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As a current or prospective Texas homeowner, your property is not merely a place to live, but also a valuable investment. At some point, you might wish to sell or refinance it. To increase its value—and make it a more comfortable place to live—you might decide to conduct some home renovations. Unfortunately, disputes with contractors can happen, and mechanic's liens are sometimes the result. If you refuse to pay, contractors can place liens on your property, thus halting your efforts to sell or refinance. What exactly is a mechanic's lien, and what can you do if one is placed on your home after your renovation project?
A lien is a mechanism for construction-type companies to secure their financial interests without immediately filing a formal lawsuit in the local Texas District Court. Contractors' rights to file mechanic's liens are spelled out in the state's Constitution. Article XVI, Section 37 provides that "Mechanics, artisans and material men, of every class, shall have a lien upon the buildings and articles made or repaired by them for the value of their labor done thereon, or material furnished therefor."
"Mechanic's liens" are somewhat obscure, and many homeowners have not heard of them. A lien is a document that gets publicly filed in the Texas county clerk's office, in the county where your property is located. There are 254 counties in Texas, more than any other state. The contractor would file the lien in the county where your home is (not necessarily the county where the business is based). The lien, once filed, becomes a cloud on your title, meaning that any transfer of the title would come with the contractor's stated financial interest in it while the lien is active.
Consider this example: You hire a brick company to redo the exterior of your Dallas home. After the contractor finishes the work, the two of you argue over the agreed-upon payment amount. The company tries to charge you $7,000 more than the original contract, or claims that you asked for additional brick work, when you did not. You refuse to pay the additional sum. The contractor could then file a $7,000 mechanic's lien with the local Texas county clerk. This essentially means that anyone who buys your property would buy it subject to owing the contractor that $7,000. This will make it difficult for you to sell or refinance the property, since no one would want to take property that is subject to this claim (and the accompanying potential litigation). Contractors therefore use liens as a means of incentivizing you to pay.
The contractor or business who filed the lien can't just leave it there forever. If they don't file a foreclosure lawsuit within one year from the date they file the lien, it will expire and become unenforceable. (See Texas Prop. Code § 53.158.)
To get a sense of what a lien actually looks like, search for sample Texas versions of the form online (though the version filed on your home might look slightly different). Filing liens is intended to be a fairly simply procedure, as compared to filing a lawsuit.
The standard Texas form includes, among other pieces of information, the contractor's company's name, the property owner's name, the location of the property (your home, in this case), and the amount of money still allegedly due to the contractor. The contractor must also describe the labor or material provided to the property.
As with most states, however, Texas's lien regulations are complex. They contain many rules and exceptions, depending on the type of property involved and the work performed.
In most situations, you should be able to avoid the nuisance of mechanic's liens on your property by engaging in a reasonable negotiation with your Texas contractor before the lien is filed. Liens are typically a sign of frustration. The contractor believes you are either ignoring payment requests, or simply intend to "stiff" them for the work. Filing a lien is a way of protecting their interests.
If your contractor asserts that you owe an extra sum of money, do not just ignore the phone calls or invoices. This might be viewed as a sign of disrespect, as well as a sign that you have no intention of honoring the request. While you might think your contractor will eventually give up and go away, the contractor is just as likely to dig in their heels and cause legal trouble for you, either through a lien or a lawsuit (or both).
You and the contractor might have a good faith disagreement about whether certain work was part of the contract, or about the quality of that work. Rather than ignoring this, have a frank discussion, or consider going to mediation.
In mediation, a third-party neutral (often an attorney or individual with experience in the construction industry) can help you and your contractor negotiate a fair settlement.
Be open to clever settlement or compromise strategies. Rather than paying a lump sum, for instance, perhaps payments could be made over time. Rather than a monetary settlement, maybe you could offer the contractor a public endorsement or reference. Rather than fighting in court, you could offer the contractor discounted payment in exchange for a limited scope of ongoing work.
Naturally, there are legal remedies available to Texas homeowners with which to fight a lien after it is filed. However, you are likely to save time and money if you find a way to settle the payment dispute beforehand. This does not mean you need to give into all of the contractor's monetary demands, but it does mean that you should keep in mind the costs of legal action if the contractor files a lien.
Who, exactly, has the right to file a lien on your home? Most mechanic's liens in Texas are governed by the more specific provisions of Texas Property Code, Chapter 53. Under Tex Prop. Code § 53.001, almost any entity that participates in the "direct prosecution" of the improvement of real property" can file a lien, as long as the strict statutory requirements are obeyed. The statute allows contractors to file liens even if they have only contributed to seemingly minor improvements, such as landscaping, tree planting, or other aesthetic fixes.
All of this language is a bit dense, but essentially, anyone who has an agreement to improve property with you directly, or an agreement with another contractor who has such an agreement with you, can file a lien if left unpaid. This commonly includes contractors, subcontractors, and material suppliers.
Now that you know that mechanic's liens can create problems for you, how can you get rid of a lien once it's filed on your Texas property? There are several strategies to get the lien removed. The first, as mentioned, is to negotiate a resolution with your contractor. There are also other options.
One is to obtain what's known as a "lien bond" through a surety company. This essentially guarantees payment to the contractor in the amount of the lien, if the contractor is successful on the legal claims; but it also removes the lien from your property record.
Another is to petition a court (specifically, the Texas District Court that serves your county) to remove the lien. Your grounds for removal could include that the contractor never did the work that the lien claims, or that the work was already compensated.
You can also attack legal deficiencies in the filing of the contractor's lien. The most common deficiency for Texas liens involves the strict deadline for filing. These deadlines are unusually complicated in Texas, and vary depending on whether the entity is a general contractor (known in the statute as an "original contractor") or a subcontractor.
Many contractors and subcontractors will—not surprisingly—get confused by these deadlines. Courts construe them strictly, and if the lien is filed or served too late, it will be stricken. From your perspective, you should carefully note all of the relevant deadlines so that you can fight against a tardy lien filing.
Not surprisingly, Texas law also permits contractors to sue you directly for breach of contract (or related causes of action such as quantum meruit) if they believe you have failed to pay them for their labor or materials.
Any sort of litigation is time-consuming and expensive, however. Most contractors would prefer to settle quickly for a reasonable sum. Keep this leverage in mind as you explore the legal options available to you under Texas law.