Free CLE Course: Texas Mechanic’s Lien Law After the 87th Legislative Session
This year, the 87th Texas Legislature passed legislation that included the first substantive changes to the Texas Mechanic’s Lien statute since 2003. The changes, which will be effective for original contracts entered into on or after January 1, 2022, created a new class of mechanic’s lien claimants, overhauled the notice and lien filing requirements for subcontractors to perfect their mechanic’s lien claims, among other things.
Attorney Tracey Williams leads this free digital CLE course that will dive into the new lien law changes that will go into effect in 2022 including:
- New lien rights for licensed architects, engineers and surveyors
- Subcontractor monthly notice requirements
- Mandatory form of notice required for subcontractors
- New deadlines for filing mechanic’s lien affidavits
- New deadline to foreclose mechanic’s liens on commercial projects
- Elimination of general contractor’s obligation to provide the owner written objection of a subcontractor’s claim
- Changes to statutory conditional and unconditional lien waivers
Katheryn Barona (00:03):
Good afternoon, everyone. My name’s Kathryn Barona with Levelset and we have Tracy Williams today from the car and Abramson in Dallas, Texas. She is a senior counsel at their Dallas office and she will present Texas mechanics mean law after the 87 Texas legislative session. So she’ll be giving us all the updates on the lean launch changes that are coming in the near future. And we’ll just give a few more seconds for people to sign on to the COE today. And I also wanted to let all the attorneys that are watching today and attending that if you would like to receive credit in Texas, it is approved by Texas and you will just email me or Texas bar number after the CLE. And I will put my email address in the chat box and, um, just send me that and I will report it to state bar Texas, where you to receive your CLE credit.
Katheryn Barona (01:10):
And it is one hour credit for today’s CLE. And if you’re a contractor or a construction business, don’t worry about any of that. So, um, I will let Tracy get started. And if you have any questions, we’ll be addressing those at the end of the presentation after she is done presenting. And she’ll be happy to answer your questions then, and those you can write into the chat box or the Q and a panel, which is also at the bottom bar of your zoom screen. So we will get started now. Thank you Tracy, for having the CLE today.
Tracy Williams (01:48):
Thank you. Uh, good afternoon. Good afternoon, everyone. And thank you for taking the time to join us today. Um, I’m going to talk about not only the new changes that are, um, coming into effect, um, in 2022, but also currently law because not everything’s changing. So this topic today is a comprehensive, uh, lean overview, lean law overview, um, you know, currently and going forward the changes that will impact you going forward. Um, initial considerations with, um, mechanic’s lien law is to understand that the courts construe the statutes, uh, in favor of laborers and material providers. Um, so strict compliance with, uh, the lien laws is not required to perfect a lien, uh, all that is required, a substantial compliance. Um, also, um, just because someone files a lane on your project, does it necessarily mean that you need to get a bond to discharge the lane?
Tracy Williams (02:46):
Um, Texas lien laws are complicated, uh, maybe less complicated, uh, after house bill 2237, but still complicated, nonetheless, uh, which means that there are many subcontractors that typically fail to, uh, perfect your mechanics lanes. Um, in that, in that instance, you might be able to send a simple demand letter to get the lien removed. Um, but there are some summary procedures to have a lean removed. Um, uh, if, if that doesn’t work, um, finally mechanics lanes in Texas do not exist without a judicial decree. Um, they are not, uh, there is no self-help so to speak, uh, in enforcing mechanics lanes, you have to go to the court, have the court, establish it as a valid, uh, an existing mechanics lane and get an order from the court to foreclose lane, uh, to enforce it within the applicable limitations period.
Tracy Williams (03:40):
Now, some of the changes that are on the horizon, um, house bill 2237, which was passed by the, uh, 87th regular, uh, Texas legislative session, uh, represents the first substantive amendments to the mechanic’s lien law since 2003. Um, and the changes impact not only the notice obligations, uh, under the statute, but also the, uh, filing requirements for the lien affidavits themselves. Uh, in addition, the, um, house bill 2237 eliminates some key provisions, um, and among those is the early notice it’s required for specially manufactured items. Um, as well as the, um, you know, often onerous obligation for the general contractor to provide a written objection to the owner in writing upon receipt of a claim. Um, we’ll discuss some other ones as we go along here, but that is some of the significant, significant changes that you will see in 2022.
Tracy Williams (04:39):
So lanes cover, uh, any person who furnishes labor or actually labors themselves, or furnishes labor or material to a project, um, for the construction or peer of an improvement, um, or if they especially fabricate material, um, even if the material is not delivered to the project, um, if the person is a licensed architect, engineer or surveyor, um, providing services to prepare a design drawing, plat plan survey, or specification, um, they’re entitled Tulane. And one of the changes here is noted on the slide is that, you know, the provision in part only applies to contracts that go into effect, or that are entered into, I should say, uh, January 1st, 2022. And that is when house bill 2237 becomes effective. Does it become effective on January 1st, 2022? It becomes effective for contracts that are entered into on or after January 1st, 2022. Um, currently, uh, architects and engineers are only entitled to a lane if they have a direct contractual relationship with the owner, um, that requirement goes away under 2237.
