TRICKS AND TRAPS IN THE MECHANIC’S LIEN LAWS
TRICKS AND TRAPS IN THE MECHANIC’S LIEN LAWS
By:
FRED D. WILSHUSEN
THOMAS, FELDMAN & WILSHUSEN, L.L.P.
9400 North Central Expressway
Suite 900
Dallas, Texas; 75231 (214) 369-3008 Facsimile: (214) 369-8393
TABLE OF CONTENTS
I. INTRODUCTION
II. PERFECTION ISSUES
A.30 Day Deadline to Perfect Certain Claims at the End of a Project. §53.084, §53.101 and §53.103
B.Is the Statutory Owner's Warning Required to Perfect a Claim Against the Statutory Retainage? §53.056 and §53.104
C. Is the Second Month Notice required or not?
D. Is There an Alter Ego Cause of Action Under the Sham Contract Provision? §53.026
E.Identifying and Giving Notice to the Reputed Owner. §53.054(a)(2)
F. The Retainage Notice Letter. §53.057
G. The Self-Executing Constitutional Lien
III. LIEN ENFORCEMENT ISSUES
A. Removables. §53.123
B. Inception of the Lien. §53.124
C. What is Lienable? §53.123(4)
D. What is a Sufficient Property Description?
E. Preference of Artisans and Mechanics. §53.104
F. Jurat Versus Acknowledgment of the Lien Affidavit
G.Does The Claimant Have to Have Personal Knowledge? §53.054(a)
H. Can You Waive a Lien in Advance?
IV. OWNER LIABILITY ISSUES
A. Protection of Statutory Retainage §53.105
V. CLEARING TITLE ISSUES
A.Filing a Payment Bond After Commencement of a Project. §53.208(d)
VI. FORECLOSURE ISSUES
A.Can the Lien Include Interest, Attorneys’ Fees and Taxes?
B. What should a Pleading for Foreclosure Ask For?
VII. CONCLUSION
Working with complex codified statutes can be both rewarding and maddening.
It is rewarding because a code comprises its own little world where you are the master. The various code sections cross reference each other and operate upon the same predetermined scheme. Gain enough confidence with the code and you can practice a form of legal alchemy, conjuring up claims or defense "gold" for your client through an awareness of the right trick or trap in the statute. Anyone who does not understand the scheme or who interprets the code differently than its regular caretakers are quickly dismissed as "outsiders."
Working with the code is likewise maddening. You can develop myopia working repeatedly with the same language. An "outsider" can read the same language once and see things you never did. Worse, they will cite law, even persuasively, that suggests that they read it correctly! Further, citizens and legislators act as if they have some right to tweak or even substantially modify the legal home you have lived and labored in for so many years. They may even do so without consulting your opinion!
So goes the life of an attorney who regularly works with the Mechanics’ and Materialmens’ Lien Laws in Chapter 53 of the Texas Property Code. Like any good code, Chapter 53 contains a number of gaps and technicalities that can frighten the uninitiated. This paper does not cover the basics of perfecting a lien claim or other basic aspects of the mechanics lien laws. Rather, it focuses on some of the peculiar features of Chapter 53 of the Texas Property Code that may prove troublesome for those who are otherwise comfortable with the general notice and filing requirements to perfect a lien.
A. 30 Day Deadline to Perfect Certain Claims at the End of a Project. §53.084, §53.101 and §53.103
§53.084. Owner's Liability
(a) Except for the amount required to be retained under Subchapter E, the owner is not liable for any amount paid to the original contractor before the owner is authorized to withhold funds under this subchapter.
* * *
SUBCHAPTER E. REQUIRED RETAINAGE FOR BENEFIT OF LIEN CLAIMANTS
§53.101. Required Retainage
(a) During the progress of work under an original contract for which a mechanic's lien may be claimed and for 30 days after the work is completed, the owner shall retain:
(1) 10 percent of the contract price of the work to the owner; or
(2) 10 percent of the value of the work, .........................
* * *
§53.103. Lien on Retained Funds
A claimant has a lien on the retained funds if the claimant:
(1) sends the notices required by this chapter in the time and manner required; and
(2) files an affidavit claiming a lien not later than the 30th day after the work is completed.
