Transcript Document

THE MECHANICS OF
MECHANIC’S AND
MATERIALMEN’S LIENS
CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & AUGHTRY
By Shannon A.S. Quadros
©2014
SO LET’S START
WITH WHAT THIS
PRESENTATION IS
NOT ABOUT
SO WHY SHOULD
YOU LISTEN TO
ANYTHING I HAVE
TO SAY…
SO WHAT ARE LIENS
EXACTLY
Two Sources of Authority under
Texas Law for Liens:
1. The Texas Constitution
and
2. Texas Property Code
Texas Constitution Art. XVI
Section 37
Mechanics, artisans and materialmen, 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 material furnished
therefor; and the Legislature shall provide by
law for the speedy and efficient enforcement of
said liens.
Texas Property Code
Ch. 53
This is where the law on liens lives!
Who is entitled to lien?
1. A person who provides labor or materials
for the construction or repair of a building,
house, improvement under a contract with
the owner, owner’s agent, contractor, or
subcontractor.
Who is entitled to lien?
2. A person who specially fabricates materials
even if the materials are not delivered.
3. An architect, engineer, surveyor, who has a
written contract with an owner in
connection with construction on a property
Who is entitled to lien?
4. A person who provides labor or materials
for landscaping of a property with a written
contract with the owner.
5. A person who provides labor or materials
for demolition of a structure with a written
contract with the owner.
What can be liened?
1. In urban areas a lien typically extends to the
house, building, improvements to each lot of
land on which the labor and materials were
provided.
2. In rural areas, a lien does not extend to more
than 50 acres on which the improvement or
repairs was constructed.
What about tenants?
If a party contracted with a tenant as opposed
to an owner, any lien is limited to the leasehold
as opposed to the entire property.
- But there are ways to get paid…
Understanding the Parties
Understanding the Parties
The Owner’s Agent
and the Sham Contract
• Sometimes the owner’s agent or representative is
apparent and obvious. They are treated as
having dealt directly with the owner.
• Who’s the owner’s agent?
– Can the owner control the third-party?
– Can the third-party control the owner?
– Is the owner trying to hide behind the agent?
• Watch out for the special purpose entity?
Finding out Who’s Who
• Owner is obligated to furnish information!
– the legal description of the property;
– verification of the existence of a surety bond
(and, if so, the name and address of the
surety);
– whether there are any prior recorded liens or
security interests in the property being
improved and the names and addresses of
those lienholders; and
– the date on which the original contract was
executed.
Finding out Who’s Who
• Original Contractor is obligated to furnish
information
– the name and address of the person to whom
the original contractor furnished labor and
materials for the construction project;
– whether the original contractor has furnished
or was furnished with a payment bond (and, if
so, the name and address of the surety); and
– the date on which the original contract was
executed.
LIEN NOTICES
Key elements of a “good”
notice of intent to lien
• It needs to be transmitted by Certified or Registered
Mail or hand-delivered. If it gets to the right party it
doesn’t matter how it gets to them. But send it
CMRRR.
• Always a good idea to send a copy of the open unpaid
invoices.
•
Always include funds trapping language.
Notice Requirements of an Original
Contractor on Non-Residential Projects
• None!
• Doesn’t that make you want to be an
original contractor?
Notice Requirements of a Subcontractor
to an Original Contractor on NonResidential Projects
Notice Requirements of a Subcontractor
to an Original Contractor on NonResidential Projects
• Required to give notice of a specified month’s unpaid
balance to the owner with a copy to the original
contractor by the 15th of the third month following the
provision of the unpaid labor or materials.
• E.g. Subcontractor 1 is owed for materials delivered on
January 20. A notice of intent to lien must be provided
to the owner and original contractor by April 15.
Notice Requirements of a Subsubcontractor on Non-Residential
Projects
• Required to give notice of a specified month’s unpaid
balance to the original contractor by the 15th of the
second month following the provision of the unpaid
labor or materials and a notice to the owner and the
original contractor by the 15th of the third month.
• E.g. Sub-Subcontractor 1 is owed for materials
delivered on January 20. A notice of intent to lien
must be provided to the original contractor on March
15 and to the owner and original contractor by April
15.
Practice Tip
• Send your notices to everybody!
– Include the lender, owner, etc.
– If you know of a parent company of the special purpose entity,
send it to them as well.
– Owner’s are great leverage to a slow paying general
contractor
– Lender’s are the best leverage as it is often a breach of the
loan agreement to let liens to be placed on the property.
Residential Construction Lien Notices
and Special Consideration
• What qualifies as residential construction?
– Work under a residential construction contract
• Well, what’s a residential construction contract?
– Contract between an owner and contractor for construction or
repair of the owner’s residence which could include a singlefamily house, duplex, triplex, quadruplex, or a unit in a multi-unit
structure such as a condominium.
– The home has to be owned by at least one adult and used as a
dwelling by one of the owners.
Residential Construction Lien Notices
and Special Consideration
• The Property Code requires residential contracts to
include the following:
– Work must be under a written contract
– Contract prior to starting work or delivering materials
– Contract must be filed with the county clerk in which the
homestead is located.
