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Texas overhauls mechanic’s liens

Subcontractors, suppliers and design professionals build or improve interior or exterior spaces for commercial use. These are complex jobs that involve business agreements, schedules, and hard work, so the businesses involved deserve to get paid for their effort. Even though building projects involve large amounts of capital and financing, contractors, subcontractors and suppliers typically turn to a mechanics lien to induce payment when the owner or contractors do not pay their bills. It can be the case even if the project remains unfinished.

How mechanic’s liens work

This legal claim is filed against a piece of property because the owner breached a valid contract and owed payment to the company filing the lien. Once the county clerk’s office processes the lien, the owner cannot sell the property until they remove the lien by paying it, negotiating a settlement, or the lien expires. Even if the current owner tries to sell the property, the buyer’s title search will indicate there is a lien (or more than one) against the building and land. The reason for placing the lien against the property is that it can motivate the sellers to resolve their dispute to close a potential sale.

HB 2237 simplifies the process

Texas Governor Greg Abbott signed House Bill 2237 on June 15, and it went into effect on January 1, 2022. There are several changes made in an attempt to make the law less confusing:

Notices: The use of registered mail is no longer required. Instead, it is simply certified mail or a traceable delivery arrangement that confirms receipt.

Design professionals’ rights expanded: Rather than applying only to designers with a valid contract with the owner, rights are expanded to include all licensed professionals regardless of who the contract is with.

Subcontractors and supplier notice: They must send a preliminary notice to the owner and prime contractor by the 15th day of the third month after the work was concluded and unpaid. There is no second-month notice. All notices must use a specific template.

Specially fabricated materials: These used to have separate guidelines, but these will now be covered under the monthly notices. No second-month notice is needed.

Enforcement: An action of enforcement must occur by one year of the last potential lien claim filing date or one year after completion, abandonment or termination of the project, but they can extend the deadline for a second year from the last filing date.

Unpaid retainage form: The monthly notices must use a template and go to the prime contractor and owner. These must be filed by the 15th day of the third month of the original contract was completed, terminated or abandoned. The owner’s actions cannot alter this.

Lien waivers: Texas no longer requires a lien waiver to be notarized. There will no longer be a distinction between conditional and unconditional waivers and lien releases. Filing a release of a claim at the county clerk’s office still requires notarization.

Lawmakers claim that these changes simplify the laws and regulations. However, it is still a good idea to work with an attorney who handles real estate, collections and business contracts to protect one’s interests best.