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SECURITY & WHY IT MATTERS presented by: Texas Lien Law & Notice Requirements

Tips and Tricks for Securing Payment in Texas

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SECURITY & WHY IT MATTERSpresented by:

Texas Lien Law & Notice Requirements

Alternating Wednesdays @1pm CSTSignup At:http://www.zlien.com/credit-academy/webinars/

Construction Credit Knowledge

Getting Paid Is Tough

• there are a lot of reasons getting paid is tough in the construction industry

• pay when paid / pay if paid clauses

• joint check agreements

• delay disputes

• scope of work / workmanship issues

• bankruptcies / failures

Getting Paid Is Tough

• another of the reasons that getting paid is tough is that the laws put in place to protect against the threat of nonpayment are complex, intricate, and difficult to comply with

• when is a notice (are notices) due?

• who has to get the notice and by which method?

• when is the deadline to file a lien?

• where is the lien filed, does it need to be served?

Getting Paid Is Tough

• mechanics liens are security rights provided to construction industry participants to secure against the threat of nonpayment.

• BUT, they only provide the contemplated security when they are valid.

• AND, they are only valid when EVERY ONE of the complex mandatory prerequisite requirements are met.

The Texas Problem

• the problem for construction companies that do business in Texas, however, is that Texas notice and lien requirements are some of the most complex and difficult in the country.

The Texas Problem

• so what makes these Texas requirements so confusing?

The Texas Problem

• 1. there are a lot of Texas rules

The Texas Problem

• 1. there are a lot of Texas rules

• 2. some of the notices or requirements may repeat several times

The Texas Problem

• 1. there are a lot of Texas rules

• 2. some of the notices or requirements may repeat several times

• 3. deadlines are calculated oddly, in a manner different than they are in many other states

The Texas Problem

• 1. there are a lot of Texas rules

• 2. some of the notices or requirements may repeat several times

• 3. deadlines are calculated oddly, in a manner different than they are in many other states

• 4. some requirements are intrusive

Texas Notices

• the “easier” part

• some Texas notices follow a similar pattern as notices in other states, in that they are only required to be given once.

• while the deadline may be calculated oddly, and may give some time after work begins to give the notice, giving these notices once at the start of a project is sufficient

Texas Notices

• these notice are:

• notice of contractual retainage §53.057

• notice of specially fabricated materials §53.058

• request for termination §53.107

• request for surety information §53.159

Texas Notices

• while these notice requirements are scattered throughout the mechanics lien statute, once it has been determined the notice applies, it’s fairly straightforward

Texas Notices - Monthly

• now the “fun” part

• some Texas notices are monthly, or have recurring deadlines and requirements

Texas Notices - Monthly

• this type of notice is nearly unique in that it is a recurring requirement based on months in which work was performed, but for which the claimant has not been fully paid.

• unfortunately, there is no specific name set by statute, so they often go by different names: “find trapping notice”, “notice to owner”, “notice of intent”, “unpaid balance notice”, “2nd and 3rd month notices”, etc. . .

Texas Notices - Monthly

• who must send these notices?

• commercial projects —>

Texas Notices - Monthly

• who must send these notices?

• residential projects are more simple:

• all parties who did not contract directly with the property owner must send a monthly notice on or before the 15th day of the the month 2 months after each month in which the work was performed and for which the claimant remains unpaid

Texas Notices - Monthly

• calculating deadlines:

• monthly notice (2nd month requirement): must be delivered no later than the 15th day of the second month following each month in which the lien claimant furnished labor or materials for which he is still unpaid. NOTE: if the 15th is a saturday, sunday, or holiday, the deadline is before the 15th, not after.

• monthly notice (3rd month requirement): must be delivered no later than the 15th day of the second month following each month in which the lien claimant furnished labor or materials for which he is still unpaid. NOTE: if the 15th is a saturday, sunday, or holiday, the deadline is before the 15th, not after.

Texas Notices - Monthly

• remember: these deadlines are based on the month(s) in which unpaid work was performed.

Texas Notices - Monthly

• tip / trick:

• Texas law allows parties who must send both a monthly notice in both the 2nd and 3rd month following months in which unpaid work was performed, to combine the notices into one notice (sent to all required parties) - provided that the notice is sent by the earliest deadline; i.e. 15th day of the 2nd month after labor/materials furnished but unpaid.

Texas Notices - Monthly

• recap:

Texas Liens

• liens may not be quite as confusing as Texas notice requirements, but they can still raise some potentially confusing or troublesome rules and requirements

• some of these rules/requirements benefit the potential lien claimant and some complicate matters

Texas Liens

• constitutional liens

• built directly into the Texas constitution

• no filing or notice is strictly necessary

• but, as a practical and precautionary measure, it is likely a best practice to file and send a constitutional lien document as one would a statutory lien.

• this is because a constitutional lien is not enforceable against a 3rd party without actual knowledge, and filing and sending the lien 1) provides that required knowledge, and 2) may encourage payment

Texas Liens

• statutory liens

• what most people are referring to when they mention Texas mechanics liens

• filing or notice is strictly necessary

• additional rules may apply

Texas Liens

• additional rules: liens on homesteads

• must have written contract with property owner

• contract must be filed with county clerk

• if owner is married, the contract must be signed by both spouses

• specific wording required to be included on lien

Texas Liens

• the rule that the contract must be signed by both spouses if the property owner is married, is true even if the property is only in one spouse’s name

• this means that a contractor performing work on a homestead is put in a position where he must explicitly ask or otherwise determine is the property owner with whom he is contracting is married in order to meet the duty imposed by Texas law.

• if the property owner is married and the contract is only signed by one party, no lien can attach

Texas Liens

• specific wording required for lien on homestead

• NOTICE: THIS IS NOT A LIEN. THIS IS ONLY AN AFFIDAVIT CLAIMING A LIEN

Conclusion

• while Texas notice and lien requirements are tricky, I am hopeful that this presentation provided some useful information

Conclusion

questions?