It is important to note that there is an alternative, shorter deadline to file a lien affidavit to perfect a claim regarding contractors performing at or near the end of the job. A claimant calculating the lien filing deadline by looking at Section 53.052 and Section 53.053 might conclude that any lien affidavit filed by the 15th day of the fourth month after the day on which the indebtedness accrues would be timely.
However, there is an alternative, shorter deadline that is timed from completion of the project. Specifically, anyone seeking to perfect a claim against the statutory retainage, which the owner is required to withhold, must have their lien affidavit filed on or before the 30th day following completion of the project. Consequently contractors who perform work near the end of the project, such as carpet installers or painters, can find that they are in jeopardy of losing their claim against the statutory retainage in the hands of the owner if they do not hustle to file their lien claim by the 30th day following the general contractor’s completion of the project.
Because much of the money which is usually in dispute between a general contractor and a subcontractor involves retainage, this failure to perfect could be substantial. It also creates an additional problem of determining when completion actually occurs. Trying to determine this date is like trying to hit a moving target. Often there is not a bright line date on which construction officially completes. Usually work slowly tails off on a project as various punch list items are addressed to the final satisfaction of the owner. For the purpose of determining completion, punch list work does extend the occurrence of completion. TD Industries v. NCNB Texas Nat’l Bank, 837 S.W.2d 270 (Tex. App.—Eastland 1992, no writ). The most conservative approach is to determine when the Certificate of Occupancy was granted and time the 30-day deadline from that date. Certainly there is no completion prior to the issuance of a Certificate of Occupancy.
There is also a shorter deadline for trapping funds at the end of a project. Sections 53.084 and 53.101 allow an owner to pay out all untrapped funds after the 30th day following completion. Consequently, those statutes also effectively shorten the claimant’s deadlines to send trapping notices to the 30th day following completion. This can be significantly shorter than the notice deadlines otherwise available under Section 53.056.
B. Is the Statutory Owner's Warning Required to Perfect a Claim Against the Statutory Retainage? §53.056 and §53.103
§53.056. Derivative Claimant: Notice to Owner or Original Contractor
* * *
(d) To authorize the owner to withhold funds under Subchapter D(2), the notice to the owner must state that if the claim remains unpaid, the owner may be personally liable and the owner's property may be subjected to a lien unless:
(1) the owner withholds payments from the contractor for payment of the claim; or
(2) the claim is otherwise paid or settled.
Section 53.103 provides that to perfect a claim against statutory Retainage, the claimant must send "the notices required by this chapter in the time and manner required..........." (emphasis added). One of the requirements of the trapping notices is that it requires certain statutory warnings set out in Section 53.056(d). The question arises whether to perfect a claim against statutory retainage it is necessary to include the statutory warnings in the notice letter. The Supreme Court in First Nat'l Bank in Graham v. Sledge, 653 S.W.2d 283, 287 (Tex. 1983) held that the statutory warnings are unnecessary to perfect a claim against the statutory retainage. The court reasoned that the owner is already statutorily required to withhold that money for the protection of claimants and no additional warning should be necessary. This has also been extended to projects where a statutory payment bond protects the owner. Industrial Indem. Co. v. Zack Burkett Co., 677 S.W.2d 493, 494 (Tex. 1984).
C. Is the Second Month Notice required or not?
A second tier claimant reviewing Texas Property Code Section 53.056(b) might conclude that it is mandatory to send a notice of claim to the general contractor on or before the 15th day of the second month following each month in which labor or material was furnished. This notice would be in addition to the 15th day of the third month notice which is required to be sent to the owner under that same statute. Failure to send the second month notice would appear to undermine an otherwise timely claim made to the owner.
However, according to at least one Texas case that is not a proper interpretation of the statute. In Don Hill Const. v. Dealers Elec. Supply, 790 S.W. 2d 805, 809-10, (Tex. App.—Beaumont 1990, no writ), the court held that a timely notice to the owner was sufficient to trap funds in the owner’s hands. The court held that the failure to send the second month notice to the general contractor when the owner had timely notice to withhold funds was not a defense for the owner against a lien claim. The court held that the failure by claimant to "property dot its "i"s and cross its "t"s in its notice to the original contractor" did not "shoot through to the benefit of the owner as well as the original contractor ........................." Id.
