How to Protect Your Payments as Texas Lien Laws Change
Have you heard the news? Lien laws in Texas are changing starting January 2022. If you’re wondering what this means for your cash flow or how it might affect the way you get paid, sign up for this webinar to learn what steps you’ll need to take.
Register to learn:
- An overview of the lien law changes going into effect
- How Texas contractors will be affected by these changes
- Steps you can take to prepare for the new laws and protect your payments
Alex Benarroche (00:16):
All right, for those who are joining us. Welcome. Uh, we’re here to talk about protecting your payments with these new Texas lien law changes. Um, I was going to give it another minute or so, or maybe another 30 seconds or so to let some people join up here. Okay. We’ll uh, let’s get some, uh, introductions out of the way. Um, thanks everybody for joining. Uh, we’re going to talk about Texas today. Texas has one of the more difficult lien laws and notice requirements in the country. Um, and this new upcoming change is pretty significant. So we want to do a little webinars to break down some of the more nuanced aspects of it, uh, and stuff that would really affect you as far as protecting payments. Um, we are recording this live, anyone who’s attending, this will receive a recording of this webinar tomorrow, uh, including some little extra tidbits and notice forms and an article kind of breaking down all of this in a little more detail. Um, if you have any questions during this presentation, feel free to ask them and throw them in the chat box and we’ll try and save some time at the end of this to, uh, to answer all those questions.
Speaker 2 (01:42):
So who am I?
Alex Benarroche (01:44):
I’m Alex Ben Roche. I’ve been illegal associate over here at Levelset for about three years now. Um, and one of my primary roles here is to kind of track all the legislative changes and make sure everything’s up to date. And, uh, this one’s fairly significant. So we’re gonna hop into this, um, real quick, if you’re not really familiar with Levelset basically we exist to kind of help subcontractors and suppliers get what they’ve earned. Uh, we have a subscription based software that kind of helps manage Lien, right? The paperwork we provide, legal services, materials, financing, and all sorts of other resources, just to help you get paid. Uh, also we have a fair amount of customers in Texas itself with lien rights are extra challenging. Uh, but we’ll get into that in just a minute.
Speaker 2 (02:28):
So a quick
Alex Benarroche (02:28):
Overview of what on today’s agenda. Um, we’re going to do a brief overview of Texas lien rights in general and why they matter to you. Um, then we’re gonna go over a breakdown of all the changes that are coming up in 2022. Um, and then some tips on how to properly manage those changes to keep your payments protected. And then some time at the end to answer any questions you have.
Speaker 2 (02:49):
So what are your
Alex Benarroche (02:50):
Lien rights in Texas? Um, if you’re not really too familiar with the lien rights process, it’s basically the best form of leverage for subcontractors and suppliers to get paid. Uh, the payment structure on construction projects are pretty difficult, a lot of money changing hands, um, and it’s hard to get it at the bottom of the barrel. Um, and like I said, Texas is difficult. There’s even court opinions regarding Texas laws that say they have been construed and misconstrued over the past 165 years. And they’re not really a model of clarity. And that is particularly true when it comes to these notice requirements.
Speaker 2 (03:24):
So what do I
Alex Benarroche (03:25):
Mean by notice requirements? Uh, Texas is one of the few states that has recurring monthly notices. You need to send one for every single month. You work in order to get to protect your lien rights for the work you performed in that month. Sometimes you need to send it to the owner. Sometimes you need to send it to the prime contractor and the owner. It all depends on the project type Andrew role on that project. Uh, and beyond lien rights in general, monthly notices do more than that. Uh, they really kind of show all the project stakeholders that you’re professional. You understand the industry and your rights, and you really expect to be paid, uh, take concrete related products. For example, um, before they joined us in, before they started sending notices, they had to wait up to 127 days for payments. None of their customers would respond to their calls and their cashflow was just never really steady. Uh, after they started Texas monthly notices, their average DSO dramatically decreased. They got paid on time. They never had to work week to week. It essentially puts all of your invoices at the top of a priority pile to get paid first.
Alex Benarroche (04:32):
So how are these changing? Uh, one very important thing to note before we dive into these changes is that these laws go into effect for all original contracts entered into after January 1st, 2022. So there’s a weird transition period, especially for your lower tier subcontractors and suppliers, not knowing which laws apply, which ones don’t. So with every change I have a little practice point to kind of help you err, on the side of caution to make sure you’re getting your payment attractive. So first and foremost, we have the lien protections are expanding. Currently designed professionals need to have a direct written contract with the property owner in order to have lien rights. That is no longer the case. The words written the direct contract had been struck from the statutes so much more, uh, design professionals, such as engineers, architects, surveyors will have the ability to file a lien if they don’t get paid.