Tracy Williams (05:55):
So basically any licensed architect, engineer or surveyor, um, who provides these professional services on a project is entitled to a lane. So there’s an entirely new class of lien claimants that have been created under house bill 2237. Additionally, that the definition of services, uh, has been somewhat expanded or at least clarified, um, under the current statute, uh, the only items are prepared by these professionals that are listed are plans and plats, and that has been expanded to include design drawing, um, survey and specifications, which was not previously listed in the statute. And I think that’s, you know, probably more, just a clarification than anything. Um, but again, that change goes into effect for contracts entered into our after January 1st, 2022. Um, you’re also entitled to Elena key provide labor material, uh, in connection with landscaping and irrigation, uh, as listed there. And also if you perform labor material in connection with the demolition of improvement, the lane extends to the improvements themselves and to each lot of land necessarily connected.
Tracy Williams (07:05):
Um, if you are not dealing with a tenant. Um, so one of the key points that I want to make on that issue is that if you have contracted with a tenant, uh, in connection with an improvement, uh, you need to know, you need to ask certain questions. Well, first you need to ask, um, if they are, if they own or lease the property, um, because it will affect potentially what your lien attaches to. If you’re dealing with a tenant who, um, is in, you know, paying for all of the improvements and does not have any owner, uh, oversight or approval, um, then potentially your lien will attach only to the leasehold improvements themselves and not the underlying dirt. Um, a lot of questions to ask up front to make sure what the relationship between a landlord and tenant is because again, your land, your lane could extend to the dirt depending on what the relationship and contractual obligations are between landlord and the tenant.
Tracy Williams (07:58):
Um, the lane does not extend to sidewalks, streets, utilities that are public owned, um, because you cannot place a lien on publicly owned property. Um, if the project is in city limits, so to speak, then the lane, um, attaches to each lot, uh, on which the improvement is situated because it could extend, um, multiple lots. Uh, if the lane is outside of city limits, then the maximum coverage is 50, uh, acres. Um, upon which the improvements is because you can’t lean 200 acres. If the, you know, the improvement sits on five, you can’t lean 200 acres. They’ve only extended 50, um, the lane secure payment for labor materials and equipment. Um, it also covers profit, but not anticipated profits because you don’t necessarily know what that is. Um, and extras, even if you do not have a change order, if you furnish the labor material, it is linkable.
Tracy Williams (08:56):
Um, and you are, uh, the climate, the lien claimant is entitled to recover interest in attorney’s fees. However, you cannot include those items in your lane. Um, they are not of will. You have to file your suit to foreclose, uh, to recover those amounts, key definitions that you should be familiar with. Um, first one is improvement. Um, the one that is identified on the slide is the, uh, the, the new definition that has come out of 2237. Um, I include it only because it’s really not a substantive change. Um, it really incorporates terminology from throughout chapter 53 and consolidates it in the definition of improvement, uh, really just to simplify some of the other provisions with just the term improvement. So, uh, again, it’s, it’s, non-substantive, so an improvement includes, uh, the structure, um, you know, or any of the other items listed there, clearing grubbing draining or fencing of land, the machinery or apparatus is used in farming and irrigation work described by 5321 4, which is your landscaping and irrigation.
Tracy Williams (10:04):
And the designed Ron plats surveys and specifications provided labor, uh, also is the labor used in the direct performance of the work or the professional services used in the design, um, or surveying, um, of those. And, and I will say direct performance has been substituted. That term has been substituted for, uh, direct prosecution, which was really just an archaic term. Um, and I think it was just updated to make it more, uh, current. So instead of the word direct prosecution, you’re going to see the word direct performance use going forward. Uh, material is all a part of the material. Machinery fixtures are tools that are incorporated into the work used in the direct performance of the work ordered and delivered for corporation use. And, um, you know, the important thing to note there is that late, you know, the, the material does not have to be physically incorporated into the project, uh, to be learnable as long as it is ordered for use and delivered.
Tracy Williams (11:09):
Um, it is [inaudible], um, if especially manufactured goods, it can be Lina bubble, even if it is not delivered. Um, material also includes rent for, uh, construction equipment and also, um, you know, cost of actual running repairs. When you have equipment break down on a project and you have to have someone come and repair the equipment that cost is learnable. Uh, it also covers power Waterfield and lubricants that are consumed or ordered and delivered, uh, for consumption and performance of the work. Um, and especially fabricated materials means that it is material that is fabricated specifically for that job that is not suitable for use elsewhere.