• Residential Contract also has to have certain disclosure
statements. Those should be substantially complied
with, which is Property Code talk for copy everything
there.
Residential Construction Lien Notices
and Special Consideration
• Residential Contract also has to provide the
homeowner:
– a list of subcontractors and suppliers,
– A disbursement statement upon request, and
– A final bill-paid affidavit upon completion of the
work
Notice Requirements of an Original
Contractor on Residential Projects
• None!
• Again, doesn’t that make you want to be
an original contractor?
Notice Requirements of a Subcontractor
on Residential Projects
• The Property Code doesn’t differentiate
between a subcontractor or a subsubcontractor on residential projects.
• All contractors that are not original
contractors on residential projects are
treated the same.
Notice Requirements of a Subcontractor
on Residential Projects
• Subcontractor needs to give the owner and
original contractor notice of unpaid balance no
later than the 15th day of the second month
after labor and materials were provided.
• For e.g. if materials provided on February 22
remain unpaid, subcontractor has to give owner
and original contractor notice by April 15 of
the unpaid balance.
Notice Requirements For Specially
Fabricated Materials
• Doesn’t matter whether it is residential or not
• Has to give the owner notice not later than the
15th of the second month after the month in
which the fabricator receives and accepts the
order for material
• If not a direct contractor of the original
contractor, has to send a copy of any notice to
the original contractor as well..
Notice Requirements For Specially
Fabricated Materials
Filing the Lien Affidavit
- The Accrual of Indebtedness
• A lien affidavit is filed according to when the
indebtedness accrues for that particular
contractor.
• For an original contractor accrual of
indebtedness is either the last day of the month
in which the contract was terminated or the last
day of the month in which the original contract
were completed, settled, or abandoned.
Filing the Lien Affidavit
- The Accrual of Indebtedness
• For a subcontractor accrual of indebtedness is
the last day of the last month in which the labor
was performed or materials furnished.
• For specially fabricated materials, accrual of
indebtedness occurs on the last day of the
month the materials were delivered; the last
day of the last month in which delivery of the
last material would normally have been
required; or the last day of the month of any
breach or termination of the contract.
Filing the Lien Affidavit
- Date of Filing
• On non-residential projects, the lien affidavit
has to be filed no later than the 15th day of the
fourth calendar month after the day the
indebtedness accrues.
• On residential projects, the lien affidavit has to
be filed no later than the 15th day of the third
month after the day on which indebtedness
accrues
The Lien Affidavit
• The Property Code is very explicit in what has to be
included in the lien affidavit.
• Essential elements of a lien affidavit include:
– signed by the claimant or one authorized by claimant
– 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 and
materials furnished by the claimant and, for a claimant
other than an original contractor, a statement of each
month in which the work was done and materials furnished
for which payment is requested;
The Lien Affidavit
• Essential elements of a lien affidavit (cont.):
– The name and last known address of the person by whom
–
–
–
–
the claimant was employed or to whom the claimant
furnished materials or labor;
The name and last known address of the original contractor;
A legal description of the property to be charged with the
lien;
The claimant’s name, mailing address, and, if different,
physical address; and
For a claimant other than an original contractor, a statement
identifying the date each notice of the claim was sent to the
owner and the method by which the notice was sent.
The Lien Affidavit
• While not required, it is “encouraged” to attach a
copy of the contract under which the work was
performed and a copy of all notices that were sent
with regard to the ultimate lien claim.
• Lien affidavit must be filed in the county in which
the subject property is located
• Copies of the lien affidavit must be sent by
certified mail to the owner and original contractor
within five days of filing. Send it to everybody!
Lien Filing – Practice Tips
• It’s all about timing – particularly when you need
an original signature from out of town.
• Smaller county filing systems might not be what
you expect. Build in extra days to allow for
glitches.
• Miss your deadline. Call your malpractice carrier,
and then your client!
Retainage Claims
• An owner is required to retain 10% of the contract price or
reasonable value of the completed work on an unbonded
project.
•
Retainage is a backstop for a “bad-actor” original
contractor that has dissipated all the funds prior to the
subcontractors getting paid.
• Owner has to hold on to the retained funds for 30 days after
the work is completed. With the appropriate notices, an
owner will not release to the original contractor if they are
aware of unpaid subcontractor invoices.
Retainage Claims
• To make a claim against the retained funds a subcontractor
has to file a lien affidavit no later than 30 days after the
original contract is completed, terminated or abandoned.
•
How do we know a contract is done?
• Owner is required to give notice to all subcontractors that
have given an owner statutory notices or that have
requested notice of completion of the contract.
• If the Owner fails to send out the notice the subcontractor is
relieved of their obligations to claim retainage and can just
file the lien affidavit.
Preference and Priorities of Mechanic’s
and Materialmen’s Liens
• Mechanic’s liens are considered in place at the time of
commencement of construction or provision of construction
materials. Makes them high priority.
