Texas Affidavit of Lien for General Contractors on Residential Projects: Requirements and Best Practices | Handle

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Texas Affidavit of Lien for General Contractors on Residential Projects: Requirements and Best Practices

Texas Affidavit of Lien for General Contractors on Residential Projects: Requirements and Best Practices

April 8, 2020

Filing a mechanics lien is the most effective way to recover payment from non-paying clients. A mechanics lien limits a property’s market value, and most property owners would rather settle payment disputes than respond to a lien claim in court.

General contractors comprise one of the many parties in Texas who are allowed by law to record a mechanics lien so their services are duly compensated. This guide will walk you through the rules and requirements that general contractors for residential projects must keep in mind to ensure that their Texas Affidavit of Lien or mechanics lien is valid and enforceable.

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Preliminary Notice Requirements for Residential General Contractors

General contractors are actually exempted from filing Texas preliminary notices. However, general contractors working on residential projects still have to serve certain documents to adhere to Texas lien rules.

There are two important documents that a residential general contractor must keep in mind: the Disclosure Statement and the List of Subcontractors and Suppliers.

The Disclosure Statement must be delivered to the property owner before a contract is executed. You may deliver it in person or via certified mail with return receipt requested. The Disclosure Statement is not a complex document; it is simply a piece of paper containing the following statements:

“KNOW YOUR RIGHTS AND RESPONSIBILITIES UNDER THE LAW. You are about to enter into a transaction to build a new home or remodel existing residential property. Texas law requires your contractor to provide you with this brief overview of some of your rights, responsibilities, and risks in this transaction.

“CONVEYANCE TO CONTRACTOR NOT REQUIRED. Your contractor may not require you to convey your real property to your contractor as a condition to the agreement for the construction of improvements on your property.

“KNOW YOUR CONTRACTOR. Before you enter into your agreement for the construction of improvements to your real property, make sure that you have investigated your contractor. Obtain and verify references from other people who have used the contractor for the type and size of construction project on your property.

“GET IT IN WRITING. Make sure that you have a written agreement with your contractor that includes: (1) a description of the work the contractor is to perform; (2) the required or estimated time for completion of the work; (3) the cost of the work or how the cost will be determined; and (4) the procedure and method of payment, including provisions for statutory retainage and conditions for final payment. If your contractor made a promise, warranty, or representation to you concerning the work the contractor is to perform, make sure that promise, warranty, or representation is specified in the written agreement. An oral promise that is not included in the written agreement may not be enforceable under Texas law.

“READ BEFORE YOU SIGN. Do not sign any document before you have read and understood it. NEVER SIGN A DOCUMENT THAT INCLUDES AN UNTRUE STATEMENT. Take your time in reviewing documents. If you borrow money from a lender to pay for the improvements, you are entitled to have the loan closing documents furnished to you for review at least one business day before the closing. Do not waive this requirement unless a bona fide emergency or another good cause exists, and make sure you understand the documents before you sign them. If you fail to comply with the terms of the documents, you could lose your property. You are entitled to have your own attorney review any documents. If you have any question about the meaning of a document, consult an attorney.

“GET A LIST OF SUBCONTRACTORS AND SUPPLIERS. Before construction commences, your contractor is required to provide you with a list of the subcontractors and suppliers the contractor intends to use on your project. Your contractor is required to supply updated information on any subcontractors and suppliers added after the list is provided. Your contractor is not required to supply this information if you sign a written waiver of your rights to receive this information.

“MONITOR THE WORK. Lenders and governmental authorities may inspect the work in progress from time to time for their own purposes. These inspections are not intended as quality control inspections. Quality control is a matter for you and your contractor. To ensure that your home is being constructed in accordance with your wishes and specifications, you should inspect the work yourself or have your own independent inspector review the work in progress.

“MONITOR PAYMENTS. If you use a lender, your lender is required to provide you with a periodic statement showing the money disbursed by the lender from the proceeds of your loan. Each time your contractor requests payment from you or your lender for work performed, your contractor is also required to furnish you with a disbursement statement that lists the name and address of each subcontractor or supplier that the contractor intends to pay from the requested funds. Review these statements and make sure that the money is being properly disbursed.

“CLAIMS BY SUBCONTRACTORS AND SUPPLIERS. Under Texas law, if a subcontractor or supplier who furnishes labor or materials for the construction of improvements on your property is not paid, you may become liable and your property may be subject to a lien for the unpaid amount, even if you have not contracted directly with the subcontractor or supplier. To avoid liability, you should take the following actions:

(1) If you receive a written notice from a subcontractor or supplier, you should withhold payment from your contractor for the amount of the claim stated in the notice until the dispute between your contractor and the subcontractor or supplier is resolved. If your lender is disbursing money directly to your contractor, you should immediately provide a copy of the notice to your lender and instruct the lender to withhold payment in the amount of the claim stated in the notice. If you continue to pay the contractor after receiving the written notice without withholding the amount of the claim, you may be liable and your property may be subject to a lien for the amount you failed to withhold.