Tracy Williams (11:53):
I, contractors lane cannot extend or cannot exceed, I should say, uh, an amount equal to the proportion of the total subcontract price, uh, for the labor materials that have been furnished, uh, less payments that have been received by that subcontractor. Now, when try to determine when your deadline is to file your lane, um, it’s important to know that your invoicing dates do not determine your lane filing or notice giving deadlines. The pertinent date is the date that you furnished the labor and material, regardless of when you bill for it. So if you don’t bill for something for 60 days, don’t use that invoice date, uh, as a guide to when you need to send your notice, um, unless you invoice on the date that you furnished labor or material, um, you should totally ignore that date because it may not help you, um, keep your lien alive later on.
Tracy Williams (12:53):
Um, now for contracts that are entered into before January 1st, 2022, um, the property code sets forth when an indebtedness accrues for purposes of when your lien filing deadline is, uh, so if you contract with the owner, the debt accrues on the last day of the month in which the contract is completed, finally settled, uh, abandoned or terminated. If you’re a subcontractor, it occurs on the, uh, the last day that you furnished labor materials to the project, uh, for contracts that are entered into on or after January 1st, 2022, um, section 5,353, which is the accrual of indebtedness section, uh, is repealed. And so the, the deadlines for your notices is governed strictly by section 53 0 56 and 5,357.
Tracy Williams (13:47):
So why do we follow lanes? You want to get paid? Now, if you’re a N an original contractor, you don’t have any obligation to send any pre lane notices because the owner is the only one who you have a contract with and who may owe you on the project. And since they already know you exist, you don’t have any obligation to give them notice if you’re a subcontractor. And again, this is currently. So for any contracts that were entered into before January 1st, 2022, this, these are your current deadlines. Uh, if you contract with an original contractor, then you have to give the owner a notice with a copy to the original contractor by the 15th day of the third month, uh, for every month in which you furnished labor materials to a project, if you, uh, contracted with a subcontractor, then in addition to the third month notice, uh, you have to give notice, um, by the 15th day of the second month to the original contractor for again, every month in which you furnished labor material to the project, and the notices have to be set by certified or registered mail to the recipient’s last known address, I’ve included a pre lien notice deadline chart in the slides.
Tracy Williams (15:05):
I’m not going to go over that there for your information. Uh, now changes to the prelim notices. So house bill 2237, again, is effective only for contracts that are entered into on or after January 1st, 2022. I’m going to keep repeating that because I think that’s going to cause some challenges going forward. And I think people may be relying on the wrong law, uh, for at least this first year. Um, so again, January 1st, 2022 is your contract date. That’s important. Um, the changes make the notice requirements more uniform, um, by imposing the same obligations on every subcontractor of every tier. So it doesn’t matter whether you contracted with the original contractor or you contracted with a subcontractor, the notice obligations are the same, um, and the same notice must be sent to both the owner and the original contractor. Um, there are now statutory form notices that have to be used both under section 53 0 56, a, which is the notice of the derivative climate for unpaid claim as well as 53 0 57, which is the notice of unpaid pertain inch.
Tracy Williams (16:17):
So both of those have statutory forms that you have to use or, or use a form that substantially complies with what is set out the statute. And that form is used, whether you are engaged in commercial construction or residential construction. And in addition, the, uh, the manner in which you can give the notices has been expanded, you can still send certified mail, registered mail has been eliminated, because again, that’s probably just archaic language that’s been removed. Uh, but you may also now use any other form of traceable delivery, private delivery, or mailing service that can confirm proof of receipt for labor or material that’s been furnished under an original contract that is entered on or after January 1st, 2022, um, both commercial and residential construction subcontractors have to send the statutorily prescribed form to both the owner and the general contractor, uh, on or before the 15th day of the third month following each month in which labor or material is furnished.
Tracy Williams (17:23):
And for residential construction, the notice is unchanged. Um, again, the subcontractor has to send the notice to the owner and the original contractor. Uh, the only change is that they now have to use that statutorily prescribed form, um, also for the contractual retain and just the timing of the required notices not changed. Uh, but beginning in 2022, both the commercial and residential have to use the statutory form, uh, and they have to send it to both the owner and the original contractor by the earlier of the 30th day after the date that the claimant’s contract is completed terminated or abandoned, or the 30th day after the day, the original contract is terminated or abandoned. And the notice that is, uh, under 53 of 57 for retainage is, is supplements the 5,356 notice, which is your second and third month. Notice you only need to give the notice to retain edge if you don’t include retain edge in your third month notice.
Tracy Williams (18:26):
So if you’ve included your retainer in your third month notice, there’s no requirement to send the notice under 5,357. However, if you’ve failed to, then you must send that notice. Um, it also gives you an opportunity to save a claim on retain, and just if you haven’t given, um, those third month notices throughout the year project, um, also, um, this, they save a lot of people. Um, currently, if the 15th of the month, when you have to send your notices out falls on a Saturday, Sunday, or legal holiday, you have to send it prior to that date. So you have to send it on that Friday. So if you’ve got the 15th falls on a Sunday, your notice is due on the 13th, um, this law, uh, house bill 2237, updated that to make it consistent with the way that we practice in civil trial law. If the deadline falls on, uh, on a weekend, the deadline is extended to the next day. That is not a Saturday, Sunday or legal holiday. So you got a few extra days potentially to, to get your notice.