Alex Benarroche (05:31):
Um, the second major change is especially fabricated material suppliers, uh, generally now, in order to secure your lien rights for materials that are fabricated, but not necessarily delivered to the project or incorporated in the project needed to send a specific notice on the 15th day of the second month, the order was accepted in order to protect those that is gone as well. Uh, material, especially fabricated materials, suppliers are generally to be treated as regular material suppliers. Um, even the new deadlines and foreclosure deadlines have that kind of baked in into the, uh, into the process where it’s either based on your last day of furnishing or based on the last date, the materials would have been delivered, but we’re not. Uh, so first practice tip on this one is especially fabricated materials. Suppliers should probably go ahead and keep sending those notices for a little while just to make sure you’re protected. Because again, if you’re lower on the project chain, you don’t know when the original contract was signed. You don’t know when the project started better to err on the side of caution.
Alex Benarroche (06:36):
All right. So the next big change here we got is the service methods. Uh, this has now been expanded to include any private mailing service that can confirm proof of receipt. So no longer does it have to be the us postal service certified mail registered mail has been scratched. Thank goodness. Uh, but now you can send out these notices by FedEx ups, DHL, whatever the case may be, as long as you have some sort of confirmation of receipt. Um, the other particularly important thing here is the deadline calculation. Um, under current case law, Texas, if you are a deadline for a notice or a filing or a foreclosure action falls on a Sunday, Saturday, uh, Saturday, a Sunday or a holiday, you have to file or send take action on the previous day on the, on the business day. Prior to that, um, with these new changes. Now the deadline is pushed in the other direction, which kind of aligns with the Texas rules of civil procedure, rule four anyways, where it says, if it falls on such a day, it gets pushed to the next business day. But again, practice tip here, err, on the side of caution for now a just keep sending your notices by certified mail for now and be always send notices early and file early. There’s no reason to risk sending it on the next day and losing out on some really important rights.
Alex Benarroche (08:01):
All right, the next big change here is a liens for retainers specifically, first and foremost, we have a new statutory form. Uh, I actually typed up a little template and that will be provided to you in an email following this recording. Uh, the timing is still exactly the same. The earlier about a 30 days from completion, uh, from the claimant’s completion or 30 days from when the original contract was terminated or abandoned, nothing has changed as far as the timing of the notice has concerned. However, the filing deadline for a Lien on retainage is a little bit different. Uh, right now it’s a little convoluted. It’s the 15th day of the fourth month of last furnishing for commercial 15th day of the third month for residential, or if there’s an affidavit of completion, a notice of termination or a notice of abandonment that can cut your deadline really short to about 40 days, or if you get a demand file that could be even 30 days.
Alex Benarroche (08:57):
So now there’s a uniform deadline where it’s just simply the 15th day of the third month from when the original contract was completed or abandoned. So that means the property owner with any actions, with an affidavit of completion, notice of termination abandonment that won’t change your deadline, which is great news for people trying to recover retainage. Um, so again, another practice tip here for now and into the next couple of months of 2020 to just continue to use that third month deadline. Even if you’re on a commercial project, better to be safe than sorry, and you really don’t want to risk it when it comes to retainage. Uh, Texas retainage is capped at about 10%. So if you wait too long to file that claim, you’re basically forfeiting almost a large portion if not all of your profit margin. So go ahead and keep using that third deadline, regardless of what that third month deadline, regardless of what kind of project you’re off.
Alex Benarroche (09:56):
Uh, another big one and one of my personal favorite changes here is Lien waivers no longer have to be notarized. This is an incredibly burdensome and frankly unnecessary requirement. Uh, currently Texas is one of three states, including Wyoming and Mississippi that require this no longer. However, again, with this transition period, it’s best to keep notarizing them for a little while. And even after the fact, a lot of general contractors and developers just feel more comfortable with it. So they may require that in your contract and regardless of the legal requirements, if they require it in the contract and you send them a non notarized lien waiver, it may hold up payments and you don’t want to do that. And it would just mess up your cash flow, uh, foreclosure deadlines. This one’s rough. If anyone’s ever read Texas statutes before you have to go and hop around to about three different sections to find out exactly when your foreclosure deadline, but the long short of it is currently foreclosure deadlines on commercial projects are two years after the date that the claimant could have last filed or one year on residential properties.
