If you’re tasked with collecting payment for construction work, you need to be taking advantage of mechanics liens.
The problem is that lien and notice management is nuanced, confusing, and bureaucratic, especially in Texas. Navigating the prerequisites to protect your lien rights is confusing, and small mistakes (with large consequences) happen quite often. Below I’ll outline 5 common mistakes that people make with Texas notices and liens, and how to avoid them.
1. Forgetting to Send a Monthly Notice for Each Month That You Do Work
If you’re a subcontractor, sub-sub, material supplier, equipment lessor, or anybody that did not contract directly with the property owner or general contractor, then you have to send monthly recurring notices in order to protect your right to file a lien.
These monthly notices are a kind of hybrid between preliminary notices and notices of intent to lien (NOI) that you might find in other states. They’re not exactly a warning like an NOI, but they’re not sent at the beginning of a project, as preliminary notices are.
Depending on your role, and the type of project, you might be required to send a Two Month Notice, Three Month Notice, or both. Unlike in other states, where notices are due a certain number of days after you begin or finish work, Texas monthly notices are always due on the 15th of the month, two or three months after each month in which you perform work. Here is the statute regarding Two Month Notices for subcontractors:
The claimant must give the notice not later than the 15th day of the second month following each month in which all or part of the claimant’s labor was performed or material delivered.
Let’s say you’re a sub-subcontractor on a residential project. You begin work installing roofing in September, and complete your installation in October. As a sub-sub, you’re required to send 2nd-month notices to the property owner and general contractor. Because you performed work in September and October, you must send two notices, due on November 15 and December 15 respectively. Here is another example:
- Began work in April –> 2 Month Notice due June 15
- Continued work in May –> 2 Month Notice due July 15
- No work performed in June
- Completed work in July –> 2 Month Notice due September 15
2. Cutting it Too Close To Your Deadline
Collectors like to avoid sending notices if they can, for a number of reasons: it’s more work, it costs money, it’s believed to send a bad message to customers.
In response to the first two reasons, it’s important to remember that sending a notice even just one day late will void your ability to claim a lien for your payment. In response to the third point, as mentioned in the introduction, Texas monthly notices, like preliminary notices, are not a warning or a threat–they’re a precautionary measure for those times that you’re faced with non-payment.
Because of the unique nature of Texas notice deadlines (they’re always due on the 15th of the month), it’s more common for collectors and credit managers to wait until the last minute to make a decision to send or not send. Invoices from two and three months prior sit on a desk as the collector waits, hopes and prays that payment for each will come through the door. She tells herself, “They told me the check is in the mail. It’s coming!” All-the-while, the clock is counting down to the 15th.
Don’t wait! Preparing notices and getting them out the door takes time, and you have to account for that process. It’s better to send a notice for a project that gets paid a couple days later than to not send a notice and find out that, no, the check was not in the mail.
3. Not Understanding all of Your Requirements
I’ll say it one more time for emphasis: Texas has the most confusing and complicated lien requirements in the United States. This is everything you have to get right in order to be able to file a lien:
1. Send the right documents
You may be required to send one, or several, of the following documents (don’t forget also that you might have to send Two or Three month notices more than once):
- Disclosure Notice
- List of Subcontractors and Suppliers
- Two Month Notice
- Three Month Notice
- Retainage Notice
- Notice of Specially Fabricated Materials
2. Send at the right time
This is a list of different deadlines for people sending notices and filing liens in Texas:
- Prior to beginning work
- The 15th day of the second month following each month in which work was performed
- The 15th day of the third month following each month in which work was performed
- The earlier of the following: (1) 30 days after the date the claimant’s agreement for providing retainage is completed terminated or abandoned, or (2) the 30th day after the original contract is terminated or abandoned
- The 15th day of the 3rd calendar month after the day on which debt accrued
- The 15th day of the 4th calendar month after the day on which debt accrued
3. Send to the right people
- Notices must be sent to the property owner, the general contractor, or both.
- If you’re doing work on a homestead (see below), you may be required to official file your contract with the county clerk before beginning work. The contract must also have certain people’s signatures.
- Liens must be filed with the county clerk
4. Send the right way
- Notices must be sent via certified mail, return receipt requested
- Liens and homestead contracts must be filed with the county recorder’s office
How to Understand Your Texas Notice and Lien Requirements
All you need to discern the requirements that are relevant to you is three pieces of information:
- Which state was the project located in? You’ve already got this one. Texas!
- What was your role / who hired you? (1) GC hired by the property owner; (2) Subcontractor hired by the GC; (3)Sub-sub, material supplier, or equipment lessor hired by anybody other than the property owner or GC
- What is the project type? (1) Residential; (2) Non-residential; (3) Homestead
Once you know the answers to those three questions, you have all the information you need to decipher your requirements and protect your lien rights. (You can consult zlien‘s Texas resources to do that.)
4. Not Following Special Rules for Homesteads
Many residential properties in Texas are considered Homesteads. This is important to you because the rules and requirements for homesteads are different from those for ordinary residential projects.
You can find Homestead requirements here.
If you contracted directly with the homestead owner, the requirements are fairly straightforward. If you did not contract directly with the owner, then you are dependent on the general contractor fulfilling their requirements in order for your lien rights to be protected. That’s right, if the person contracting with the homestead owner does not fulfill lien prerequisites, subcontractors, sub-subs, etc. lose their ability to file a lien.
One solution is to communicate with the general contractor. The other way around this is to execute a direct contract with the homestead owner.
5. Not Using the Correct Notice for Specially Fabricated Materials
Specially fabricated materials are defined by Texas statute as materials that are not generally suited for or adaptable to use for other projects or sites. People who supply specially fabricated materials have a right to claim a lien even if the materials are not delivered.
Requirements for suppliers of specially fabricated materials are very similar to those for regular material suppliers. However, specially fabricated material suppliers must use a unique notice, the Notice of Specially Fabricated Materials.
Protecting your lien rights in Texas will (1) keep in-tact your most valuable collections tool, the mechanics lien; and (2) encourage your customers to pay on time. While protecting your lien rights in the lone star state can seem overwhelming, all you need to be successful is knowledge about your project (you already know that) and access to the right tools (you can get that).
zlien‘s resources break down exactly what you need to do in order to protect your lien requirements, for every state in the nation, every project role, and every project type. zlien also provides free templates for notices and liens. Need to send a notice or file a document? You can do that here in less than 5 minutes.
It only takes non-payment on one project to break the bank. Are you protecting your lien rights?
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