Tracy Williams (19:32):
Yeah. Uh, notice does afford an opportunity. Yeah. And this is under current law, um, the lien claimants to trap funds in the hands of the owner, and it requires special magic language, uh, to include in your notice to the owner. And that says, if this claim remains unpaid, the owner may be personally liable and the owner’s property subjected to Elaine, unless the owner withholds payment from the contractor or payment of this claim, or the claim is otherwise paid or settled, um, going forward, um, or I should say prior to January one, um, that language would authorize the owner to pay the climate directly and deduct it from any money that they owe the original contractor. Um, if the owner, uh, pays the original contractor after they’ve received a fun trapping notice, uh, then the client and the claim remains unpaid, then that claim, uh, climate’s right to recover is not limited to the 10% retainage, which is required by statute, um, for contracts that are entered into on or after January 1st, 2022, the fund trapping language is incorporated into the statutory form. So it will essentially be, uh, in, in every case for every notice I should say.
Tracy Williams (20:47):
And here is the new statutory form notice under section 5,356, uh, in all caps, notice of claim for unpaid labor materials. It’s very basic. Um, it does have a warning. And again, that warning is your fun trapping language. Um, just the date, project description, name, what you did, who you contracted with. Um, who’s the original contractor, if that’s not who you contracted with and the amount of your claim, and then who the climate’s contact is, and the claimant’s address, there’s no requirement that these be a notice note notarized or verified in any way. And this is the statutory form notice under section 53 0 57, virtually the same, except for the title. And except for that last total retain agenda pay otherwise it’s.
Tracy Williams (21:36):
Yeah. So under current law, um, if, if a lien claimant sends a notice under 5,356, um, and, you know, makes a demand for payment, the demand, you know, has to give the owner, has to tell the owner that the claim is accrued, um, and it’s past due. And the claimant must send a copy of the notice to the original contractor. The original contractor may, but is not required to give the owner written, notice that the contractor intends to dispute the claim. However, if they don’t object in writing within 30 days, then they’re considered to have assented to the demand. And the way the statute reads is that the owner shall pay the claim. Um, now, unless a lien has been secured, um, a demand may not be made a demand to pay to the owner may not be made after the deadline of following his past.
Tracy Williams (22:34):
Now house bill 2237 repeals section 53 0 83, which is the section that provides that a payment can, um, you know, payment to claimant on demand, therefore for contracts that are entered into on or after January 1st, 2022, the climate no longer has the ability to hold the owner liable in the absence of an objection from the original contractor. Um, you know, the statutory provision providing that the claimant could make the demand on the owner has been eliminated. Um, and also the statutory provision that requires the general contractor to provide that a written objection to the owner has also been eliminated that went back up for a second.
Tracy Williams (23:29):
Now, I think part of the, um, part of the reason that, uh, behind that the repeal of those sections is there some bad court decisions that are out there that have, uh, held in some circumstances, owners can be liable, uh, in the absence of a valid lien or bond claim. And I think some of these provisions have been, um, you know, modified or repealed to try to eliminate some of that owner liability where it really shouldn’t exist to begin with. Um, that’s my opinion, I guess it’s, we’ll have to see what the courts do with that. Um, now for the notice, especially fabricated materials. So currently under current law, uh, there’s an early notice that you have to give, if you’re furnishing specially manufactured items to a project, uh, in the purpose of the notices to perfect a claim on materials that are not delivered to the project, um, you still have to give the notice under 53 and 56 for items that are delivered, uh, however, under 5,358, this additional notice allows you to secure a claim for materials that do not get delivered.
Tracy Williams (24:36):
Um, but what you have to do is you have to provide the odor notice, uh, not later than the 15th day of the second month after the date that you receive and accept an order for those specially manufactured items. Um, and you know, again, it’s an early upfront in the process and the owner knows that you’re out there. Uh, and again, it only applies to lanes that are not, I mean, materials that are not delivered to the project. Um, if the, uh, indebtedness for those specially manufactured items is incurred by someone other than an original contractor, then you also have to send that notice to the original contractor that notice must contain a statement that the order has been received and accepted, and the price of the order. It has to be sent by registered and certified mail to the last known address of the owner or reputed owner and the original contractor if applicable. Um, and that, again, that notice is in addition to the second and third month notices that you’re required to give under, uh, 5,356.
Tracy Williams (25:41):
So house bill 2237 eliminates section 53 0 58 altogether. So there is no longer, uh, will no longer be an early notice for specially manufactured, fresh, especially fabricated materials. Um, so for specially fabricated materials that are furnished under the original contracts entered into on or after January 1st, 2022, they’re essentially treated the same as all other materials, uh, for purposes of your preload notices. Uh, you give the notice in accordance with section 5,356, and if applicable, uh, 5,357 for retainage, and you’re still entitled to Elaine, even if they’re not delivered to the project, just by way of the wa by virtue of the way that the definition for materials has been rewritten.