Alex Benarroche (11:04):
When you could have filed is 15th day of the fourth month on commercial 15th day of the third month of last furnishing on residential. It’s a mess. So they have created some uniformity here and now it’s the same foreclosure deadline, regardless of what type of your project on which is one year from the last date, you could have bought a lot of contractors, subcontractors over all upset about that, but it is what it is and you’re going to have to deal with it one way or another. There is however, a little bit of hope here is that there is also going to be an option to extend your foreclosure deadline. Um, this is very similar to what California has. It’s called an extension of credit. This is basically a written agreement between the claimant and the current property owner that can get filed with the county, but it has to be filed before the foreclosure deadline comes about.
Alex Benarroche (11:53):
If it’s filed, it will extend the foreclosure deadline to two years from when you filed the claim. But keep in mind that the foreclosure deadline is from when you could have filed the claim and your deadline extension is going to be two years from when you filed your claim. There’s a little bit of a balancing act here. If you file late or later, you might have more time if you end up getting an extension. Um, I see a quick question. Do monthly notices on public projects still need to be notarized starting in January public projects, haven’t really been affected by these changes at all yet. So continue stay the course, do what you’re still doing for now, um, regarding these changes, practice tip for the transition period here, since this shortens the deadline, it’s best to consider that this is in full effect. Come January 1st. So keep so just file those claims within one year from the last date, just to be sure don’t bank on the fact that it’s two years, just go ahead and get that file claims, get that action going because you don’t want to miss out, especially if it reaches that point of foreclosure, because at that point it will be a lot harder to collect at the end of the day. Now, here is the big change that everyone is a little concerned about.
Alex Benarroche (13:12):
Currently these monthly notices for remote subcontractors on commercial projects. What I mean by remote subcontractors is someone who didn’t contract directly with the GC. So this is like sub sub contractors, suppliers to subcontractors equipment lessors to sub subcontractors. Currently they need to send a two month notice to the GC. After every month they worked and a third month notice to the owner and the GC for every month they worked and that’s a lot of deadlines to keep track of. Uh, what these changes did is there’s basically no longer a tier distinction, all subcontractors suppliers, anyone besides the prime contractor are only going to be required to send their third month notice. Um, I know a lot of people are upset about this one, especially concerned about their cash flow when they don’t get their notices in on the second month it’s supposed to the third month, that’s an extra month waiting on money. Um,
Speaker 2 (14:09):
Alex Benarroche (14:11):
Honestly there’s nothing preventing people from sending these notices early. So you can go ahead and just keep sending that second month notice for awhile. Uh, you don’t want to miss a month. You don’t want to skip a month because that could really affect your bottom line. So, uh, so the practice to appear, especially during that transition period. Oh, and I forgot to mention there’s also a statutory form now there’s no guesswork involved in setting these up. They have a form, you fill it out, send it out nice and easy. Um, so the practice tip for right now and for the upcoming future is just keep sending those second and third month notices at the same way. Um, it’s near impossible. These requirements specifically are for lower tier individuals on the co on the contracting chain. You may not even know who the owner is when the project started. Um, I see, are we required to use the new standard form? Yes, you’re going to be required to use the standard form. And since the current requirements don’t really have a form, but has all the same information. You can start using this today and it’ll still be effective to secure your payments on your second and third month notice.
Alex Benarroche (15:24):
So how are you going to keep track of all these changes with this transition period? Oh, I see another question we got here. Would you say it’s best practice to send the now required third month notice by the previous second month notice deadline, including the third notice as well? Yes, you can use the same exact form. My best suggestion for you is to start sending them at the second month from when you started and then just keep sending them by the time the project ends. By the time you’ve reached your last furnishing date, make sure you send that extra third notice as well. Just to be sure, like I said, during these transitions, uh, it’s best to be safe and sorry, send out as many notices as you can just to make sure. Um, where can you find that standard form? I have a template set up after this webinar.