D. Is There an Alter Ego Cause of Action Under the Sham Contract Provision? §53.026
§53.026. Sham Contract
(a) A person who labors, specially fabricates materials, or furnishes labor or materials under a direct contractual relationship with another person is considered to be in direct contractual relationship with the owner and has a lien as an original contractor, if:
(1) the owner contracted with the other person for the construction or repair of a house, building, or improvements and the owner can effectively control that person through ownership of voting stock, interlocking directorships, or otherwise;
(2) the owner contracted with the other person for the construction or repair of a house, building, or improvements and that other person can effectively control the owner through ownership of voting stock, interlocking directorships, or otherwise; or
(3) the owner contracted with the other person for the construction or repair of a house, building, or improvements and the contract was made without good faith intention of the parties that the other person was to perform the contract.
(emphasis added).
The undisputed effect of the sham contract provision is to improve a claimant’s position in the construction chain. For example, a second tier subcontractor can be moved up the chain to become a first tier subcontractor with more lenient perfection deadlines if the owner and "original contractor" had such a close relationship that the owner "can effectively control" the original contractor. The ultimate effect of the statute is to make the claimant’s lien perfection deadlines more lenient. This is particularly significant when a claimant is moved from a first tier subcontractor’s position to an original contractor’s position. The original contractor is not obligated to send notices to perfect its claim. Consequently, the sham contract provision can be a very helpful one for a claimant.
The questions arises whether the sham contract provision creates contractual alter ego liability separate and apart from a lien claim. A literal reading of the statute can lead to the conclusion that it creates a separate alter ego contract action even when the claimant has no lien claim. This issue was raised and argued in a recent case.
In Southwest Properties, L.P. v. Lite-Dec of Texas, Inc., 989 S.W.2d 69, 72 (Tex. App.—San Antonio 1998, pet. denied), the Court held that the sham contract provision is solely for effectuating "the time tables for filing liens" and does not create an independent contract cause of action. Consequently, in order to take advantage of the sham contract provision, a party must first show that it has a lien claim that it is seeking to enforce. If the lien claim is untimely even after application of the sham contract provisions, or has been waived or otherwise released, Section 53.026 will not provide any additional relief to the claimant.
E. Identifying and Giving Notice to the Reputed Owner. §53.054(a)(2)
§53.054. Contents of Affidavit
(a) The affidavit must ....... contain substantially:
* * *
(2) the name and last known address of the owner or reputed owner;
* * *
§53.056. Derivative Claimant: Notice to the Owner of Original Contractor
* * *
(b)....... The claimant must give the same notice to the owner or reputed owner .........................
The statute sets out who notices are directed to and what the lien affidavit must contain. Among other requirements, the claimant must list in the affidavit the name and last known address of the owner or reputed owner. The statute also requires that notice be sent to the owner or reputed owner.
Who is a reputed owner? How much freedom does this allow the claimant? It appears that there is quite a bit of freedom allowed to the claimant by this provision.
In Valdez v. Diamond Shamrock Ref. and Mktg. Co., 842 S.W.2d 273, 276 (Tex. 1992), the court upheld a lien claim that was directed to the owner at the commencement of construction even though the owner had changed prior to the filing of the lien. The court found that a claimant "is entitled to rely on representations of ownership made by the parties with whom the contractor deals." Id. Although that information was wrong and could have been discovered from a review of the deed records, no such duty is placed on the claimant. It appears the only obligation is to explain why the person notified was the "reputed owner" based upon some communication from project personnel. The court relied in part on the constructive notice that a purchaser of property has "of a workers' right to assert a mechanic's lien within the statutory period." Id. Consequently, the statute has a very broad interpretation and is highly protective of claimants.
It should be noted that for practical purposes it is to the claimant’s benefit to send notice to the current owner of the property. Certainly that would bring greater pressure for a quick resolution of the claim than sending notice to someone who no longer has any interest in the property.
F. The Retainage Notice Letter. §53.057
§53.057. Derivative Claimant: Notice for Contractual Retainage Claim
(a) A claimant may give notice under this section instead of or in addition to notice under Section 53.056 or 53.252 if the claimant is to labor, furnish labor or materials, or specially fabricate materials under an agreement with an original contractor or a subcontractor providing for retainage.