Tracy Williams (26:34):
If your original contractor, you have two types of leads, you have a statutory lane under chapter 53 of the Texas property code, and also have a constitutional lane under article 16 of the Texas constitution, um, in order to perfect your lane, uh, if you’re in commercial construction and you’re an original contractor, you have to follow your mechanics lane or your affidavit claiming the lane, not later than the 15th day of the fourth month following the month in which the original contract is terminated, completed, finally settled or abandoned. Uh, if you’re in residential construction, um, the lien affidavit has to be filed within, or by the 15th day of the third month, uh, in which the original contract is terminated, completed, or settled, finally settled or bandaid. And you have to send a copy of the mechanics lien to the owner within five days of filing, and you have to send it by certified mail to the owner’s last known address.
Tracy Williams (27:36):
And that’s five calendar days, and you do not have to send a copy of the recorded lane. Um, you can’t always get those back very quickly and it’s, I would always recommend just sending the lane the same day that you file it, and you don’t risk for getting the Senate under the new law, if you’re in commercial construction and, and just clarity, I think primarily most of you are in commercial construction, and that’s mostly what I’m talking about today, but if you have any questions on residential constructions or construction, feel free to reach out to me after the presentation. Um, so under the new law, if you’re in commercial construction, the lien affidavit has to be filed still by the 50 day, the fourth month following the month in which the original contract has been completed, terminated or abandoned, the fully settled language has been deleted from the statute.
Tracy Williams (28:26):
Uh, if you’re in residential construction, same thing, fully settled lated, still 50 day, the third month, the biggest change, um, it is going to be, um, if your claim is for retainage and for subcontractors. So we’ll talk about that in a second. And you still have to send your notice of the lane, uh, within five days. Again, the notice provisions changed to include other forms of traceable delivery. So you can send it by certified mail or, you know, some other form that can prove receipt contents of the lien affidavit has not changed. Um, you still have to have a sworn statement of the amount of the claim, the name and last known address of the owner or reputed owner, a general statement of the kind of work done in the materials furnished. Uh, and if you are not the original contractor, then you have to also include the months in which the labor or material was furnished.
Tracy Williams (29:19):
Um, if, uh, you also have to include the name and last known address of the person with whom you contracted, uh, and the last name, last name, and last known address of the original contractor. If they’re the same, set them out separately, it doesn’t hurt anything. You have to have a description that is legally sufficient for identification of the property sought to be charged with the lane. Doesn’t have to be the legalist legal description that’s attached to a warranty, deed or deed of trust. I try to use that because it is the most specific description that you can give. Uh, if there is a street address assigned it’s, you could probably use that. I would try to stay away from a range of dates or street addresses, uh, if a specific address hasn’t been assigned, uh, but you could, if you couple it with a CAD description, uh, again, I think the best best method is to use the legal description that is, um, you know, attached to the deed or data trust.
Tracy Williams (30:16):
And you don’t have to, and as long as you can identify the property using the description provided, uh, is probably sufficient. Um, and then you also have to include your name and mailing address if it’s different from your physical address. Um, and then a statement identifying if you were not the original contractor, a statement identifying, uh, the months, uh, in manner in which you’ve given your prelim notices. And again, I’ve included a link filing deadline chart. Um, you know, I’ll just, that’s there for your consumption. So if you are the original contractor, again, you’re entitled to a constitutional lane. And the lane provision in the constitution is very brief and reads as follows mechanics, artisans and material men of every class shall having lean upon the buildings and articles made or repaired by them for the value of their labor done they’re on or material furnished, therefore in the legislature shall provide by law for the speeding efficient enforcement upset lanes.
Tracy Williams (31:16):
The reason I read that, the way that I did is to make it clear that you have to provide labor or materials specifically for the buildings and articles themselves, which can be construed to mean that architects and engineers who contract with an owner do not have a constitutional lane and subcontractors and suppliers do not have constitutional lanes, because again, it requires privity with the owner. Um, therefore their only way to secure their lane rights is to comply with the statutory provisions and against substantial compliance is all that is required. And for a subcontractor or supplier, there are two, um, monetary funds, uh, that the lane secures payment from. And that is the 10% what we call statutory retainage currently, um, going forward under the new revisions, um, that 10% statutory retain a gender sub chapter is going to be referred to as reserved funds, although the contractual retain it still retains that nomenclature. So, um, prepare yourselves for confusion on some of those issues. Um, also the lane attaches to funds that are trapped in the hands of the owner by fund trapping letter, which is in addition to the statutory.
