Lien laws are in place to protect contractors and other suppliers who provide goods or services to property owners but are not paid for their work. These laws allow contractors to file a lien on a property if the property owner does not pay the debt, which gives the contractor a legal claim to the property until the debt is paid. This provides contractors with a powerful tool for collecting on unpaid debts, and it can help to ensure that they are paid for the work they have performed.
In Texas, a supplier who has provided goods or services to a property owner must take certain steps in order to protect their lien rights on the project. These steps include:
- The supplier must provide a written notice of intent to lien to the property owner within a certain number of days after the last day they provided goods or services to the property. This notice must include the name and address of the property owner, the property address, the name of the supplier, the date the goods or services were last provided, and a description of the goods or services provided.
- The supplier must then file a lien on the property within a certain period of time after the last day they provided goods or services to the property. This must be done by filing a sworn statement with the county clerk’s office, along with a copy of the notice of intent to lien and other required documentation.
- If the property owner disputes the lien or refuses to make payment, the supplier must file a lawsuit to enforce the lien within a period of time after the lien was filed.
Only by following these steps can a supplier in Texas legally protect their lien rights and ensure that they are able to collect on any unpaid debts for goods or services provided to a property owner.
So what does it mean if you receive a notice of intent to lien?
If you are in the construction industry, you know things rarely go as planned. When issues arise, often the lack of payment is one of the first indicators that there is a problem. If you have ever received a piece of mail on the 16th of the month with a green certified label on it, then chances are you have been sent a lien notice. Here is everything that you need to know about a lien notice and what receiving a lien means for your company.
What is a notice of intent to lien?
A notice of intent to lien is a legal document that is filed by a contractor or supplier who has not been paid for goods or services provided to a property owner. The notice serves as a warning to the property owner that the contractor or supplier intends to file a lien on the property if the debt is not paid. This gives the property owner an opportunity to pay the debt before a lien is actually filed, which can help to avoid potential legal complications and expenses. A notice of intent to lien is also known as a “preliminary notice” or a “notice of nonpayment.” In some states, such as Texas, a notice of intent to lien is a required step before a lien can be filed and is required to maintain lien rights as stated in chapter 53 of the Texas Property Code.
Why are you getting this Notice?
The reason why you received a lien notice is because your vendor has not yet received payment for their products or services on a project and in order to legally maintain their lien rights, they are required to send out a notice as part of the lien rules stated in the Texas Property Code. Contractors, sub-contractors, and suppliers use lien notices as a way to “remind” or notify the owner that payment has not been received for services provided.
Do Lien Notices Actually Work?
If you are a contractor and waiting on funding from the project owner so you can pay your suppliers and vendors, a notice from your suppliers can be a useful means of getting the owner’s attention on unpaid invoices. Property owners typically do not want liens filed on their property for several reasons. First, a lien can make it difficult or impossible for the property owner to sell or refinance the property until the lien is paid or released. This can be a major inconvenience and can limit the property owner’s ability to access the equity in their property. Second, liens can be expensive to resolve, since the property owner may need to hire a lawyer and go to court to have the lien removed, which can be a significant financial burden. Finally, liens can damage the property owner’s credit score and reputation, which can make it difficult for them to obtain financing or other services in the future. For all these reasons, property owners typically prefer to avoid having liens filed on their property whenever possible.
“In construction, most goods and services are sold on credit. C.O.D. sales are rare and payment upfront is almost unheard of. This marketplace reality means design professionals, suppliers, and contractors of every tier typically must extend credit to their customers. Liens enable them to secure that credit. The process can be cumbersome, and at times overly complicated, but filing a lien remains vital to the industry. It is often the best way to ensure payment, and it is one of the most valuable services we lawyers can provide to our clients.”
Joe Virene | Partner at Gray Reed, a full-service, Texas law firm in Dallas, Houston and Waco
What is the Difference between a Notice of Intent to Lien and a Filed Lien?
A notice of intent to lien and a filed lien are both legal documents that are used to protect contractors and other suppliers who have not been paid for goods or services provided to a property owner. However, there are several key differences between the two:
- Timing – A notice of intent to lien is filed before a lien is actually placed on the property, while a filed lien is the actual lien that is placed on the property. A notice of intent to lien typically gives the property owner a certain amount of time, such as 30 days, to pay the debt before a lien is filed.
- Purpose – The purpose of a notice of intent to lien is to provide the property owner with a warning that a lien will be filed if the debt is not paid. The purpose of a filed lien is to create a legal claim on the property that can be used to enforce payment of the debt.
- Legal consequences – Receiving a notice of intent to lien does not have any legal consequences for the property owner. However, a filed lien can have significant legal consequences, such as making it difficult or impossible for the property owner to sell or refinance the property until the lien is paid or released. A filed lien can also result in legal action, such as a lawsuit to enforce the lien, if the property owner disputes the lien or fails to pay the debt.
- Requirements – The requirements for filing a notice of intent to lien and a filed lien can vary depending on the state and local laws. In some states, such as Texas, a notice of intent to lien is a required step before a lien can be filed, while in other states it is optional.
What are Common Misconceptions about Lien Notices?
- That it is not a serious matter – Receiving a notice of intent to lien is a serious matter, and property owners should take it seriously and respond promptly. Ignoring the notice or failing to take action can result in a lien being filed on their property, which can cause significant legal and financial problems.
- That it is a scam – Some property owners may believe that a notice of intent to lien is a scam or a fraudulent attempt to extort money from them. However, a notice of intent to lien is a legal document that is typically filed by a legitimate contractor or supplier who has not been paid for their work. Property owners should carefully review the notice and contact the person or company listed on it to verify its authenticity.
- That it means they do not have to pay the debt – Receiving a notice of intent to lien does not mean that the property owner does not have to pay the debt. It simply means that the contractor or supplier intends to file a lien on the property if the debt is not paid. The property owner is still responsible for paying the debt and failing to do so can result in a lien being filed on their property.
- That it cannot be contested – Some property owners may believe that a notice of intent to lien cannot be contested or challenged in any way. However, this is not the case. Property owners have the right to dispute the lien and may be able to have it removed if they can prove that the debt is not owed or that it has already been paid. Property owners should consult with a lawyer if they believe that a notice of intent to lien has been filed in error or is unjustified.
Lien Notice Deadlines
Under Texas law contractors and manufacturers are protected by chapter 53 of the State of Texas Property Code. To protect your rights and to have a claim to a lien, you must mail certain documents by their due dates. There are two main types of projects and figuring out what category you fall into will determine which deadlines you must follow.
The first is residential projects. Notices must be sent to the owner and prime contractor by the 15th day of the second month after work is performed.
For Non-Residential projects, a notice will be sent to the prime contractor, general contractor, and owner of the job by the 15th day of the third month after work is performed.
On June 15th, Governor Greg Abbott signed House bill 2237 into law. The Lien law changes came into effect in January 2022.
A notable key factor that changed was the Pre-Notice or Lien Notice deadlines. Before the change, a notice for a non-residential project had to be sent to the general contractor of the job by the 15th day of second month after work was completed. A second notice was then required to be sent to the general contractor and the owner of the job on the 15th of the third month.
Under the revisions the second month notice was eliminated. To reserve your lien rights now, you must only submit one notice on the 15th day of the third month after work is completed.
If funding is not provided to your vendor by the 15th day of the 4th month, then they have the rights to file a lien on the job. This will usually be sent to an attorney, and they will pursue legal action.
If you have received a lien notice from a vendor, it is important that you understand what it means and what your next steps should be. Make sure that you have all project information up to date and note that this could potentially be beneficial and help your company get paid.
Stay tuned for our next article.
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