(b) The claimant must give the owner or reputed owner notice of the retainage agreement not later than the 15th day of the second month following the delivery of materials or the performance of labor by the claimant that first occurs after the claimant has agreed to the contractual retainage. If the agreement is with a subcontractor, the claimant must also give notice within that time to the original contractor.
(c) The notice must contain:
(1) the sum to be retained;
(2) the due date or dates, if known; and
(3)a general indication of the nature of the agreement.
(d) The notice must be sent by registered or certified mail to the last known business or residence address of the owner or reputed owner or the original contractor, as applicable.
(e) If a claimant gives notice under this section and Section 53.055 or, if the claim relates to a residential construction project, under this section and Section 53.252, the claimant is not required to give any other notice as to the retainage.
One of the most peculiar features of the Texas lien laws is its treatment of contractual retainage as a failure to timely pay money due under a contract. Of course this flies in the face of the understanding of the parties in the construction chain. It also operates under the assumption that retainage is a novel concept to the majority of commercial construction owners. Nevertheless, currently a claimant in Texas must send some form of notice to perfect a lien claim on retainage. One option is to send the month by month notices that are usually reserved for claims for unpaid progress payments. However, any claimant perfecting retainage in that manner will have a public relations disaster with their client who will be shocked to see that its payments are being trapped in the owner’s hands simply because there was a retainage agreement with the claimant.
The alternative is to send a retainage notice letter under Section 53.057. This is a notice at the beginning of the contract warning the owner that retainage is being withheld. This purportedly prevents the owner from being surprised at the end of the job when it discovers a lien claim for up to ten percent (10%) of the amount of the contract.
The notice schemes in Texas are intended to prevent surprise to the owner or the possibility of double liability. It can not be said that the retainage notice letter is essential to further this policy since most commercial owners are aware of the concept of retainage. Furthermore, they are obligated to withhold ten percent (10%) of the contract balance with the original contractor by statute so the idea that they are unprotected to handle a typical retainage claim is an invalid argument.
Nevertheless, the notice requirement does exist and claimants should avail themselves of the retainage notice letter. Those who do consistently find themselves in a stronger legal position when a contract dispute arises. Since disputes are often at the end of a project and usually consist primarily of retainage, these are valuable claim rights.
G. The Self-Executing Constitutional Lien.
Article XVI, Section 37 Texas Constitution
Mechanics, artisans and materialman, of every class, shall have a lien upon the buildings and articles made or repaired by them for the value of their labor done thereon, or materials furnished therefore; and the Legislature shall provide by law for the speedy and efficient enforcement of said liens.
The statutory lien scheme set out in the Texas Property Code is separate from, but complimented by, the lien provided for in the Texas Constitution. The constitutional lien has limited reach but can be a valuable adjunct to lien claims arising out of the statutory lien scheme. First, the constitutional lien is available only to a party who has contracted directly with the owner. Horan v. Frank, 51 Tex. 401, 405 (1879). The great value of a constitutional lien is that it is a "self-executing." It does not require any particular form of notice or affidavit to be filed in order to preserve a claimant’s rights. The one danger of a constitutional lien is that it may be cut off by a good faith purchaser for value of property unless they are under actual or constructive notice of the lien claim at the time they make their purchase. This is the reason that it is important to file the constitutional lien of record.
Although a party should never rely on the constitutional lien as the method of protecting its claim, when the short deadlines under the statutory scheme have passed, it does provide an alternative for certain parties to pursue their claims against the owner. It is particularly valuable when a purported subcontractor is bumped one step up the chain into the position of a general contractor by resort to the sham contract provision in Section 53.026. In such a case, the statutory lien scheme provisions help support the assertion of a constitutional lien claim by changing the claimant’s position in the construction chain.
A. Removables. §53.123
§53.123. Priority of Mechanic's Lien Over Other Liens
(a) Except as provided by this section, a mechanic's lien attaches to the house, building, improvements, or railroad property in preference to any prior lien, encumbrance, or mortgage on the land on which it is located, and the person enforcing the lien may have the house, building, improvement, or any piece of the railroad property sold separately.
(b) The mechanic's lien does not affect any lien, encumbrance, or mortgage on the land or improvement at the time of the inception of the mechanic's lien, and the holder of the lien, encumbrance, or mortgage need not be made a party to a suit to foreclose the mechanic's lien.
