Law Offices Of

Steve Costello

Mechanic's Liens 101 for HVAC and Other Contractors

This post is intended to provide a condensed outline regarding the requirements and deadlines for perfecting a lien and to make a few proposals for your consideration. Mechanic's liens are a critically important tool available to builders and other contractors. A mechanic's lien attaches to the house, building or other improvement in preference to any prior lien or mortgage on the property. If your company supplies air conditioning and heating units, windows, doors, carpet, appliances, light fixtures, cabinets, electrical control panels or other goods in building projects, and your invoices, phone calls and meetings with the property owner or general contractor have gone ignored, you need to explore your legal options to enforcing payment.

Removable Items and Getting Paid

The list of removable items has been greatly expanded in recent years by various court decisions. Removable items include air conditioning and heating units, windows, doors, carpet, appliances, light fixtures, cabinets, electrical control panels, and several other goods. If your conpany is successul in perfecting and enforcing a mechanic's lien, you can actually obtain an order permitting you to physically remove the items which your company supplied from the property. Of course, prior to your arrival on the homeowner or commercial property owner's land to physically remove the HVAC units which you supplied and have yet to be paid for, somebody will usually come up with a payment to keep that from happening.

Steps to Perfecting and Enforcing a Mechanic's Lien

As you know, there are multiple requirements for perfecting a mechanic's lien. The rules and deadlines for satisfying these requirements are complicated because they depend upon whether the project was residential or commercial, and whether your company was hired by the property owner or a contractor (e.g., general or other contractor). However, this general outline for perfecting a mechanic's lien can apply in most cases:

The Pre-Lien Notice Letter

Your company (or an attorney retained by your company) must send written notice of the unpaid balance by certified mail to the property owner and general contractor (if applicable). The deadline for serving the pre-lien notice letter is shorter on residential construction projects than it is on commercial projects. In addition, second-tier contractors (i.e., contractors who do not have a direct contract with either the property owner of the general contractor) must generally serve their pre-lien notice letter one month earlier than first-tier contractors (i.e., contractors who have a direct contract with the general contradtor). The deadline for delivering written notice of the unpaid balance to the property owner and the general contractor is short and unforgiving. The deadline can be as short as the 15th day of the second month following each mobnth is which all or part of the labor was performed or material (including specially fabricated material) was delivered to the project. Please consult with an attorney for service deadlines.

In most cases, this written notice, or Pre-Lien Notice Letter, is a pre-requisite to filing a Lien Affidavit. The primary purpose of the Pre-Lien Notice Letter is to demand immediate payment from the property owner and general contractor. Another purpose of the Pre-Lien Notice Letter is to force the property owner to set aside project funds in the event the general contractor does not pay the debt; under Texas Property Code § 53.081, if the property owner fails to set aside project funds to cover the debt, then the owner may be personally liable for the debt. Furthermore, pursuant to Texas Property Code § 53.083, if the general contractor fails to inform the property owner in writing within 30 days after receiving the Pre-Lien Notice Letter that it intends to dispute the claim, then the general contractor is deemed to have assented to the demand and the property owner must pay the debt from the project funds.

The Pre-Lien Notice Letter should including the following information:

1.   A demand for immediate payment;
2.   A representation that a mechanic's lien will be filed against the property if payment is not
      immediately made;
3.   A representation that a  lawsuit will be filed to foreclose on the lien;
4.   A representation that unless the owner sets aside project funds to pay the debt, that the 
      owner may be personally liable for the debt if it remains unpaid;
5.   A brief description and notice of any potential statutory violations as a result of the failure
      to pay, such as:
      a.   The Prompt Payment Act, Property Code Chapter 28, which imposes an annual 18%
             interest penalty on unpaid construction debts;
      b.   The Trust Fund Statute, Property Code 162, which imposes both civil and criminal
            penalties for diverting construction funds from a project, and
      c.   CPRC Section 38.001 which provides a statutory right to attorney's fees.
6.   A representation that the principal amount owed, interest on that amount, attorney's fees,
      statutory penalties, and the costs of court will be sought if payment is not immediately
      paid and a lawsuit is filed.

It is highly recommended that the Pre-Lien Notice Letter be sent by your attorney on law firm letterhead in order to enforce payment. Although the Texas Property Code only requires that lien documents be served on the property owner and contractor(s) at their last known address, it is advisable to serve the documents on their registered agent(s) and other legal representatives. Our firm can locate the appropriate legal representatives thorugh the Texas Secretary of State to make certain that the documents are placed in the right hands.

The Lien Affidavit

The Lien Affidavid must be filed with the county clerk's office in the county where the property is by the deadline defined by the Texas Property Code. Failure to comply with the filing deadline for the lien affidavit will result in an invalid lien. The timing for filing lien documents is shortr on residential construction projects than it is on commercial projects. You should consult with an attorney concerning the deadlines for your particular construction project(s).

Pursuant to Texas Property Code 53.054, the Lien Affidavit must include, at a minimum, the following information:

1.   a sworn statemetn of the amount owed;
2.   the name and last known address of the property owner;
3.   a general statement of the work performed and when it was performed;
4.   the name and last known address of the contractor who hired you;
5.   the name and last known address of the general contractor;
6.   a legal description of the property;
7.   your mailing and physical address; and
8.   a statement identifying when and how all pre-lien notices were sent.

Notice of Lien Filing

Chapter 53 of the Texas Property Code requires the lien affidavit to be served on the property owner, the general contractor (if applicable), and any other upstream subcontractor(s) (if applicable) by certified mail within five days after it has been filed with the County Clerk's Office. In addition, contained within the Notice of Lien Filing, you should include another demand for payment with a representation that if payment is not immediately made, you will file a lawsuit to foreclose on the property and seek damages in the principal amount owed, plus interest on that amount, all incurred attorney's fees and costs of filing suit.

Filing a Lawsuit

Pursuant to the Texas Property Code, a mechanic's lien may be foreclosed only on judgment of a court of competent jurisdiction foreclosing the lien and ordering the sale of the property subject to the lien. Generally, except in very large counties, state district courts have exclusive jurisdiction of suits to enforce and foreclose mechanic's liens. Justice courts have no jurisdiction to foreclose a mechanic's lien.

In order for your lien to be valid, you must timely serve all pre-lien notice letters and timely file the lien affidavit with the county clerk's office where the property is located in accordance with the Texas Property Code. Failure to comply with these service and filing deadlines will result in an invalid lien.

Therefore, for each of your projects, it is critical to know the corresponding date on which all or part of the unpaid work or materials were furnished by your company. In many cases, once labor was performed or material was delivered, your company will have as little as 2 1/2 months for serving pre-lien notice letters to the owner and upstream contractor(s), so it is critically important for your company to constantly track its projects, in order for your attorney to keep track of deadlines for serving pre-lien notices and lien affidavits. If you maintain a list of invoices for all projects when they have been unpaid for 30 days, this should allow your attorney adequate time in each case to timely prepare and serve the appropriate documents.

To learn more about Mechanic's Liens, please contact our office to arrange a free consultation at (979) 236-8271 or steve@stevecostellolaw.com. Our office is located at 7 West Way Court, Lake Jackson, Texas 77566.