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Lien Law Generalities

There may be several tiers of contractors and materialmen involved in the construction of an improvement. The owner has a contract or agreement for the construction with one or more original contractors, commonly referred to as general contractors. A general contractor may subcontract a part of the work and enter into other contracts for materials. A subcontractor may, in turn, subcontract part of the work and enter into contracts for materials.

The owner has a direct relationship with a general contractor, the nature of the improvement and the contract price are part of the bargain of the parties, and the owner is able to plan to meet the obligations imposed by the agreement. If the owner fails to meet those obligations, it is appropriate for the owner to respond in damages and to subject his or her property to a lien. On the other hand, the owner does not have a direct relationship with the second and third tier contractors and materialmen; the owner has little, if any, control over the price of their contracts, and the party primarily liable for the satisfaction of their claims should be the one with whom they have contracted. Any money paid to these claimants by the owner should come from funds held by the owner for payment on a contract with the general contractor. The owner should not be liable, and the owner’s property should not be subject to a lien for more than the amount bargained for when the original contract or contracts were made.

The person or entity that owns the project is personally liable to sub contractors, and the owner’s property is subject to their lien, BUT only to the extent of the funds the owner should have withheld from the general contractor under the trapping provisions of Property Code Section 53.081 and the general retainage provision of Property Code Sections 53.101 through 53.105  If the owner properly withholds trapped funds, they may be paid on demand to the claimant unless the contractor objects. Moreover, an owner who prematurely pays funds to a general contractor before that should be done, and is then personally liable to a sub contractor, has a right of action against the general contractor Tex. Prop. Code 53.084]. This may be a hollow right, because the contractor primarily liable to the claimant generally makes the necessary payment, before or after suit, or is without the resources to respond.

An owner may avoid the need for retaining any funds at all by requiring the general contractor to post a payment bond. When this is done, sub contractors have no claim against either the owner or the property, and are directed to the fund created by the bond.

Before making a final payment on a construction contract, an owner may require the builder to provide an affidavit stating that the builder has paid each of the subcontractors, laborers, or materialmen in full for all labor and materials provided to the builder for construction. If the builder has not paid each of the subcontractors, laborers, or materialmen in full, the affidavit must state the amount owed and the name of each person to whom payment is owed. Tex. Prop. Code 53.085(a). The affidavit may include (1) a waiver or release of lien rights by the affiant that is conditioned on the receipt of actual payment or collection of funds when payment is made by check or draft; (2) a warranty or representation that certain bills or classes of bills will be paid by the affiant from funds paid in reliance on the affidavit; and (3) an indemnification by the affiant for any loss or expense resulting from false or incorrect information in the affidavit. Tex. Prop. Code 53.085(c). Intentionally, knowingly, or recklessly making a false or misleading statement in such an affidavit is a Class A misdemeanor. Tex. Prop. Code 53.085(d)]. A person signing an affidavit is personally liable for any loss or damage resulting from any false or incorrect information in the affidavit Tex. Prop. Code 53.085(e).

The mechanic’s and materialmen’s statutes are liberally construed for the purpose of protecting laborers and materialmen

Note: A mechanic’s lien may only be foreclosed by a judgment of a court of competent jurisdiction Tex. Prop. Code 53.154.

In 1997, the legislature amended the Property Code lien provisions to include a new Subchapter K [Tex. Prop. Code 53.251 et seq.] applying only to residential construction projects [see Tex. Prop. Code 53.251(a)]. However, a person whose projects are governed by that subchapter must also comply with other applicable provisions of Property Code Chapter 53, described in the following subsections, in order to perfect a lien that arises from a claim resulting from a residential construction project. Tex. Prop. Code 53.251(b). Provisions relating to homesteads, formerly set out in Property Code Section 53.059, have been absorbed into Subchapter K. see Tex. Prop. Code 53.254].

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