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Texas Lien Law Changes 2022: What You Need to Know

Texas Lien Law Changes 2022: What You Need to Know

January 11, 2022

On June 15, 2021, Gov. Greg Abbott signed into law House Bill 2237, introducing major changes to Chapter 53 of the Texas Property Code 1. These changes, which took effect on January 1, 2022, reflect new rules and regulations surrounding the filing of a Texas mechanics lien and all steps that come with it, including notice requirements and deadlines.

This guide summarizes the changes in Texas mechanics lien laws brought about by the passing of HB 2237.

A quick rundown of notable changes to the Texas mechanics lien laws

Texas Lien Law Notable Changes

    • Design professionals such as engineers and architects now have lien rights regardless of who they contract with.
    • Designs, drawings, plans, plats, surveys, and specifications done by design professionals are now categorically considered “improvements,” therefore they can be lienable.
    • Subcontractors and other lower-tier parties must no longer serve a second month notice, though it is still best practice to serve such a notice. Subcontractors are also still required to serve the third month notice on the 15th day of the third month after furnishing labor or materials.
    • All written notices must follow the format specified in the new statutory forms (see below for more details).
    • Deadlines that fall on a weekend or a legal holiday are now automatically extended to include the next day that is not a weekend or a legal holiday. Note that it is still best practice to fulfill the deadlines sooner than the deadline.
    • All written notices may now be served via certified mail or via “any other form of traceable, private delivery or mailing service that can confirm proof of receipt.”
    • A second month notice for specially fabricated materials is no longer required.
    • All mechanics liens, regardless of project type, will expire after 1 year following the last day for when a lien could be filed. The claimant and the owner may reach an agreement for an extension and file such an agreement in the county clerk’s office.
    • Texas lien waivers no longer have to be notarized.

 

When do the changes to the Texas lien laws take effect?

The updated Texas lien law took effect on January 1, 2022.

It is important to note that the changes only apply to contracts executed on or after January 1, 2022. This means that if you have an ongoing project on or after January 1, 2022, but your contract was signed before this effective date, the old Texas lien laws will still apply in your situation.

Who is affected by the changes to the Texas property code?

All stakeholders of a construction project are affected by the updates to the Texas mechanics lien laws. These stakeholders include property owners, contractors, subcontractors, material suppliers, architects, designers, engineers, landscapers, etc.

Overview of the changes to Texas Property Code Chapter 53

The changes and updates to the Texas mechanics lien rules and requirements are summarized as follows:

  • Change in definitions

    A number of definitions have been updated by HB 2237 2. Some of the more significant changes include the following:

    • “Improvement”A definition for “improvement” in the Texas Property Code was added and was updated to include designs, drawings, plans, plats, surveys, and specifications done by design professionals such as architects, engineers, and surveyors.

     

    • “Purported Original Contractor”A definition for “purported original contractor” was also added in Section 53.001 (7-a) as:
      an original contractor who can effectively control the owner or is effectively controlled by the owner through common ownership of voting stock or ownership interests, interlocking directorships, common management, or otherwise, or who was engaged by the owner for the construction or repair of improvements without a good faith intention of the parties that the purported original contractor was to perform under the contract. For purposes of this subdivision, the term “owner” does not include a person who has or claims a security interest only.
    • “Residence”The definition for “residence” was updated with more details:
      the real property and improvements for a single-family house, duplex, triplex, or quadruplex or a unit in a multiunit structure used for residential purposes in which title to the individual units is transferred to the owners under a condominium or cooperative system that is:(A) owned by one or more adult persons; and
      (B) used or intended to be used as a dwelling by one of the owners.
  • Expansion of design professionals’ right to filing a Texas mechanics lien

    Before HB 2237, design professionals such as architects and engineers only have lien rights if they have a direct contract with the property owner. Effective January 1, 2022, design professionals have lien rights regardless of who they enter a contract with.

    This means that design professionals now have lien rights regardless of their tier in the contracting chain.

  • Updated notice requirements for lower-tier subcontractors

    Prior to 2022, all subcontractors and other lower-tier construction parties are required to serve the prime contractor a notice on the 15th day of the second month after furnishing labor or materials. This requirement no longer applies effective January 1, 2022.

    This means that all subcontractors and lower-tier parties only have to serve the third month notice to the property owner and the prime contractor by the 15th day of the third month after providing labor or materials to a project.

  • Updated provisions for calculating deadlines that fall on weekends and holidays

    Prior to 2022, all deadlines related to Texas mechanics liens that fall on a weekend or a holiday must be fulfilled sooner. Beginning 2022, all deadlines that fall on a weekend or a holiday are automatically extended to include the next day that is not a Saturday, Sunday, or legal holiday.

    Note, however, that it is still best practice to fulfill the deadlines sooner to avoid any complications or mishaps.

