county you want.

Haven: That is a pay website, so you don’t have to pay to actually search, but whenever you find a document and you want to get a copy of it, you do have to pay. So there is a fee. But I find that it’s well worth it in being able to locate and make sure your liens correct. Some other resources that I’ve found that are good are online. A lot of times counties now are keeping their permit records online and a lot of times you can go on and search, especially the bigger counties, find the permit for the project and that will at least identify the owner. But a lot of times it will also provide a legal description. And then the last resource is obviously reviewing your project information. Sometimes in the contract your subcontracted will identify the owner. I would rely on that, but that is a source that you can use to help yourself in identifying it.

Haven: So, the first step in how I wanted to show you in locating the owner and the property legal description is to show you step by step. And so what I did in this slide show is I did screenshots of what I would be searching when I went to the HCAD’s website and what would be the result. And so I had an example here. This was actually not a project that we’ve liened, but it was a project that I thought was a really good example to show you how to do a legal search.

Haven:
And so if a client came to me and said, “Okay, I’ve done work on this La Boucheriee. The address is 3323 Cypress Creek Parkway. I haven’t been paid and I want to file a lien.” The first step I would do is I would try to go to the Harris County appraisal district to identify the owner of the property. And so you can see down here on this slide I have the website and I’ve actually pulled it up and hopefully I’m going to be able to share that website with you as well.

Haven: So, can everybody see that? I think so. Okay. All right, so I have the Harris County website pulled up and this is … Obviously, the project’s in Houston and so I know it’s Harris County. This is their homepage. So, if you were going to search for the property, the first thing I would do is I’d go here and I’d go to real property search. What that brings up is you can search by account number, which obviously I don’t have that. I do have an address and I do have an owner name. So, I’m going to start with the owner name and it is … Pull it up here real quick.

Haven: So, I don’t have the full owner name, I just have the name of the project. And so I’m going to try searching that to see if that brings anything up. And as you can see, it doesn’t bring anything up. And so, next I’m going to try to search the address, which is 3323 Cypress Creek. And so if you go back here to the search, I’m going to go here to search address, do 3323, and I’m just going to put in Cyprus because sometimes the Creek will throw it off. I’m going to hit similar and I’m going to search.

Haven: And as you can see, nothing comes up. And that’s my main beef with appraisal districts and I think it gets Harris County because they are the largest one. But I found that Harris County is actually one of the worst ones about being able to search an address or a property owner and actually be able to find it. And so when you search both of those and you cannot find the property owner or the legal description, I would next go to the map function of it and this is the one that I think is very beneficial and so if you go back here to the homepage, you can see the property search, which is where we just were. I would go over here to maps.

Haven: And you can see here that there’s two different kinds of maps. There’s a facet map and an interactive map. And the facet map is what we used to have to work with and it’s not very helpful. It’s very difficult to use. The interactive maps, however, are very helpful and that’s what a lot of counties have been going to and most of the larger ones do have it. And so when you bring up this map, you have the whole Harris County. I’ve searched over here, Cypress Creek Parkway, the project, and I have it located on Google Maps so I can kind of see where it is in Harris County and I go, okay, it’s right there. And then I will go back over here to the H-CAD map and I will zoom in to that location.

Seth: Hey Haven, we like all your good graphics. This is very helpful.

Haven: Okay, good. I was hopeful everybody could see it. All right. And so I can see when I’m looking at this map, I can see this very distinctive road right here. How it bends there and see right here how it bends? So, I know this is the right one. It’s right there in that corner. So I’m going to zoom in here. Right here. And there I find it.

Haven: And so that is the project that is the real property and I pull it up and it has an owner name, it has a mailing address. It has an abbreviated legal description and it has a property address. So you can see here why that didn’t come up when we searched our project address because it’s different than what the appraisal district has and that happens a lot. It’s going to be different, so it won’t always pull up and so the interactive map feature is really very helpful in finding that. And so once you have that information, now I know who the real property owner is, but you know that the restaurant is called La Boucheriee. It’s in a shopping center and so that would tell me that that’s probably a leasehold interest. That’s probably a tenant there. And so, I would not stop there. I would need to find out who the actual tenant is.

Haven: And so when you go back to our slide show, the next step, once you’ve located the fee simple owner up there in that first part, that step two then is to identify the tenant. And you do that by searching the HCAD’s business and personal property record. And so let’s see, let me pull that back up. Oh, it’s not coming up. There we go. Okay.

Haven: So, when you go back to the HCAD’s home page and you go up here to a property search, you see down here where it says business, personal, and mineral. That is where tenants will be listed. And so when you go back here, you can search by property address, you can search by owner name and if we type it in, it comes up. And so you can tell then, okay, this is a business personal interest. This is a tenant. If a property owner has a business, personal property or mineral property interest that comes up when you search there, you know that that’s a tenant and that’s going to be a leasehold interest and you need to file your lien as such.