One of the unique features of the Texas lien laws is the concept of removables. The removables provision is located in Section 53.123 of the Texas Property Code. Effectively the statute gives mechanic’s liens priority over prior filed deeds of trust with regard to improvements that qualify as removables.
A removable is an item that can be removed without material injury to the item itself, the land, the pre-existing improvements, and without opening the structure to the elements. Exchange Sav. & Loan Ass’n v. Monocrete Property, Ltd., 629 S.W.2d 34 (Tex. 1982) and First Nat’l. Bank in Dallas v. Whirlpool Corp. 517 S.W.2d 262 (Tex. 1974). The property must also be so affixed to the real estate that it has lost its character as personalty. Consequently, a refrigerator which is attached only by a plug and a water hose, does not qualify as a removable since it has retained its character as personal property. On the other hand, a garbage disposal is sufficiently attached to the real property to qualify as a removable. First Nat’l Bank in Dallas v. Whirlpool Corp. 517 S.W.2d at 266-67.
The issue of whether "removal of a specific improvement will cause material injury is generally a question for the fact finder." Exchange Sav. & Loan Ass'n v. Monocrete Property, Ltd., 629 S.W.2d at 36. A wide range of items have been found to be removable. See e.g., Richard H. Sikes, Inc. v. L&N Consultants, Inc., 586 S.W.2d 950, 954 (Tex. Civ. App.—Waco 1979, writ ref'd n.r.e.), subsequent appeal after remand, 648 S.W.2d 368 (Tex. App.—Dallas 1983, writ ref'd n.r.e.) (carpets, appliances, components of the air conditioning and heating equipment, smoke detectors, burglar alarms, light fixtures and locks on the doors). Interestingly, there is no requirement to establish that the removable will have value in hands of the claimant, only that it will not suffer material injury. Exchange Sav. & Loan Ass'n v. Monocrete Property, Ltd., 629 S.W.2d at 38.
On some construction projects, the general contractor will forward subordination agreements to its subcontractors for execution. These are usually documents produced by the owner’s lender seeking to subordinate any lien rights under removables to the lender’s deed of trust claim.
The question often arises with clients whether they can remove their removables from the property when they have not been paid. The answer is "No." A "removable" is simply a lien concept that allows the claimant to foreclose its lien and acquire a first position on particular items. It is necessary to go through the foreclosure process to enforce that right. Although a valuable right, that process can last years in a typical court action. It is important to emphasize to the client that it is a lien priority concept and not a self-help remedy that is being discussed under this section of the Property Code.
B. Inception of the Lien. §53.124
§53.124. Inception of Mechanic's Lien
(a) Except as provided by Subsection (e), for purposes of Section 53.123, the time of inception of a mechanic's lien is the commencement of construction of improvements or delivery of materials to the land on which the improvements are to be located and on which the materials are to be used.
(b) The construction or materials under Subsection (a) must be visible from inspection of the land on which the improvements are being made.
* * *
(e) The time of inception of a lien that is created under Section 53.021(c) or (d) is the date of recording of an affidavit of lien under Section 53.052. The priority of a lien claimed by a person entitled to a lien under Section 53.021(c) or (d) with respect to other mechanic’s liens is determined by the date of recording. A lien created under Section 53.021(c) or (d) is not valid or enforceable against a grantee or purchaser who acquires an interest in the real property before the time of inception of the lien.
The inception of the mechanic’s lien has important legal implications. For most claimants on a construction project, their mechanic’s lien has its inception on the first day of construction on the project. Consequently, an excavator working at the very beginning of a massive construction project is in no better position regarding its lien claim than the carpet installer working sometimes two (2) years later on the same project. If both file mechanic’s liens, they both stand equal in priority having their inception on the first day of construction.
The other implication of this definition of the inception of the mechanic’s lien is that it is imperative for the construction lender to file its deed of trust prior to the commencement of construction. When precisely construction has commenced can be a nerve racking calculation for the lender. Often, financing arrangements are occurring not far removed from the actual date of commencement, further increasing the agitation of the owner’s lender. If the deed of trust is filed after the commencement of construction, the lender will be second in priority to the potential lien claimants on the project, seriously diluting the security value of the deed of trust. The subordination agreement mentioned in the removables section previously also has a second purpose. It lends a degree of security to the lender that the priority of its security interest will not be undermined by a subsequent determination that construction actually commenced earlier than believed and prior to the filing of the lender’s deed of trust.