• Not the case for architects, engineers, landscape providers
and demolition providers.
• Commencement of construction should be apparent from
inspection of the subject property.
•
Most owners/general contractors will just file an affidavit of
inception to set the date (often required by a lender)
Enforcement and Foreclosure on Liens
• Liens must be foreclosed on my court order.
• Lien holder can choose any part of the subject
property to be sold separately.
• Suit to foreclose must be brought within 2 years
after filing of the lien affidavit for non-residential.
• For residential, the suit must be brought within one
year after a lien affidavit could have been filed or
after one year after the original contract ended.
Attorney’s Fees
• Court required to provide for attorneys fees as are
equitable and just in any proceeding to foreclose a
lien or to declare one invalid.
• So required to be discretionary!
Summary Motion to Remove Lien
• Property Code gives owners a summary procedure to
remove an invalid or unenforceable lien.
• Expedited process within the framework of an
existing lawsuit.
• Helps owners get rid of liens and transfer the
property to bona fide purchasers or force prompt
settlement with claimants.
Summary Motion to Remove Lien
(cont.)
• Motion must be verified and can have supporting
affidavits.
• Can only
conditions:
–
–
–
–
be
brought
under
the
following
Failure of the claimant to provide property notice;
The affidavit of lien was defective or not properly filed;
Notice of the filed affidavit was not provided;
The deadlines for perfecting a lien claim for retainage
expired and the Owner paid all funds prior to receiving
any notice of retainage or perfection of lien;
– All funds subject to the notice of claim or retainage have
Summary Motion to Remove Lien
(cont.)
• Can only be brought under the following conditions
(cont.):
– The deadlines for perfecting a lien claim for retainage
expired and the Owner paid all funds prior to receiving
any notice of retainage or perfection of lien;
– All funds subject to the notice of claim or retainage have
been paid into the registry of the Court;
– The lien affidavit was filed on homestead property and did
not comply with requirements of § 53.254; or
– The claimant executed a valid and enforceable lien waiver
or release;
Summary Motion to Remove Lien
(cont.)
• Burden on claimant to prove that notices and lien
affidavit were furnished to the original contractor
and owner.
• Burden on movant to show that lien is invalid under
one of enumerated reasons.
• Court must decide promptly and either deny or
grant and order lien removed.
Summary Motion to Remove Lien
(cont.)
• Cannot be appealed. But stay can be effected upon
posting of bond.
• Effectively makes the prevailing party win the case
as it may be months or years before the lawsuit runs
to completion.
• If lien removed, owner may still be ultimately liable
but the subject property is free from any lien and
transferable.
Enforcement / Defense Practice Tips
• Check/Double-check dates for notices and filings
and when materials or labor was provided.
• Send notices to every party up the chain including
lenders.
• Obtain key project information at the outset.
• Circle the 15th of every month on your calendar!
COMMUNICATIONS
MANAGEMENT
Communication Issues
• Most Cases turn on E-mail
• Text messaging
• Instant messaging
• Management by E-mail
• Massive Volumes of Data
• Deleting e-mail once a lawsuit is
filed can put you in jail
Statistics about E-mail
• 1 page of a letter = about 30,000 bytes of information
• 1 bankers box of documents = about 2,500 pages
• I gigabyte of data = 1,000,000,000 bytes of data
• Therefore:
• 1 gig = 1,000,000,000/30,000
•
•
= 34,000 pages of paper
= 34,000/2,500 = 13.5 boxes of documents
• 1 terabyte = 34,000 pages x 1,000 = 34,000,000 pages
Communications Management
•
Use Confirmatory Letters, if necessary
•
Write everything as if it would be published
•
Avoid use of e-mail as main communications
•
Avoid use of Lessons Learned
•
Never use of slang and cursewords
•
Never slander another person
•
Never send pornography
Problems with E-mail
• Glibness
• Composing when agitated
• Too much copying
•
Loss of control (“grouping”, forward, reply all)
• E-mails always there
• Data Volume
•
Deemed sent from employer
•
Received – Who knows?
E-mail Management
•
Minimize e-mail externally
•
Never criticize
•
Not effective notice
•
Who is being copied
•
Official matters
•
Never "string" together e-mails
•
May never be erased
•
Attach letters
E-mail Management
After a contractor was having problems due to
late engineering, this internal e-mail was written
by an engineer with the A/E:
I am afraid that we have oversold our
capabilities on this project to the owner.
Our engineering department simply cannot
keep up with the contractor's needs. We can
expect significant claims from the owner.
And we should pay them all as far as I am
concerned.
E-mail Management
E-mail Management
Email from an engineer to his
supervisor about design problems
uncovered during a peer review.
Jim:
There are some serious issues about the designs we
have been doing for the client. I only want to
discuss this with you on a confidential and secret
basis since I don't want this getting around.
THE MECHANICS OF
MECHANIC’S AND
MATERIALMEN’S LIENS
CHAMBERLAIN, HRDLICKA, WHITE, WILLIAMS & AUGHTRY
By Shannon A.S. Quadros
©2014