Haven: So, the owner’s name, you have La Boucheriee, you have their mailing address, which matches our project address. You have the property address. In here you have the legal description, you can tell it says none. And so that shows you that it’s a tenant. It doesn’t actually own the real property interest. And so once you now have the tenant’s name, their address, you also have the owner of the fee sample, their address, you’ve identified all the owners. But the next step that you need to do is then locate the legal property description and so the first thing I would do is I would go to the Texas comptroller’s website, which I’ve pulled up now, and that way I would confirm what the tenant entity’s name is.

Haven: And so I would type in La Boucheriee, you got to click that you’re not a robot, and then you search. And it didn’t come up. There we go. I was worried. I was like, “I know that came up last time I searched.” Okay, so that would come up and you have that the entity’s name is La Boucheriee Inc. So now you also have their correct, full legal name, their mailing address that’s on file with the secretary of state, which is if you serve it there, you’re always going to be fine with your lien because you’ve served on the proper address. That’s what they have on file with the secretary of State’s.

Haven: So, you have the tenant identified, their address, you have the fee simple owner identified, their address. Next we need to confirm the legal description and if you’ll look back when we searched the fee simple owner on the appraisal district, we did find an abbreviated legal description right here. But I’m going to tell you that’s not sufficient. It probably would be fine if you’re in a pinch. But if I were doing a lien for a client, I would not stop there. And the reason is that real property records are recorded based on prior interests. And so when you’re filing a lien, you want to make sure you attach to the full interest of the owner of the project.

Haven: And in order to do that, you need to match the legal description that was in their deed when they purchased the property. And so it’s always the best course, if you can, to find a legal description that is in the deed from that owner or that is on record in the real property records. And so in order to do that, you need to take your search a step further. And that’s where the Texas File website comes in.

Haven: And so I have Texas File pulled up here. You do have to have an account to use it, but like I said, I think it’s well worth it and you would go up here, search, you would go to County records, it would come up, and you would go to Harris County, and then right here you would see, okay, it comes up full name. It’s a grantor, grantee index so you’re going to search by owner name and I would come over here to the fee simple owner, which is this Calton LTD et all, and I would just copy that first word. I would bring it right here and I would search it and wait for it to search. It’ll take a little while, a few seconds.

Haven: And it comes up and you see all of these Calton searches that come up and when they come up you’re going to see several different things. One thing that you’d come down here … When I search, I don’t want to look for an affidavit or a release. What I’m looking for our deeds. I’m also looking for memos because a lot of times you’ll have a memorandum of a lease that is recorded in the real property records and that that helps you identify the tenant, also the fee simple owner. So I’m going to go down here to this memo. I’ve clicked on it. You can see down here the reference info where it says Cornerstone Village Two.

Haven: If you compare that back to the Harris County Appraisal District, right here it says Cornerstone Village Two North Two, and that matches. So okay, I know this is dealing with the correct property. To to purchase it, you’ve got to pay a dollar a page. You don’t really need that. The preview is good and that’s $2 a page. And so you can look here, it comes up, it’s a memorandum of a ground lease, which is exactly what we were hoping for.

Haven: And so normally when you pull up real property records like this, they’re going to have the property described in an exhibit. So you can look down here and you see Exhibit A, Exhibit B, and you see, okay, that’s where it’s going to be described. So, I’m going to scroll down all the way to those exhibits. Exhibit A, this is the legal description of what’s being leased, but Exhibit B is the legal description of the entire project. And so this would be the legal description I would include in your lien affidavit. That’s a lot to type out. You can re-type it, you can buy this document and just attach this as an exhibit to your lien affidavit. Either will work.

Seth: Sorry to interrupt you. I just wanted to say, and I know you have some good stuff left, we’ve got about seven, eight minutes. So, I wanted to encourage people if you’re going to ask any questions, we try to keep the whole presentation about 30 minutes. So go ahead and post some questions, if there are any, and Haven keep going.

Haven: Okay. So, I’m glad you told me that, Seth, because I need to pick up the pace. First, so you have your legal description here-

Seth:
You can do another one too.

Haven: This one will work for your lien affidavit, the legal description you need to include in there. The good news is as these next few mistakes will not take nearly as long. And so, that will solve that first mistake of failing to identify the owner correctly or failing to include the proper legal description. The next mistake that I want to talk about that I often see is failing to serve your specially fabricated materials or contractual retainers notice. And the reason I see this as a mistake a lot of times is because this is something that usually has to happen at the beginning of the project before you’re actually owed money. A lot of times people don’t have a problem sending it a pre lien notice when they’ve done the work and they’re owed the money.

Haven: But sending this notice before you’re actually owed money is a lot of times overlooked. And so hopefully you’ll understand by watching this what you need to do, as well as the reason why it’s important to send it. And so first I’m going to start with the specially fabricated materials. Those are basically any materials or equipment that are not reasonably suited for use in other projects. And so maybe it’s custom millwork, maybe it’s a custom HPAC equipment, anything that might be installed at the project that you could not use anywhere else. And the important reason for sending this is the lien laws in Texas provide that you can only claim a lien against property that you have actually improved. And so this notice is there to guard against the situation where if you ordered a bunch of, we’ll just say HPAC equipment, that’s specially fabricated for this project, you ordered it two months before you’re supposed to install it.

