The following articles were reprinted courtesy of Construction News
Contractors Beware: Special Requirements for Liens on Residential Homesteads
Courtney Willis, President
Willis Law, PLLC
Texas lien laws provide contractors, subcontractors, and suppliers indispensable tools for getting paid for their work and materials. Lien requirements differ on commercial and residential projects, and liens on residential homestead projects have their own special rules. With the hot residential real estate market in many major Texas cities, renovation and remodeling projects are plentiful, and those involved should be familiar with the requirements for liens on residential and residential homestead projects.
First, what’s a “homestead”? Basically, a homestead is real estate that the owner uses as a home. Texas homestead law gives the owner extra protection from creditor claims on the property, and imposes additional requirements on contracts and liens for construction and remodeling projects on the property.
Two kinds of liens are available for construction projects in Texas: constitutional liens and statutory mechanic’s and materialman’s liens. Prime contractors, those who contract directly with the owner, can claim both kinds of lien. Subcontractors and suppliers are limited to statutory liens.
On commercial projects and nonhomestead residential projects, by law constitutional liens attach automatically. However, on new-construction homestead projects, prime contractors must meet several requirements to claim constitutional liens. The requirements are that prime contractors must have a written contract with the owner containing all terms of their agreement executed before starting work or providing materials. Additionally, the contract must signed by both spouses, if the owners are married, and it must be filed with the Clerk of the County of the project.
For constitutional liens on homestead remodeling projects, the contract cannot be signed until the 5th day after the owner has applied for project financing (if the owner is financing); it must allow the owner to opt out within three days of signing with no penalty; and it must be signed at the office of the lender, an attorney, or a title company.
Statutory mechanic’s liens are available to prime contractors, subcontractors, sub-subcontractors, and suppliers, and have the following basic requirements. Parties other than the prime contractor (subs, suppliers, etc.) must send “fund trapping” notices of their claims to the prime contractor and owner. Additionally, all lien claimants must file a proper lien affidavit with the County Clerk of the project county, and send a proper notice of the filing of the affidavit to the owner.
Subcontractors and suppliers on residential projects must send their fund trapping notices to the owner and prime contractor by the 15th day of the second month after the month they provided labor or materials. If the project is a homestead, the notice must contain a statutorily required statement explaining that the owner’s property may be subject to a lien if the lien claimant is not paid, or if the owner has not retained construction funds. Consult your attorney for the specific language required for the notice statement.
Residential lien affidavits must be filed no later than the 15th day of the third month after the month in which the claimant provides labor or materials. In addition to the homestead constitutional lien requirements discussed above, the homestead mechanic’s lien affidavit must conspicuously state at the top “NOTICE: THIS IS NOT A LIEN. THIS IS ONLY AN AFFIDAVIT CLAIMING A LIEN.”
Lastly, the claimant has to provide notice to the owner (and prime contractor if the claimant is a subcontractor or supplier) within five days of filing the lien. When starting new residential projects, contractors and suppliers of all sizes should consider whether the job involves a homestead, and how their lien rights might be affected. Working with an attorney can help contractors address these issues, avoid pitfalls, and develop procedures to ensure notices and affidavits are properly drafted and timely filed. This brief overview is intended to merely underscore the special additional requirements for liens on residential homestead projects, rather than to provide a general survey of all Texas lien law, or to provide specific legal advice. Every case is different. If you have questions relating to a lien, you should contact an attorney who can advise you as to your specific situation.
Willis Law, PLLC offers litigation and consultation services on commercial and residential construction matters statewide.