  • Updated methods of serving notices

    Effective January 1, 2022, written notices may be served via certified mail or via “any other form of traceable, private delivery or mailing service that can confirm proof of receipt.”

  • New statutory forms for notices

    Effective 2022, written notices must be in substantially the following format:

    “NOTICE OF CLAIM FOR UNPAID LABOR OR MATERIALS
    “WARNING: This notice is provided to preserve lien rights.
    “Owner’s property may be subject to a lien if sufficient funds are not withheld from future payments to the original contractor to cover this debt.
    “Date: _______________
    “Project description and/or address: _______________
    “Claimant’s name: _______________
    “Type of labor or materials provided: _______________
    “Original contractor’s name: _______________
    “Party with whom claimant contracted if different from original contractor: _______________
    “Claim amount: _______________
    “_______________ (Claimant’s contact person)
    “_______________ (Claimant’s address)”

    The Notice of Claim for Unpaid Retainage must also be in the following format:

    “NOTICE OF CLAIM FOR UNPAID RETAINAGE
    “WARNING: This notice is provided to preserve lien rights.
    “Owner’s property may be subject to a lien if sufficient funds are not withheld from future payments to the original contractor to cover this debt.
    “Date: ________________
    “Project description and/or address: ________________
    “Claimant’s name: ________________
    “Type of labor or materials provided: ________________
    “Original contractor’s name: ________________
    “Party with whom claimant contracted if different from original contractor: ________________
    “Total retainage unpaid: ________________
    “________________ (Claimant’s contact person)
    “________________ (Claimant’s address)”

  • Deleted requirement for Notice of Specially Fabricated Materials

    Before 2022, fabricators of special materials have to serve a notice on the property owner by the 15th day of the second month after supplying the materials. Starting 2022, they no longer have to serve the second month notice.

  • Updated deadline for filing claims on retainage

    Beginning 2022, the deadline for subcontractors to file a mechanics lien claim on unpaid retainage falls on the 15th day of the third month after the completion or termination/abandonment of a project.

  • Update deadline for filing a suit to foreclose a Texas mechanics lien

    Beginning 2022, the deadline for foreclosing a Texas mechanics lien falls on the first year after the last applicable date for when a lien could be filed. A claimant and an owner can sign an agreement for a deadline extension and file such an agreement in the county clerk’s office to extend the deadline.

    This one-year expiration date for mechanics liens applies to all types of projects, including residential, non-residential, and commercial construction.

  • Removed notarization requirement for lien waivers

    Beginning 2022, Texas lien waivers no longer have to be notarized for them to be effective.

Should you still send a second month notice in Texas even if it is no longer required?

Yes, you are still strongly encouraged to serve a Texas second month notice even if it is no longer a requirement. Keep in mind that serving notices have other benefits other than preserving your lien rights.

Serving a preliminary notice in Texas as well as in other states allows you to have open and consistent communication with higher-tier parties. It also lets you remain “visible” in a project, and it can help you get paid quicker. Consequently, serving second month notices will also help you reduce your day sales outstanding metric or DSO.

How does sending notices help reduce your DSO?

The days sales outstanding or DSO measures the average number of days that it takes you to collect payment from your clients. In other words, the DSO lets you measure how quickly you convert your invoices to cash.

By serving the second month notice, even if it is not technically required, you are more likely to receive payments for your invoices sooner than later. This improves your DSO and other key performance indicators.

Even if you do not receive payment, you will remain “visible” to the property owners and prime contractors when you consistently serve the notices. This is important, especially when you work on large-scale projects with numerous project participants.

Tips on how to reduce your DSO

 

  • Send your invoices on time

    It is extremely important that you never send your invoices late. When you do not serve your invoices on time, the problem snowballs into delayed payments, not only for yourself but for other parties that may be working with or underneath you. Furthermore, always make sure that the invoices you serve are accurate with no errors to avoid other complications.

  • Serve a notice on your clients consistently

    Even if a preliminary notice is not required, you must still serve Texas monthly notices to ensure that your clients are aware of your work and expected payments. Serving notices consistently demonstrates professionalism, and it shows your clients that you are on top of your work. Consequently, serving Texas notices also lets your clients know that you are aware of your lien rights and that you are willing to exercise them when needed.

  • Implement robust credit and mechanics lien policies

    Having a robust credit policy is important as it lets you vet your clients, and it also allows you to have a strict policy on how to handle late payments that affect your DSO. You should also have a solid mechanics lien policy, so you exactly know what to do if you ever end up working with a delinquent client.

Further reading

  1. Property code Chapter 53. Mechanic’s, contractor’s, or materialman’s lien. (n.d.). Texas Constitution and Statutes. https://statutes.capitol.texas.gov/Docs/PR/htm/PR.53.htm
  2. 87(R) HB 2237 – Enrolled version – Bill text. (n.d.). TLO. https://capitol.texas.gov/tlodocs/87R/billtext/html/HB02237F.HTM