Tracy Williams (32:43):
So under current law, the general rule for a subcontractor or supplier to secure a lane is that the climate must file their lane, uh, not later than the 15th day of the fourth month following the last month in which they furnished labor immaterial to the project. Uh, the exception number one, uh, to that general rule is that if the owner files an affidavit of completion, um, and the climate’s given the owner written notice, or, you know, any prelim notice so that the note that the owner knows or there, or made a specific request that they received notice of the filing of an affidavit of completion, then the owner has to send that claimant a copy of the affidavit of completion and the, uh, with proper notice, the owner has the ability to insist that that climate father lane father lane, within 40 days, uh, after the work was done under the original contract.
Tracy Williams (33:34):
Um, second exception is if the original contracts terminated, um, again, it can trigger an early filing deadline. So you need to, um, follow your lanes, you know, immediately. Um, but again, if you’ve, if the owner has gotten noticed that you’re out there, because you you’ve sent a pre-lease notice, or you send a request for notice determination again, that can, that can trigger an early filing requirement under the new law. Um, the, and again, this is for commercial construction. Uh, the climate still has to follow the affidavit. Um, you know, not later than the 15th day of the fourth month after the later of, uh, the month that you last furnished labor material. Uh, but it also sets out specifically, as far as specially manufactured items are concerned, uh, the last month that you would normally have been required to deliver your specially manufactured material, uh, to the project, but has not actually been delivered.
Tracy Williams (34:31):
Um, and the first exception, uh, with respect to the prior slide for affidavits of completion, uh, that those provisions have been repealed. So the owner can no longer use an affidavit of completion, uh, to demand early filing Evaline affidavit, um, section 50 through 53 0 52 controls, um, exception to, uh, is that if the claimant is claiming a lane for retainage, then the late affidavit, um, has to be filed by the 15th day of the third month after the month in which the original contract under which the climate performed was completed terminated or abandoned. And essentially, um, that, that is essentially going to require that basically every subcontractor file their lanes by the 15th day of the third month, because all of the most, if not all of the lanes will include retainage. So it doesn’t have to be specifically for retainage. If your claim includes retain ends, you need to file your lien by the 15th day of the third month, following the date that the work was completed.
Tracy Williams (35:47):
So four lanes on contractual retain agender 53 0 57. Um, you have to send the notice of retainage, uh, currently, uh, to the owner by the earlier of the 30 day after climate’s work is done, um, or the contract is terminated or abandoned, or the 30 day after the prime contract is terminated or abandoned. Uh, so the, the deadlines for perfecting your lanes on retainage, uh, vary greatly. Um, so if you, if you set your timely, if you set your notice timely, you, you can file your lien affidavit, uh, the earlier of these six deadlines, and I’m not going to read it all because it’s, it’s a lot, but it is there. So you basically have the 15th day, your general rule, you have your exceptions for, um, termination and for affidavit of completion, a couple of different ones, depending on when the affidavit of completion is filed.
Tracy Williams (36:50):
Um, owner also has the ability to demand the early filing of Elaine. Uh, and then you’re the last one is the 30th day, uh, after the earliest of the date, the work is completed. So very confusing. Um, those, all of those early filing requirements have, have gone away. And, and again, this part of the streamlining of the, um, lean perfection procedures. So leans on reserved funds. Again, that’s going to be the language going forward. So the language is changed, um, from retainers to reserve funds. Um, and to the extent that the unpaid retainage is not included in 53 or 56 notice, which is going to be your third month notice, then you are required to send a notice under 5,357, which again has that new statutory form. Um, and that notice has to be sent to both the owner and the original contractor by the earlier of the 30th day after you complete your contract or your contracts terminated or abandoned, or the 30 day after the original contract is terminated or abandoned. And that new form is set out in 53 57, 8 dash two, uh, or the earlier slide that was shown. Uh, and again, that lien affidavit has to be filed by the 15th day of the third month after which the original contract under which the climate performed, uh, is completed terminated or abandoned.
Tracy Williams (38:18):
So in order to determine when a contract’s terminated or abandoned, um, all you have to do is send any of the statutory notices, uh, to the owner. And then you’re entitled to, uh, outer has to give you notice if they note they received your preload notice and they have to send you notice of determination, um, or if you make a written request to the owner for notification or abandonment, um, and the notice must include the date of termination or abandonment. And again, there is the five day rule that you have to send the, a copy of the lien affidavit to the owner, not later than five calendar days after the date that the affidavit is filed with the county clerk. And again, it does not have to be a file marked copy of the lane. Uh, as long as you send them a copy, uh, an exact duplicate of what was recorded with the county clerk now, in order to enforce your lien claim, uh, under current law.
Tracy Williams (39:13):
And again, this is for commercial construction. You have to file suit to foreclosure lane within two years after the last date that you could have timely filed. You’re late. Not that you actually filed. If you filed your lien early, then it’s actually more than two years or within one year after completion termination or abandonment of the prime original contract, whichever is later not very clear, thankfully, but that was addressed in chapter 2237, or I’m sorry, house bill 2237. Um, it does shorten the deadline to foreclose and mechanics lane, um, to one year. Um, it is from the deadline to fire lane. Still. The second part of that last provision has been removed, um, and the deadline to foreclose on residential projects projects is also one year. So they’re now really consistent. However, with the commercial, uh, you could agree to extend it to two years, uh, provided that the agreement is in writing, um, that it is entered into before the expiration of the first anniversary before that one-year limitation period expires, and it must be recorded with the county clerk where the lien is recorded.
