(Note: HB 2237 (which I covered briefly here) went into effect in Texas on January 1, 2022. Construction contracts entered into on or after that date have different rules for mechanic's liens than those entered prior to January 1, 2022. This post focuses on contracts entered into after that date, so rules that have been superseded are not addressed at length. Please bear this in mind.)
Introduction
Texas, like every other state, provides for certain contractors to file liens against property that they help improve. As I stressed with California mechanics liens, the rules for mechanics liens are complex, tedious, and difficult to satisfy. Believe it or not, Texas has some of the most complex laws in the country when it comes to mechanics liens.
The policy behind mechanics liens is that states want to encourage property development. These liens give contractors a major incentive, and they decrease the likelihood of non-payment. So important is that policy, that Texas offers these liens in its Constitution. See Tex. Const. art. XVI, section 37.
But contrary to that policy are the complex and complicated statutory requirements.
Constitutional v. Statutory Liens
Texas recognizes two types of mechanic’s liens: constitutional and statutory. Constitutional liens are those guaranteed by the Texas Constitution (which are narrower, but they arise automatically). Statutory liens are those provided by the Texas Property Code (which are broader, but with stricter requirements). Statutory liens are far more common, and they form the substance of this post. (Edit: Texas constitutional liens are covered here).
Who is entitled to a mechanic's lien?
The language here is very broad. Texas allows mechanic's liens for any person who, under a contract with a property owner or owner's agent:
Labors or furnishes labor or materials for construction or repair of an improvement;
Specially fabricates material, even if the material is not delivered;
Is a licensed architect, engineer, or surveyor providing services to prepare a design, drawing, plan, plat, survey, or specification;
Provides labor, plant material, or other supplies for the installation of landscaping for an improvement, including the construction of a retention pond, retaining wall, berm, irrigation system, fountain, or other similar installation; or
Performs labor as part of, or furnishes labor or materials for, the demolition of an improvement on real property.
Tex. Prop. Code section 53.021.
In short, if you have performed work on (or for) someone else’s real property under a contract with the owner or the owner’s agent, then you may be entitled to a mechanic's lien.
What is an "improvement"?
Texas defines “improvement” broadly. The definition includes the words “building,” “structure,” and “other…modifications to real property.” It includes “clearing” and “fencing” land. It includes providing plants. It even includes demolition. And, as of January 1, 2022, it includes designs, drawings, and surveys. See Prop. Code section 53.001.
This list isn’t exhaustive. Even the language of Section 53.001 suggests that this language is not exhaustive, as it says that the word “improvement” “includes” rather than “means.” See section 53.001(2); compare to section 53.001(1), (3) through (5).
What property is subject to a mechanic's lien?
Mechanic’s liens obviously attach to the improved property. It also extends to “each lot necessarily connected,” excluding public property (such as sidewalks, utilities, etc.). Prop. Code section 53.022.
So if the improvement is on multiple lots, the lien will affect title to each.
What amounts can I include in my lien?
The lien secures payment for labor or materials furnished, the design or survey, and specially fabricated materials (which don’t actually have to be delivered yet). Prop. Code section 53.023. One caveat: for specially fabricated materials, the lien amount should be reduced by their reasonable salvage value. Prop Code section 53.023(2).
If the lien is for retainage (amounts withheld from installment payments), then the lien is limited to the amount of the retainage in the contract and any amendments. Prop. Code section 53.025.
When do I have to give notice?
This is where Texas mechanics liens become complicated. And HB 2237 has changed the notice requirements for original contractors (meaning direct contractors, usually the general contractor if it is a larger project). The following terms apply here: owner (the property owner), original contractor (direct contract with the owner), first tier contractor (contract with the original contractor), and second tier contractors (lower tier contractors, contracting with the first tier contractor or anyone else below the first tier).
Original contractors do not have to give notice of a claim before recording their lien affidavits. Prop. Code section 53.056.
For residential projects, first and second tier contractors must provide notice to the owner and original contractor by the 15th day of the second month following each month in which they furnished labor or materials. This means that if you performed your work in January, then you need to provide the notice by March 15. Prop. Code section 53.056(a-1)(2).
For non-residential projects, first and second tier contractors must provide notice to the owner and original contractor by the 15th day of the third month following each month in which they furnished labor or materials. This means that if you performed your work in January, then you need to provide the notice by April 15. Prop. Code section 53.056(a-1)(1).
In either event, contractors must file their lien affidavits within 30 days of the deadlines stated above. So for work performed in January, this would be April 15 for residential projects and May 15 for non-residential projects. See Prop. Code section 53.052.
What about “substantial compliance”?
You may have heard that there is some case law allowing substantial compliance. Do not rely on this! If you miss deadlines, if you give notice by unauthorized means, if you fail to include required language in the notice, then you are giving the other side reason to challenge your lien. You are also giving a judge reason to release the lien. And you might have trouble convincing an attorney to file a foreclosure suit.
What is the procedure for enforcing a lien?
In order to enforce the lien, contractors must:
Provide timely notice (see above);
Keep accurate, up-to-date financial records;
Record your affidavit;
File a lawsuit.
You must file your lawsuit no later than the one year anniversary of the last day on which you could have recorded your lien affidavit. Prop. Code section 53.138. This means that if April 15 was your last day, you must file your lawsuit by April 15 of the next year. This date can be extended one year by agreement of the parties. Prop. Code section 53.138(a-2). This is unusual, and typically occurs when the parties are negotiating settlement.
So I can't sue if I don't follow those steps?
Not necessarily. First, you might still be entitled to a constitutional lien. I'll address this in a future post.
Second, you may still be able to sue for other causes of action. For example, you might still have a breach of contract claim, which has a four year statute of limitations. See Civ. Prac. & Rem. Code section 16.051.
The point of perfecting your lien rights is so that you have a claim not just against the property owners (like breach of contract), but against the property itself. If the property is sold and you have not perfected your lien, you probably won’t be entitled to any proceeds of that sale until you settle or win at trial, which could be years later.
Conclusion
There are a lot of procedural requirements and deadlines that can be fatal to a statutory lien. Hopefully, this post on the "basics" of Texas mechanic's liens will encourage Texas contractors to (re-)familiarize themselves with Chapter 53, to find a service to help them keep track of lien documents and deadlines, and to make sure they hire attorneys familiar with the process.
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