There are two (2) lien claimants who are an exception to this general method for determining the inception of the mechanic’s lien. Design professionals and landscape contractor’s liens have their inception at the time of recording. Consequently, they are treated differently than other parties in the contract chain.
C. What is Lienable? §53.123(4).
§53.001. Definitions
In this chapter:
* * *
(4) "Material" means all or part of:
(A) the material, machinery, fixtures, or tools incorporated into the work, consumed in the direct prosecution of the work, or ordered and delivered for incorporation or consumption;
(B) rent at a reasonable rate and actual running repairs at a reasonable cost for construction equipment used or reasonably required and delivered for use in the direct prosecution of the work at the site of the construction or repair; or
(C) power, water, fuel, and lubricants consumed or ordered and delivered for consumption in the direct prosecution of the work.
An interesting question arises with regard to unpaid material rental suppliers who have perfected a lien for their outstanding invoices. It is not unusual for a material supplier to have a short fall in the return of its rental materials from its customer. A typical practice of suppliers is to convert the unreturned items to a purchase of those materials at replacement value. These charges innocently appear on the invoices along with the rental charges that have been accruing for those items. If the unreturned item is substantial such as a heavy piece of equipment, obviously it does not qualify as material incorporated or consumed in the direct prosecution of the work. The more difficult question is for small rental items such as special fasteners or other smaller pieces of equipment that are expected to be consumed in some proportion on any rental at a construction site. Arguably, if there is a standard rate of consumption of such items, they would qualify as lienable at least to the extent of that standard rate of consumption. Rental suppliers have a good working knowledge of the rate of non-return for particular items in their inventory. Of course this would require expert testimony and would be subject to rebuttal. Further, the recoverable damages would likely be the fair market value of the rental item rater than replacement value. Nevertheless, the supplier should not walk away from the claim simply because it is outside of their normal rental procedures.
D. What is a Sufficient Property Description?
§53.054. Contents of Affidavit
* * *
(6) a description, legally sufficient for identification, of the property sought to be charged with the lien.
Examine enough liens and one will see a wide variety of methods for describing property. A metes and bounds description, preferably off of the most recent deed transferring the property, is the superior method of stating a legal description of the property. However, the law is more lenient with regard to what qualifies. The standard is whether the lien contained "a nucleus of information that could enable a party familiar with the locality to identify the premises intended to be described with reasonable certainty." Blanco, Inc. v. Porras, 897 F.2d 788, 791 (5th Cir. 1990), modified on other grounds, 897 F.2d 788 (1990). This allows for a wide variety of descriptions as long as they allow a reader to determine with certainty which property is being described. Scholes & Goodall v. Hughes & Boswell, 14 S.W. 148 (Tex. 1890)("the brick city hall building to be erected in the City of Hillsboro" sufficient legal description). Once the instrument contains a sufficient nucleus of information, then extrinsic evidence is admissible to explain what the words meant and to identify the land in question. Blanco, 897 F.2d at 792. It is therefore conservative practice to include a street address in the description of the property to be liened in case the legal description used turns out to be faulty.
E. Preference of Artisans and Mechanics. §53.104
§53.104. Preferences
(a) Individual artisans and mechanics are entitled to a preference to the retained funds and shall share proportionately to the extent of their claims for wages and fringe benefits earned.
(b) After payment of artisans and mechanics who are entitled to a preference under Subsection (a), other participating claimants share proportionately in the balance of the retained funds.
One provision which can be used aggressively by claimants is a preference given to individual artisans and mechanics to retain funds. Because it is not unusual for statutory retainage to fall short of the total of outstanding claims, a preference is a valuable tool to realizing a recovery of monies due.
The key factor appears to be whether the party agreed to furnish labor and materials for a total price. Marek v. Goyen, 346 S.W.2d 926, 929 (Tex. Civ. App.—Houston[1st Dist.] 1961, no writ). If so, the claimant qualifies as a subcontractor rather than as an artisan or mechanic. Id. Someone who is claiming simply for labor rendered is in a better position to allege a preference under Section 53.104.
Because the statute provides that the claimant is an individual, it would also appear to be necessary that the claimant not be a corporation or some other entity than that of an individual.