Haven: So you order it, you’re on the hook with your supplier, and 30 days after you’ve ordered it, the GC gets terminated and you in turn get terminated. And so you’re left with this huge bill for these materials that you’re going to have to pay, but yet have not actually been installed at the project yet. So you haven’t actually improved the project. And under the general rules, you couldn’t file a lien.

Haven: Well, if you had sent a specially fabricated materials notice, you could still file a lien even though you’ve actually not installed that equipment there. And so what this allows you to do is to actually file a lien against a project, even if you’re terminated before you actually install these materials. And so … Sorry, Seth, go ahead.

Seth: Real quick, yeah, we have a question. It seems like an interesting one. It says, “This is a lot of detail. I suggest none of this is important if the claimant has failed to send the statutory notices.” Can we talk about that for a second, Haven?

Haven:
Well, it is important because you need … So, first off, as far as the legal description and the property owner, especially the property owner, is yes, you need the property owner in order to send the required notices. And so anytime I have a project where I’m sending a pre lien notice, a specially fabricating materials notice, or filing a lien, my first step is to identify the owner.

Haven: Because if you don’t send it to the correct owner, your lien is not going to be perfected. And so that would apply regardless of whether you sent the proper preliminary notices because you need that information. But the actual legal description, that would not be needed until you actually file the lien affidavit, which would be dependent on the statutory notices.

Seth: And we’ve got another one here and Sophia asks, “Can a GC put on their contract that a sub contractor cannot file a monthly notice or lien? Can I still file a monthly notice or lien?” Was that clear enough?

Haven: Yeah. So, there’s two different things I think about. Can a GC do it and then is it legal and enforceable for a GC to do it? And so the short answer is yes. A GC can really include anything they want to in their contract. However, it’s not legally enforceable. They cannot require you to perspectively waive your right to send a pre lien notice or file a lien. And so yes, you still could do that.

Seth: Okay, and one more. We have from the same gentleman earlier: “Upon completion of a project, how important is it to record an affidavit of completion?”

Haven: Well if you are a contractor on the project, it’s … Well, if you might be a prime contractor it would be important. Or if you’re an owner, it’s an important. So, what an affidavit of completion does is that can shorten a subcontractor’s deadline to file a lien. And so as an owner or potentially a GC, it would be beneficial to file it because obviously you could shorten that window that subs can file liens on the project, or validly file liens on the project, and therefore cut off some lien rights. However, if you are a subcontractor it’s not important at all and I wouldn’t recommend doing it.

Seth: We’ve got about two more minutes left, Haven. So, if you want to wrap it up and I’ll see if there’s another question.

Haven: Okay.

Seth: And then we’ll go from there.

Haven: Okay. So just real quickly, the specially fabricated materials notice, any subcontractor who’s providing these needs to serve it. It needs to be served by the 15th day of the second month after the month in which you receive and accept the order for the materials. So, once you get the order and you make it, you need to send that notice and not wait until later on in the project when you haven’t been paid or when it’s been terminated.

Seth: We went out of order, Haven. So wanted to get Susan’s question in.

Haven: Okay, go ahead.

Seth: Says, “Can you file a lien if you’ve installed the equipment to the customer’s specs, but the gas pressure of the equipment is not sufficient to operate the equipment properly?”

Haven: Yes. So, that would be an issue of defective work. I’ve actually litigated that very issue before. But yes. And so you can still file a lien. A lien is a claim, and so anytime you’re owed money on a project, you’re going to want to file the lien to perfect that and secure that claim. Almost all the times the owner or the GC is going to come back and say, “Well, something’s defective about your work.”

Haven: And so part of when you get into a lawsuit of proving your lien claim is you have to prove that you’re owed that money and prove that all your work’s done properly. So, that could be a defense to your lien claim if you’ve got into litigation, but that should not prevent you from filing the lien. You should absolutely still file it and then you can work out the resolution to whatever that defect is after you filed it and then release your lien.

Seth: Okay, well we’re about at a time and I know you have a lot more to say, but we try to keep these things within 30 minutes. So I see there’s a lot of questions coming in so I’ll kind of end things by saying that go ahead and go on the Expert Center. If this is a Texas question, post it in Texas, one of our experts, maybe Haven or someone else, will answer it or multiple people will answer it. And that’s what we really want people to do. We want people in the construction industry to seek out our experts on the Levelset Expert Center, ask your questions, and hopefully you can get good answers and we can keep working together.

Seth: Haven, we really thank you for taking time out of your day. We know you have a big practice all over Texas and go ahead and if there’s anything else you wanted to add, I really appreciate it and thanks so much. We look forward, for real because of your great presentation, doing another one in the near future.

Haven: Great, yeah. Thank you for having me, Seth. I did include my contact information here on this slide and feel free to reach out to me if you have any questions about anything that I’ve presented, I’d be happy to answer it. Thank you, Seth.