Just as a home mortgage lender keeps an interest in a home in order to secure payment on the mortgage, the law provides a method for contractors and subcontractors to keep an interest, or a mechanic’s lien, in the property they build or improve in order to secure payment for their services and materials. If the owner of the property fails to pay the debt, the contractor or subcontractor may then enforce this lien by obtaining a court judgment ordering foreclosure and sale of the property to pay the debt. By following the procedures to perfect this lien, or to give notice to other creditors of the lien, a contractor or subcontractor may also have preference under the law in the event of foreclosure on the property by other creditors, or in bankruptcy.
The mechanic’s lien, also known as a materialmen’s lien, is defined as a lien on property that is made, repaired, or improved, in favor of the mechanic, artisan, or materialman who made, repaired, or improved that property. The lien is a protection drafted into the Texas Constitution and Chapter 53 of the Texas Property Code for the benefit of those who put labor and materials into property according to a contract with the owner of that property. The purpose, as the Texas Supreme Court explained, was to create a mechanism by which a person can secure payment for the labor and material he uses to make improvements to an owner’s property. See Lippencott v. York, 86 Tex. 276, 24 S.W. 275 (1893). As discussed below, these liens will have priority over some other creditors’ liens against the same property.
The Two Types of Mechanic’s and Materialmen’s Liens: Constitutional and Statutory
There are two types of mechanic’s liens under Texas law: the constitutional lien and the statutory lien. First, Article XVI, § 37 of the Texas Constitution provides for a situation where a constitutional lien will come about automatically without the contractor or subcontractor having to fulfill any statutory requirements. Texas case law has set forth further specific requirements for a claimant to fall under the protection of the constitutional lien, but essentially the mechanic, artisan, or materialman must have 1) provided goods to an owner that are incorporated into the property subject to the lien, and 2) he must be in privity of contract with the owner of the property, i.e. in a contractual relationship. If these two requirements are met, the constitutional mechanic’s lien arises automatically and may be enforceable against the owner without any further action.
However, this constitutional lien would not be enforceable against a subsequent purchaser of the property for value without notice of the lien. For this reason, it is advisable for the holder of a constitutional mechanic’s lien to treat this provision as a “back-up,” and to file a lien affidavit creating the second type of mechanic’s lien, the statutory lien, in accordance with the requirements set forth below from Chapter 53 of the Texas Property Code. In addition, because of the privity of contract requirement, subcontractors, also known as derivative claimants, who are not in a contractual relationship with the owner of the property, are not protected under the Texas constitutional lien. They must also follow the requirements for creating a statutory lien on the property as set forth below.
Who Can Claim a Lien Under Chapter 53?
Chapter 53 of the Texas Property Code sets forth the requirements for filing a statutory mechanic’s lien. The statutory lien is available to anyone who “furnishes labor or materials for the construction or repair of an improvement to real property.” A person can include any natural person or business entity, and a furnisher or labor or supplies may include mechanics, contractors, subcontractors, laborers, and the like.
As stated above, only an original contractor may claim a constitutional lien, because he is in a contractual relationship with the owner. All other lien claimants would be considered subcontractors if they are not in privity of contract with the owner, and thus would need to file a statutory lien. The exception to this is the “sham contract” rule. If the owner of the property and the original contractor are so closely related that one effectively controls the other, the court will allow a constitutional lien to arise between the subcontractor and the owner without the necessity of filing a statutory lien under Ch. 53.
Rules for Notice, Filing, and Priority of Mechanic’s Liens
Under Texas Property Code Section 53.022 a statutory mechanic’s lien may attach to land and items that have become annexed to land, such as improvements (including fixtures), and not to chattel. See Tex. Prop. Code Ann. § 53.022 (Vernon 2007); First Nat’l Bank v. Whirlpool Corp., 517 S.W.2d 262, 266 (Tex. 1974). Mechanic’s and materialman’s statutory liens on improvements made, if perfected, are superior to other liens, including a prior recorded deed of trust lien, where the improvements can be removed without material injury to (1) the land, (2) the pre-existing improvements, or (3) the improvements being removed. Id. at 269. In Texas, mechanic’s and materialman’s lien statutes are liberally construed to protect laborers and materialmen. Id. Generally, the issue of whether an improvement is removable or not is a question for the fact finder. Exchange Sav. & Loan Ass’n v. Monocrete Pty Ltd., 629 S.W.2d 34, 36 (Tex. 1982).