(2) During construction and for 30 days after final completion, termination, or abandonment of the contract by the contractor, you should withhold or cause your lender to withhold 10 percent of the amount of payments made for the work performed by your contractor. This is sometimes referred to as “statutory retainage.’ If you choose not to withhold the 10 percent for at least 30 days after final completion, termination, or abandonment of the contract by the contractor and if a valid claim is timely made by a claimant and your contractor fails to pay the claim, you may be personally liable and your property may be subject to a lien up to the amount that you failed to withhold.

“If a claim is not paid within a certain time period, the claimant is required to file a mechanic’s lien affidavit in the real property records in the county where the property is located. A mechanic’s lien affidavit is not a lien on your property, but the filing of the affidavit could result in a court imposing a lien on your property if the claimant is successful in litigation to enforce the lien claim.

“SOME CLAIMS MAY NOT BE VALID. When you receive a written notice of a claim or when a mechanic’s lien affidavit is filed on your property, you should know your legal rights and responsibilities regarding the claim. Not all claims are valid. A notice of a claim by a subcontractor or supplier is required to be sent, and the mechanic’s lien affidavit is required to be filed, within strict time periods. The notice and the affidavit must contain certain information. All claimants may not fully comply with the legal requirements to collect on a claim. If you have paid the contractor in full before receiving a notice of a claim and have fully complied with the law regarding statutory retainage, you may not be liable for that claim. Accordingly, you should consult your attorney when you receive a written notice of a claim to determine the true extent of your liability or potential liability for that claim.

“OBTAIN A LIEN RELEASE AND A BILLS-PAID AFFIDAVIT. When you receive a notice of claim, do not release withheld funds without obtaining a signed and notarized release of lien and claim from the claimant. You can also reduce the risk of having a claim filed by a subcontractor or supplier by requiring as a condition of each payment made by you or your lender that your contractor furnish you with an affidavit stating that all bills have been paid. Under Texas law, on final completion of the work and before final payment, the contractor is required to furnish you with an affidavit stating that all bills have been paid. If the contractor discloses any unpaid bill in the affidavit, you should withhold payment in the amount of the unpaid bill until you receive a waiver of lien or release from that subcontractor or supplier.

“OBTAIN TITLE INSURANCE PROTECTION. You may be able to obtain a title insurance policy to insure that the title to your property and the existing improvements on your property are free from liens claimed by subcontractors and suppliers. If your policy is issued before the improvements are completed and covers the value of the improvements to be completed, you should obtain, on the completion of the improvements and as a condition of your final payment, a ‘completion of improvements’ policy endorsement. This endorsement will protect your property from liens claimed by subcontractors and suppliers that may arise from the date the original title policy is issued to the date of the endorsement.”

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Make sure that you include all the statements listed above and you stick with the prescribed format, including the capitalization of certain parts.

Before commencing work on a project, a residential general contractor must also provide a list of subcontractors and suppliers. This list must include the name, address, and telephone number of each subcontractor and supplier working for you. It must also have the following statement in 10-point bold font:

“NOTICE: THIS LIST OF SUBCONTRACTORS AND SUPPLIERS MAY NOT BE A FINAL LISTING. UNLESS YOU SIGN A WAIVER OF YOUR RIGHT TO RECEIVE UPDATED INFORMATION, THE CONTRACTOR IS REQUIRED BY LAW TO SUPPLY UPDATED INFORMATION, AS THE INFORMATION BECOMES AVAILABLE, FOR EACH SUBCONTRACTOR OR SUPPLIER USED IN THE WORK PERFORMED ON YOUR RESIDENCE.”

Should the List of Subcontractors or Suppliers get updated during the course of the project, you have to serve the owner the updated list within 15 days of the date the subcontractor or supplier is added or removed from the list.

Note that failing to serve the Disclosure Statement and the List of Subcontractors and Suppliers will not necessarily invalidate your lien rights. However, it is still very important that you serve them on the property owner. Serving these documents open communication lines between you and owner(s) and everyone is informed about their rights.

Special Case: Homestead Residential Properties

If you are a general contractor on a homestead property, you have additional steps to fulfill to ensure that you keep your lien rights intact. First off, a property is considered a “homestead” if the property owner is living in that property. If you are working on such a property, make sure that you follow these steps:

1. Execute a written contract prior to the commencing work

2. Ensure that both spouses sign the contract, if the owner is married

3. File the signed written contract in the local county clerk’s office where the homestead is located

You must ensure that you fulfill all the steps above prior to starting your work on a project. Failing to complete those steps will likely lead to the invalidation of your potential mechanics lien claim.

