One of the most important steps in the entire Texas mechanics lien process happens at the very end. When a mechanics lien is finally satisfied after a higher-tier party has settled the outstanding debt, the lien claimant then has to release or cancel the lien.
Releasing a mechanics lien is a very important part of the lien process, and it usually gets brought up during payment negotiations. Some property owners would require the due cancellation of a mechanics lien as a condition for releasing payment and closing the deal. This guide will answer your basic questions about releasing a mechanics lien in Texas.
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- When to release a Texas mechanics lien
- Why do you have to release a Texas mechanics lien?
- What happens if you fail to release a Texas mechanics lien?
- How to file a Texas mechanics lien release
- Are there other ways to release a Texas mechanics lien?
- Best practices when canceling a Texas mechanics lien
When to release a Texas mechanics lien
From a lien claimant’s perspective, the most definitive time to release a mechanics lien in Texas is when you have been formally requested by an interested party to cancel a mechanics lien after you have been paid.
As mentioned, interested parties will most likely write you a written request to cancel a mechanics lien after they release the payment. When you receive such a request, you have 10 days to formally release a Texas mechanics lien. You have to comply with this 10-day deadline as it is a mandatory step written in Texas’s state laws.
If you do not receive a formal request from the property owner or any interested party, you are technically not obligated to release a Texas mechanics lien. However, it is still best practice to release a mechanics lien even without receiving a written request to do so.
Why do you have to release a Texas mechanics lien?
A mechanics lien is a record of outstanding payment debts that gets attached to a property’s public books. This means that potential buyers and financiers of a property will be able to access such records and will most likely look away as they do not want to invest in a property with an existing mechanics lien.
One way of looking at it is that no investor would like to invest in a property and have to settle a payment dispute that they have nothing to do with. Property owners, therefore, want to keep their properties lien-free. As soon as a mechanics lien is satisfied, it has to be released to inform potential investors that the debt has been settled accordingly.
This is why as a lien claimant, you are likely to receive a formal written request to release a mechanics lien in Texas after the claim has been satisfied. Sometimes, the request will be for the entire mechanics lien, and sometimes it can cover just a partial payment. You must clearly state it in your Texas mechanics lien release form if you are canceling the full mechanics lien or just a portion of the claim.
What happens if you fail to release a Texas mechanics lien?
If you do not release a mechanics lien within 10 days after being formally requested to do so, you may be subject to penalties. This is because the 10-day deadline is a mandatory requirement according to Texas state laws.
However, there are no clear provisions as to what fines and penalties you have to pay if you fail to meet the deadline for releasing a Texas mechanics lien. This could be open to interpretation, and property owners could make a case to have you cover their attorney costs and other damages.
For this reason, it is best practice to keep it safe and release a mechanics lien within 10 days after receiving payment. Releasing a mechanics lien after receiving payment should be part of your business’s standard operating procedures in order to avoid potential complications.
How to file a Texas mechanics lien release
1. Prepare the Texas mechanics lien release form
Texas does not prescribe a specific form for releasing a mechanics lien. The law only requires that the form be a document that can be filed under the property’s records. Generally, a standard mechanics lien release contains the following details:
- the recorder’s file number for the mechanics lien
- the date you filed the mechanics lien
- the name of the party who owed you the payment
- your name and address
- a general statement expressing that you are releasing the mechanics lien, whether fully or partial
Note that you must refer to your original Texas mechanics lien for the information that you need for your mechanics lien release form. Make sure that you copy the important details correctly, especially the file number of the original mechanics lien. Small typographical errors could invalidate your mechanics lien release, so be very diligent when preparing this document.
2. Record the Texas mechanics lien release
Recording a Texas mechanics lien release follows the same process as filing a mechanics lien. You can either visit the recorder’s office where the original lien was recorded or mail your mechanics lien release to the said office.
Note that filing a mechanics lien release requires some fees, which must be included in the mail. You can call the recorder’s office ahead to know the filing fees. Make sure to include the exact amount in your mailed mechanics lien release.
Another important thing to remember is that you must not release a mechanics lien unless you have verified that payment has been received. The money must be cleared in the bank or must be handed to you in cash to confirm that you have duly received the payment.
Be wary of bouncing cheques and rejected credit card transactions. When you release a mechanics lien and the payment does not go through, there is no way of activating the mechanics lien again. This scenario would most likely result in non-payment, which would put all your efforts to waste.
Are there other ways to release a Texas mechanics lien?
Yes, there are. The steps outlined in this guide are specifically for lien claimants who have been formally requested to release a mechanics lien after being paid. Other interested parties may also release or cancel a mechanics lien, although the process for those is not quite clear.
For example, Texas laws state that a mechanics lien may be released if it has not been foreclosed in time. When a Texas mechanics lien has expired and you did not initiate foreclosure, a property owner could have the mechanics lien released or canceled. It is, however, unclear how they must do so.
A more definite way to have a mechanics lien released is to petition for the court to declare a mechanics lien invalid. This motion may be initiated by any interested party, including a property owner.
However, there are specific provisions that could invalidate a mechanics lien, and most of these provisions relate to procedural lapses when filing the original mechanics lien.
If, for example, a lien claimant did not serve a copy of the mechanics lien on the property owner after it has been filed or they did not have the mechanics lien notarized, a property owner could file the petition and have the mechanics lien declared null and void.
When a mechanics lien is invalidated, it is essentially equivalent to having it canceled or released as the mechanics lien is no longer enforceable. The Texas mechanics lien then no longer has a hold on the property, and the record of the payment dispute will no longer deter potential financiers from investing in it.
Best practices when canceling a Texas mechanics lien
1. Release the mechanics lien as soon as applicable
Remember the 10-day deadline. Once you receive a formal request to release a mechanics lien, you have 10 days to act on it. The penalties for failing to release a mechanics lien on time are not clear, but property owners could make a valid case of getting you to shoulder all their attorney fees.
To avoid complications, make sure to release a mechanics lien in Texas within 10 days of receiving the written request from the property owner.
2. Release the mechanics lien upon satisfaction even without a written request from the owner
You are technically not required to release a mechanics lien in Texas unless the property owner or an interested party requests you to do so. However, releasing a mechanics lien after receiving payment is still considered a good business practice.
Canceling a mechanics lien settles the payment dispute and it marks the end of the mechanics lien process. Property owners will appreciate you for doing so, so it is also a good way to build good working relationships with them.
3. Verify that payment has been cleared in the bank before releasing a mechanics lien
Before you file a mechanics lien release, always make sure that payment is on hand. Remember that cheques may bounce and credit card transactions may be rejected. When you sign off your mechanics lien release form, you must be 100% certain that you have received the payment and the money is already available for your disposal.
Reversing a mechanics lien release is a complex process, which may not even work to your advantage. To avoid dealing with this complication, never release a mechanics lien unless you are absolutely sure that you have received the money.