In addition to not causing material injury if removed, the item sought to be removed should not be an integral part of the basic, and therefore be separable from the basic structure. Cornerstone Bank v. J.N. Kent Construction Co., No. 05-91-00499-CV, 1992 Tex. App. LEXIS 3338, at *5 (Tex. Civ. App.—Dallas 1992). In analyzing whether an item is separable from the structure, the court should consider the following questions:
1. Is the item merely attached to the structure in such a manner that it is obvious that removal and/or replacement is always possible?
2. Is the item one which is removed and/or replaced as part of ordinary maintenance?
3. Is the item one which is removed and/or replaced as part of ordinary operation of the building?
4. Is removal, while not usual, or even usually contemplated, so simple and so non-destructive of item, structure or freehold, that to deny removability (or separateness) would violate the purpose of the mechanic’s lien statutes?
5. Is the item, though easily removable, such a part of the finished structure that not party would even contemplate removal and/or replacement during the ordinary operation and maintenance of the building?
In re: Orah Wall Fin. Corp., 84 B.R. 442, 447 (Bankr. W.D. Tex. 1986).
The courts have consistently moved toward broadening the scope of removables to include most items whose removal would not make the interior of the structure susceptible to damage from exterior elements and that are not incorporated into the basic structure in such a manner that they would cause irreparable damage to the surrounding structure upon separation and removal.
Removable Items
Texas courts have found the following items to be removable as a matter of law:
1. Air conditioning units and heating units in apartment complexes. Am. Amicable Life Ins. Co. v. Jay’s Air Conditioning & Heating, Inc., 535 S.W.2d 23, 25 (Tex. Civ. App.—Waco 1976, writ ref’d n. r. e.).
2. Appliances. Richard H. Sikes, Inc. 586 S.W.2d at 954.
3. Built in dishwashers. First Nat’l Bank, 517 S.W.2d at 266.
4. Burglar alarms. Richard H. Sikes, Inc. 586 S.W.2d at 954.
5. Carpets. Richard H. Sikes, Inc. v. L&N Consultants, Inc., 586 S.W.2d 950, 954 (Tex. Civ. App. – Waco 1979, writ ref’d n. r. e.).
6. Doors (interior and exterior). Id.
i Doors are not integral parts of the structure. Id. Exterior doors are removable if they are replaced or the hole is covered with plywood or other material to protect the interior from the elements. Id.
7. Doorlocks. Richard H. Sikes, Inc. 586 S.W.2d at 954.
8. Electrical circuit breaker panels, light fixtures, and copper and aluminum wiring running through conduit. Id at *13-*14.
9. Exterior widows and doors could be removed by taking out the brick and trim around them and then replacing the brick and trim without causing ultimate damage to the residence and covering the holes with plywood to protect the interior from the elements. First Cont’l Real Estate Inv. Trust v. Cont’l Steel Co., 569 S.W.2d 42, 45-46 (Tex. Civ. App.—Fort Worth 1978, no writ).
10. Garbage disposals. First Nat’l Bank, 517 S.W.2d at 266.
11. Interior doors, interior windows, and metal doorframes. In re: Orah Wall Fin. Corp., 84 B.R. 442, 447 (Bankr. W.D. Tex. 1986).
12. Light fixtures. Richard H. Sikes, Inc. 586 S.W.2d at 954.
13. Smoke detectors. Richard H. Sikes, Inc. 586 S.W.2d at 954.
14. Toilets, wash basins, urinals and like items. In re: Orah Wall Fin. Corp., 84 B.R. at 446-47.
15. Wooden cabinets. In re: Orah Wall Fin. Corp., 84 B.R. at 447.
i Any possible damage resulting from removal, such as damage to wallpaper, would be minor and not a material injury. Id.
Non-Removable Items
Texas courts have found the following items to be non-removable as a matter of law:
1. Air conditioner duct work. In re: Orah Wall Fin. Corp., 84 B.R. at 447.
2. Brick for exterior of structure and in construction of chimneys and fireplaces. Chamberlain v. Dollar Sav. Bank of New York, 451 S.W.2d 518, 520 (Tex. Civ. App.—Amarillo 1970, no writ).