F. Jurat Versus Acknowledgment of the Lien Affidavit.
Critical to the affidavit is the requirement for a "sworn statement." Numerous cases hold an "acknowledgment" is not sufficient to comply with the terms of the statute. In order to comply with the requirements, a "jurat" is required. See Crockett v. Sampson, 439 S.W.2d 355 (Tex. Civ. App.—Austin 1969, no writ); Conn Sherrod & Co., Inc. v. Tri-Elec. Supply Co., 535 S.W.2d 31 (Tex. Civ. App.—Tyler 1976, writ ref’d n.r.e.); Perkins Constr. Co. v. 10-15 Corp., 545 S.W.2d 494 (Tex. Civ. App.—San Antonio 1976, no writ); and Sugarland Bus. Ctr. Ltd. v. Norman, 624 S.W.2d 639 (Tex. Civ. App.—Houston [14th Dist.] 1981, no writ). However, language in the affidavit itself can make the instrument qualify as an affidavit. Blanco v. Porras, 897 F.2d 788, 792 (5th Cir. 1990)("after having been duly sworn" sufficient).
G. Does the Claimant Have to Have Personal Knowledge? §53.054(a)
§53.054. Contents of Affidavit
(a) The affidavit must be signed by the person claiming the lien or by another person on the claimant's behalf .........................
Periodically, a question arises as to whether a lien affidavit has to be an affidavit based on personal knowledge of the affiant.
The lien statute provides that the affidavit can be signed by someone on the claimant’s behalf. This provision has been interpreted to allow the attorney for the party to execute the lien affidavit on behalf of the party. In Gill Savings Ass’n v. Int’l Supply Co., Inc., 759 S.W.2d 697, 700 (Tex. App.—Dallas 1988, writ denied), it was held that there was no requirement of affirmative personal knowledge by the affiant. The Court did hold that this was in part because the affiant "had the means to, and could have become personally informed" regarding the claim. It would appear that every affiant that is truly a representative of the claimant would satisfy those two additional standards.
H. Can You Waive a Lien in Advance?
The right to assert a mechanics’ and materialmen’s lien may be waived in Texas. El Paso Dev, Co. v. Berryman, 769 S.W.2d 584, 589 (Tex. App.—Corpus Christi 1989, writ denied); Baker Marine Corp. v. Weatherby Eng’g Co., 710 S.W.2d 690, 693 (Tex. App.—Corpus Christi 1986, no writ); Shirley-Self Motor Co. v. Simpson, 195 S.W.2d 951 (Tex. Civ. App.—Fort Worth 1946), no writ); Milburn v. Athans, 190 S.W.2d 388, (Tex. Civ. App.—Fort Worth 1945, writ dism’d); Verschoyle v. Holifield, 90 S.W.2d 907 (Tex. Civ. App.—Austin 1936, mod.on other ground, 132 Tex. 516, 123 S.W.2d 878); McBride v. Beakley, 203 S.W. 1137 (Tex. Civ. App.—Amarillo 1918, no writ); Collinsville Mfg. Co. v. Street, 196 S.W. 283 (Tex. Civ. App.—Amarillo 1917, writ ref’d.); Cain v. Texas Bldg. & Loan Ass’n, 51 S.W. 879 (Tex. Civ. App.—Dallas 1899, writ ref’d.) A waiver may be enforced by either an express agreement or by implication "from acts inconsistent with its continued existence." McBride v. Beakley, 203 S.W. at 1138; Millburn v. Athans, 190 S.W.2d at 392; See, e.g., El Paso Dev. Co., 769 S.W.2d at 589; Baker Marine Corp., 710 S.W.2d at 693; Shirley-Self Motor Co.; 195 S.W.2d at 954. Further, once waived, a lien cannot be revived. Collinsville Mfg. Co., 196 S.W. at 287; Verschoyle v. Holifield, 90 S.W.2d at 911. Therefore, blanket lien waivers in contracts should be taken seriously.
A. Protection of Statutory Retainage. §53.105
§53.105. Owner’s Liability for Failure to Retain
(a) If the owner fails or refuses to comply with this subchapter, the claimants complying with this chapter have a lien, at least to the extent of the amount that should have been retained from the original contract under which they are claiming, against the house, building, structure, fixture, or improvement and all of its properties and against the lot or lots of land necessarily connected.