Tracy Williams (40:26):
So next, we’re going to talk about priorities and preferences. So, uh, all perfected mechanics lanes have perfected being the key term, um, stand on equal footing and all subcontractors laborers, material, men who have a mechanics lane have a preference over other creditors of the original contractor, um, and the mechanics liens attached to property and preference to any prior lane, incumbents or mortgage. Um, and mechanics lanes will not affect any land incumbents or mortgage on the land at the time of the inception of mechanics lane, except for removables. And so typically a, um, you know, a bank foreclosure, uh, will typically wipe out any inferior lanes, including mechanics lanes. Um, if the inception date is after the filing of the deed of trust, and however removables is an exception to that rule. Um, and essentially what that does is it gives a lien claimant the opportunity to recover, uh, for goods that can be removed and recovered such as refrigerators that are just plugged in, um, some appliances, not appliances. Um, it’s really any material that is incorporated into the construction that can be removed without causing material injury to the property. Um, you know, so there’s some stuff, sheet, rock framing, that stuff is not considered removable. Um, you may have, um, windows or certain floor coverings depending on the manner of, um, in which they’re fixed to the property, uh, HVC HPAC equipment, um, can also be considered removable. Um, it just is determined by how they are, uh, connected or, uh, fixed to the property.
Tracy Williams (42:10):
So the time of inception of mechanics lane is the commencement of construction of improvements or delivery of materials to the project. And the commencement of construction or delivery of materials must be visible from inspection of the land on which the improvements are being made. Um, you know, an owner in an original contractor can file an affidavit of commencement. Um, as long as it’s filed, not later than 30 days after the date of actual commencement, then it is prima facia evidence of the data commencement of construction. The affidavit of commencement must include the name and address of the owner. Uh, the name and address of the original contractor, uh, known at the time, uh, to the owner that is furnishing labor services or materials for the construction of improvements. I description again, legally sufficient for identification of the property, the date that the work actually commenced any general description of the improvement and the affidavit of completion, um, you know, which can be filed, um, must include, you know, the name and address of the owner, the original contractor, a description legally sufficient for identification and description of the improvements.
Tracy Williams (43:35):
Um, a statement that the improvements under the original contract had been completed and the date of completion and a conspicuous statement. And again, this is under current law, um, that a climate may not have a lien on retained funds unless the climate files, the affidavit claiming Elaine, not later than the 14th day after the date, the work under the original contract was completed. So that 40th day language under house bill 2237, was stricken and replaced with, uh, in the time and manner required by section 5,352, um, which is your 15th day, fourth month or third month, depending on whether you’re famous for retainage.
Tracy Williams (44:17):
And a copy of the affidavit of completion has to be sent by certified or registered mail to the original contractor. Uh, not later than the date, the affidavit is filed and each climate who sends the owner notice of liability under 5350 0 0 57 or 58, uh, not later than the date, the affidavit is filed or the 10th day after the day that the owner receives the notice of lien liability, whichever is later. And so house bill 2237 eliminates the requirement that the notice be sent by certified or registered mail. It can be sent as first-class, there’s no restriction that is not, um, this is not a default that requires either certified or other traceable delivery. There’s simply no requirement that would be sent traceable at all. Uh, house bill 2237 also extends the deadline, um, from, you know, the, the date that the affidavit is filed two, three days after the affidavit is filed, or 10 days after the owner receives notice.
Tracy Williams (45:12):
Um, it also repeals section 5,358. So again, that section won’t be there to provide a basis for, um, uh, notice, which would trigger any kind of notice requirement on the owner. Um, so the copy of the affidavit has to, has to be sent to each person who also furnishes, um, labor material and the project that made a written request for that affidavit. Um, if it’s filed before the 10th day after the date of completion, but then the date stated in the affidavit is prima facia evidence of the date of the work under the original contract is completed if it’s filed after the 10th day. And the date, the date of filing is the date of completion, statutory lien waivers. Um, so currently, um, and what I’m referring to is the, the form waivers that are found in 53 to 84. Uh, these waivers are typically the waivers that are given in exchange for payment.