How to file a Texas Affidavit of Lien for residential general contractors

How to file a Texas Affidavit of Lien for residential general contractors

1. Prepare the Affidavit of Lien form

The following pieces of information must be included in your Texas mechanics lien or Affidavit of Lien:

a. A sworn statement of the amount claim

This amount must not include lien-related costs, attorney fees, and other miscellaneous expenses not related to your construction services. Make sure that you include the costs related to your claim.

b. The name and address of the property owner

This is the name and known address of the property owner(s).

c. The name and address of the general contractor

This is the name and address of the party who hired you, if different from the general contractor.

d. A description of the property location sufficient for identification

This has to contain sufficient information to identify a property, such as a physical street address or a legal property description.

e. A general declaration of the materials furnished or labor performed

This is the description of the services that you provided, and it must be itemized per month.
Your Affidavit of Lien must be notarized prior to filing, so you must make sure that you sign your Affidavit of Lien while in the presence of an authorized notary officer.

2. Record the Affidavit of Lien in the county clerk’s office

When your Affidavit of Lien form is ready, it is time to record it in the local clerk’s office in the county where the project property is located. You may also attach a copy of your written contract to the mechanics lien just to communicate to potential buyers and financiers that your claim is reasonable and based on a contract.

The deadline for recording an Affidavit of Lien for residential general contractors is on the 15th day of the 3rd month after your last day of work.

Deadlines for Texas Affidavit of Lien for residential general contractors

You may record an Affidavit of Lien by visiting the local county clerk’s office and having the mechanics lien recorded in person, or send the mechanics lien by mail. If you are mailing your mechanics lien, you must include the filing fees as well. Call the county clerk’s office to know how much it costs to file a mechanics lien in your area.

3. Serve a copy of the Affidavit of Lien on the property owner

After filing the Affidavit of Lien, you have 5 days to serve a copy of it on the property owner. By doing so, you let them know that a mechanics lien has been recorded on the property and that they must take action right away if they want to get rid of it.

Serving a copy of the Texas mechanics lien on the property owner is a required step. If you do not fulfill this step within 5 days of the recordation date, your Affidavit of Lien will be declared null and void.

4. Release/enforce the Affidavit of Lien

When the Affidavit of Lien has been successfully recorded, you will either have to release or enforce it depending on whether you get paid or not.

There is a very big chance that your mechanics lien will encourage the property owner to release payment. Once they do, they will likely ask you to cancel or release the Affidavit of Lien as it has already been satisfied. You have 10 days to release the Affidavit of Lien after receiving a request from the paying party to do so.

Releasing an Affidavit of Lien is done by filing a lien release form in the same county clerk office where the original Affidavit of Lien was recorded. When you file a lien release, you inform potential buyers and financiers of the property that the payment dispute has been settled.

On the other hand, it is also possible that you do not get paid even after filing a Texas Affidavit of Lien. If this is the case, you must enforce your mechanics lien by initiating a foreclosure lawsuit against the property. You will be able to recover payment from the foreclosure auction of the property if you win the lawsuit.

Residential general contractors must enforce their Affidavit of Lien by the following deadlines, whichever is later:

  • Within 1 year of filing the Affidavit of Lien
  • Within 1 year of the termination or completion of the project

An Affidavit of Lien will no longer be enforceable after those deadlines have passed. Even you file a foreclosure lawsuit after the mechanics lien has expired, you probably will lose the case and will not be able to recover your payment. Keep in mind these deadlines to ensure that your efforts in filing a Texas Affidavit of Lien will not go to waste.

Important deadlines to remember when filing a Texas Affidavit of Lien for residential general contractors

Best practices when filing a Texas Affidavit of Lien for residential general contractors

1. Remember to serve the Disclosure Statement and List of Subcontractors and Suppliers

Failing to serve these documents will not necessarily invalidate your lien rights. However, serving them allows you to open communication lines with the property owner. You are able to inform them of their rights, as well as the rights of the parties who are working for you. When everyone is on the same page, there is a bigger chance the project will go smoother.

2. Remember to get both spouses to sign a written contract for homestead properties

It is very important that both spouses must sign a written contract if you are working on a homestead property. If the owner is married, the law requires both spouses to sign the contract even if they are not living under the same roof. This could potentially be very complicated, but if you want your lien rights protected, you must get both spouses to sign your written contract before commencing work.

3. Serve a copy of the Affidavit of Lien on the property owner on the same day of filing

You have 5 days within the day of recording the mechanics lien to serve a copy of it on the property owner. But it is best practice to serve the copy of the Affidavit of Lien on the same day that you record it in the county clerk’s office. By doing so, you don’t risk forgetting to fulfill a very important step in filing a Texas mechanics lien.

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