Owners who are aware of their potential lien liability frequently want guidance as to how to protect themselves. The owner’s liability is fixed by those sums which the owner is obligated by statute to withhold from payment to the general contractor. As long as the owner complies with those obligations, the owner will be protected from liability. If the owner has not recieved any trapping notices, then the owner’s liability is fixed at the ten percent (10%) statutory retainage the owner is required to withhold until thirty (30) days after the completion of the project. In the event no lien affidavits are filed prior to the thirty day period the owner can pay out one hundred percent (100%) of the contract balance on the thirty-first day and be free of liability. Subsequently filed lien affidavits will not perfect the claim against the owner personally and therefore will not be perfected against the property. Texas & Northern Ry Co. v. L.B. Logwood, 401 S.W.2d 886, 890 (Tex. Civ. App.—Texarkana 1966, no writ).
A. Filing a Payment Bond After Commencement of a Project. §53.208(d)
§53.208. Action on Bond.
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(d) If the bond is recorded at the time the lien is filed, the claimant must sue on the bond within one year following perfection of his claim. If the bond is not recorded at the time the lien is filed, the claimant must sue on the bond within two years following perfection of his claim.
The filing of the statutory payment bond on a project will prevent the attachment of liens to the property of the owner. Interestingly a payment bond can be filed after the commencement of the project. There is not a time limit listed as to how late a payment bond can be filed of record. Consequently, a payment bond could be files as late as completion of the project with the same protection against liens as it if had been filed prior to commencement.
A. Can the Lien Include Interest, Attorneys’ Fees and Taxes?
One frequently asked question by lien claimants is whether the claimant can recover its attorneys’ fees costs incurred in pursuing the lien. The Texas Property Code does provide at Section 53.160 for recovery of attorneys’ fees in the event of a successful foreclosure of a lien. However, can the lien affidavit itself include the claim for attorneys’ fees as part of the lien? Further, can the lien affidavit include an interest claim for the time value of the money improperly withheld? Both questions have ben answered in the negative. In Ambassador Development Corp. and Opus I, Ltd. v. Valdez, 791 S.W.2d 612,624 (Tex. App.—Fort Worth 1990, no writ), the court modified a judgment to delete the award of pre-judgment interest from the amount of the lien. In Palomita, Inc. v. Medley, 747 S.W.2d 575, 578 (Tex. App.—Corpus Christi 1988, no writ), the court modified a judgment to delete an award of attorneys’ fees from the amount of the mechanic’s lien.
On the other hand, taxes on materials are properly included as part of a statutory lien claim. First Nat’l Bank v. Whirlpool Corp., 517 S.W.2d 262, 270 (Tex. 1974).
B. What should a Pleading for Foreclosure Ask For?
TRCP 309. In Foreclosure Proceedings.
Judgments for the foreclosure of mortgages and other liens shall be that the plaintiff recover his debt, damages and costs, with a foreclosure of the plaintiff’s lien on the property subject thereto, and except in judgments against executors, administrators and guardians, that an order of sale shall issue to any sheriff or any constable within the State of Texas, directing him to seize and sell the same as under execution, in satisfaction of the judgment; and, if the property cannot be found, or if the proceeds of such sale be insufficient to satisfy the judgment, then to take the money or any balance thereof remaining unpaid, out of any other property of the defendant, as in the case of ordinary executions.
The relief that is sought in a foreclosure of a mechanic’s lien action is set out in Texas Rules of Civil Procedure, Rule 309. When preparing a pleading seeking foreclosure of a mechanic’s lien, the claim and the prayer should track the language in Rule 309 to ensure that the specific relief sought is tailored to the controlling statutes in the state. One oversight that is more common than others is failure to request an Order of Sale to be issues to any sheriff or constable with the directions that that order is to contain.
As the Supreme Court has stated regarding the Texas lien laws: "These statutes are very lengthy, have been subjected to several revisions, and are not exactly a model of clarity." First Nat’l Bank in Graham v. Sledge, 653 S.W.2d 283, 285 (Tex. 1983). When dealing with the Texas lien statutes, these are good words to keep in mind. Whether you are an "insider" or an "outsider," there are plenty of opportunities to serve your client if you look carefully enough for the Property Code’s tricks and traps.