Tracy Williams (46:14):
Uh, during the month with a monthly payment application processing, you have your conditional and conditional waivers for progress, payments, and conditional and unconditional waivers for, uh, final payment. Um, currently those documents are required to be notarized, to be enforceable, um, house bill 2237 eliminates the requirement that these forms the notarized. So, uh, you can’t, you, they will be enforceable against, um, any, any subcontractors who have furnished, uh, waivers that are not notarized. Um, and this is again only affected with contracts that are entered into on or after January 1st, 2022. Um, statutory lien waivers are not to be confused with a release of mechanics lane. They may have been used in the past, um, and recorded with the county clerk to release the mechanics lien that’s been filed. But in my experience, the waivers are generally pre lien filing documents that again are used in conjunction with payment processing, uh, really to prevent the filing of lanes in the future. Um, but these not even if they had been used in the past to release a fall mechanics lane, uh, if one is given under the new law, and it’s not notarized, it’s not suitable for recording with the county records because those documents are required by other law to be notarized. And, um, so you would also need to have a lien release if a lien has been filed, that is notarized in accordance with law. And that is all I have today. I am open for questions.
Tracy Williams (47:58):
And here’s the last time with my contact information. I believe that the slide presentation will be sent out to you
Katheryn Barona (48:06):
Following this presentation. That’s right. Hi, Tracy, thanks again for this great presentation. And I did put in the chat and my email address. I’ve received many emails so far from attorneys with their bar numbers. So thank you for that. I am seeing those, and I will be reporting that to the state bar of Texas for your credit. And, um, if you have any questions right now for Tracy, just type them into the chat box or the Q and a panel, and we do have a couple so far, so I’ll read those for you. Um, we have an attendee that asked what a subcontractor who furnished improvement on a land after the original contract has been terminated by a mutual agreement between the owner and contractor still be entitled to a property.
Tracy Williams (49:01):
Yes. Um, I think the only question is, so if you’re furnishing under a contract that was terminated, are you furnishing at the request of the original contractor? Um, you know, either way you’re furnishing under an original contract. So whether or not that original contract has been terminated and your relationship is now with the owner as a direct, um, you know, contractor, an original contractor, because you can’t have more than one original contractor on a project. Uh, if you furnished labor or material for construction, uh, under an original contract, then yes. And again, I think even if your contract’s been terminated, that it’s still being furnished under the original contract, the question is going to be who’s your contract with that point, because typically there is an assignment provision in a contract between an owner and original contractor, even though that’s not going to be required, I don’t believe for you to affect your mechanics lien on a project.
Katheryn Barona (49:59):
All right, thank you for the answer. And Terry asked presently if the owner pays the original contractor and the OCC does not pay the subs and the subs go after the owner,
Tracy Williams (50:16):
Not unless you have sent a, uh, fun trapping letter, um, because typically that’s going to fall under the trust fund act. And once the outer has released the funds in the absence of a fun trapping letter, um, it’s the general contractor who is liable to the subcontractors. So you’ve got, um, well, let me back up for a second. So not for the, just by virtue of the payment itself, you still have lien rights. So if the general contractor has not paid you, but they’ve been paid that doesn’t affect your, your rights to a portion of the retainage. And so the question is going to be, how much can you recover? Um, there could be a lot of lien claimants out there, uh, which means you may only ultimately have, uh, the right to recover 10% of your claim from the owner. Uh, if their liability is limited to 10%, but again, if you’ve sent fund trapping letters and they made any payments to the general contractor after receipt of your fund trapping notice, then you could recover above that, uh, your, any proportional interest that you may have in the retainage.
Katheryn Barona (51:22):
Thank you. And, um, Sharon just asked, please define fun. Trapping
Tracy Williams (51:31):
Fun. Trapping is, well, I it’s, it’s really a term of art. So there is that magic language that I talked about in the slide that talks about fun trapping. Um, it means that once you send that magic, the letter that contains that magic language, you know, which now comes out of a section that’s been deleted. Um, but going forward, the statutory form will include that fun trapping language. Once the owner receives, receives that, notice it puts them on notice that they should not pay the general contractor without satisfying the claim if they do. And they’re still holding money that is owed to the general contractor, okay, those are the funds that you’re trapping. If they’re still holding money that belongs to the general contractor or is owed and they pay it out in violation of the fund trapping notice, then that is the trap funds that you have an interest in. Hopefully that answered your question.
Katheryn Barona (52:35):
Just one more question is, um, can we make changes on the statutory release on the, on the,
Tracy Williams (52:47):
Are you referring to the unconditional conditional waivers? You can make changes to them. However, they must be in substantially the same form as is set out in the contract. So if you have additional information in there, um, you know, that’s fine, but you need to have substantially the same information that is in the statute.
Katheryn Barona (53:16):
Any other questions out there, go ahead and type them in Q and a or the chat. And as you see on the screen, Tracy’s address is there, so you can, um, ask any followup questions or so that’s about it. Um, so receiving lots of emails for the CLE credits that thank you all for that. And, um, thank you everyone for attending. I know this is a really valuable thing. You provided Tracy for all the construction attorneys to get CLE credits and in a really convenient way. So my pleasure, and I know that there’s a lot of contractors, construction business owners out there watching today. So this is really helpful for them about all the changes and what they need to know. And, uh, lots of thank yous from attendees. Let’s see any other questions or not. We will sign up soon. So that will conclude our webinars today. Thanks everybody. Take care. Thank you.