Alex Benarroche (16:09):
We’ll have those emailed out to you in PDF form for both the notice of contractual retainage and for the monthly notices as well. Um, so a little tips on how to deal with all of these changes here during this whole transition period. Um, if you’re here, you’re already kind of familiar with lien rights, you’ve already taken steps to prepare yourself. Uh, but also you could be new to this, or you could have a lot of problems with this as a lot of people do. So here’s a couple tips to keep in mind first and foremost, correct project information is crucial, uh, providing the wrong information, sending them, sending notices to the wrong address, not sending them to the proper stakeholders on a project. Wrong information is a Lien killer in practice. So do your research find out what you need to know, and if it’s too much to handle, come talk to us. We have an entire team scout research that’s dedicated to pulling property records, public records. That’ll get you all the property information, job site information, stakeholder information, and you need to make sure you have all of that information, correct on these notices.
Alex Benarroche (17:15):
Next is the deadlines and the deadlines currently are very hard to keep track of. And especially during that little transition period, it’s going to be, it’s a tall task to keep on, keep on top of all those. So what’s the best way to take some of that stress out it’s automation, whether you’re using Levelset, whether you’re using another company, whether you’re setting reminders on your QuickBooks or calendars, you need to find out some way to automate it. A Levelset here. We have deadline alerts. We make it easy to send out notices in bulk. We can take care of it all on the front end for you. So can spend less time worrying about these notices and more time growing your business and securing that bottom line on each project. Um, and lastly, our little secret weapon here is a notice of intent. This is required in a couple of states.
Alex Benarroche (18:03):
It’s definitely not required in Texas, but it’s a really great way to kind of escalate your claim. Um, as powerful as lien rights are, no one wants to actually file a lien. So the threat of a lien can be kind of a big deal. Um, it’s a great way to kind of upped the ante. It gives all the stakeholders. One last opportunity to resolve that dispute, uh, before a full lien claim is filed and people start and it’ll just mess up the entire project from top to bottom liens are preferably not used, but the mere threats and the securing of your lien rights is the best way to protect your payments.
Alex Benarroche (18:39):
So that’s just a general overview. There’s a couple more changes to Texas. There’s a little verbiage changes in the homeowners notice, um, a couple of minor, more legal aspects of the foreclosure process, but those are the ones that contractors, suppliers, equipment lessors really need to focus on. Um, if you have any questions about how the Levelset platform works and how it can help you, you can go to visit Levelset dot com. Also, if you’re still wary about these changes, if you’re not sure how you’re going to implement them yet, a lot of people don’t new law changes come with their challenges and no one wants to be the one to kind of push that to the limit, see what they can get away with and what they can. But if you do have any questions, uh, you can, we do have a forum called payment help where we have a community of construction lawyers from all around the country ready to help and advise you and you can reach out to them personally, if you need any support. Um, I do see one question. These changes only applied to contracts signed after 12 31 21. That is correct. Uh, so that’s why it’s really important to kind of cover your bases and err, on the side of caution during those first couple of months of next year, just to be sure you’re keeping up with everything. Um, as far as first-year subcontractor notice deadlines. Yes, they are all going to be the same. Everyone from first tier second tier third tier are all going to have the same requirements to send out on commercial projects the third month. Yeah.
Alex Benarroche (20:11):
So we covered a lot here. Um, I’ll give it a couple of minutes. Does anyone have any other questions, comments, or concerns about any of these changes? Well, then that means I did my job well. Um, I appreciate everybody joining us today. Um, if you have any other questions, like I said, reach out to us public projects again are still going to be the same for now. This was a, this was a movement specifically for private projects and yes, like I said, those PDF forms for both the notice of contractual retainage and the new monthly notices forums are going to be included in PDFs in the email that you’ll be receiving along with this recording. And along with an article that kind of breaks down, these changes into a little more detail. And I see another question here, it’s the contract between the prime owner, the prime contractor, and the owner is the date that matters, which is why that transitory period is really going to be difficult. And you need to be better safe than sorry, unless you specifically know when that contract was signed, err, on the side of caution, try and do things as you normally did. And any deadlines that you’ve come into that have been shortened by these new changes, go ahead with the shorter date, as opposed to long date, just to make sure you’re ready to go.
Alex Benarroche (21:41):
Uh, well that should cover about everything. Um, thank you everybody for joining us. Uh, I really appreciate you taking your time out of your day to come listen to me talk, uh, and again, like I said, if you have any other questions, whether it’s on the platform, whether any of the legal aspects of this, just stop by and uh, and fire away, we’re here to help you, uh, to help you really get paid, what you’ve earned. Uh, so thanks again.