3. Entire garage building. Crabb v. William Cameron & Co., 63 S.W.2d 367 (Tex. Comm’n App. 1933, judgm’t adopted).
4. Exterior glass walls, gasket material, and aluminum framing. Cornerstone Bank, 1992 Tex. App. LEXIS 3338, at *7.
5. Glass brick wall that is part of an interior wall. In re: Orah Wall Fin. Corp., 84 B.R. at 447.
6. Lumber used to build a house. Cameron County Lumber Co. v. Al & Lloyd Parker, Inc., 122 Tex. 487, 62 S.W.2d 63, 64 (1933).
7. New roof on an existing building. Citizens Nat’l Bank v. Strauss, 29 Tex. Civ. App. 407, 408, 69 S.W. 86, 87 (Austin 1902, writ ref’d).
8. Paint and plaster. R. B. Spencer & Co. v. Brown, 198 S.W. 1179, 1180 (Tex. Civ. App.—El Paso 1917, writ ref’d).
9. Plumbing piping (PVC or copper). In re: Orah Wall Fin. Corp., 84 B.R. at 447.
10. Ranges
i Ranges are not subject to a statutory lien because they are connected to the structure only by an electrical cord and are thus not incorporated or consumed; they have not lost their identity as chattels. First Nat’l Bank, 517 S.W.2d at 266.
11. Refrigerators
i Refrigerators are not subject to a statutory lien because they are connected to the structure only by an electrical cord and are thus not incorporated or consumed; they have not lost their identity as chattels. First Nat’l Bank, 517 S.W.2d at 266.
For a more exhaustive list or to find out about your particular item, contact Beard & Lane.
Constitutional M&M Liens are “self executing” thereby have no notice requirements, thus, contractors who fail to meet the deadlines and/or notice requirements of Chapter 53 oftentimes must fall back on their constitutional mechanic’s lien rights. However, a constitutional lien is only available if the claimant directly contracted with the owner of the property. A constitutional mechanic’s lien claimant may file an affidavit of lien claim in the property records of the county in which the labor was performed or the material provided and may file a lawsuit seeking foreclosure of his claim WITHIN 4 YEARS of the date on which the claim arose.
How to perfect a Constitutional M&M Lien
A contractor does not have to comply with the notice provisions of the Property Code to enforce the lien against the owner. For the contractor to be protected against the rights of third parties, such as subsequent purchasers of the property, the contractor must see that the third party has notice of the lien. This may be accomplished by filing a lien affidavit.
Claimant must contract directly with owner. Horan v. Frank, 51 Tex. 401, 405 (1879) File the affidavit of lien within 4 years of the contract. The great value of a constitutional lien is that it is a “self-executing.” It does not require any particular form of notice or affidavit to be filed in order to preserve a claimant’s rights. The one danger of a constitutional lien is that it may be cut off by a good faith purchaser for value of property unless they are under actual or constructive notice of the lien claim at the time they make their purchase. This is the reason that it is important to file the constitutional lien of record.
All subcontractors, laborers, and materialmen who have a mechanic’s lien have preference over other creditors of the original contractor. However, in order to gain this special protection, the subcontractor claimant must follow the procedures outlined in Chapter 53 to properly file and give notice of the lien. While the original contractor is automatically protected under the constitutional provision, as stated above it is advisable for him to follow these requirements as well for added protection. Individuals or entities seeking to perfect a mechanic’s lien should seek the guidance of an Austin real estate attorney to ensure compliance with these statutory requirements.
The filing and notice requirements vary depending on whether the claimant is an original contractor or a derivative claimant, i.e. a subcontractor. Additionally, the time requirements for filing will vary based on whether the project is commercial or residential in nature. In all cases, however, the claimant will file a lien affidavit with the proper clerk of court, and this will become public record. In general, original contractors must give notice of this filing to the owners, while subcontractors must give notice to both the owner and the original contractor. The law requires substantial compliance with these statutory requirements in order for the lien to be valid, except as discussed below with homestead and other residential property, which requires strict compliance.
Enforcement of Mechanic’s and Materialmen’s Liens in Texas
In order to enforce a mechanic’s lien, the claimant must prove the contract with the owner, the location of the property, the labor or materials furnished, and that the lien has been properly perfected. Once a valid lien is established, a lien on removables will have priority over deed of trust lienholders of the same property. As against other perfected mechanic’s liens on the same property, each lien will be on equal footing with the other without regard to the date of filing of the liens.
A court of proper jurisdiction may order judgment on the lien, and the property may be foreclosed upon and sold to satisfy the lien. Because the lien does not arise under common law, but by statute and under the Constitution, there is no mechanism for non-judicial foreclosure. Claimants must consult Chapter 53 for the proper statute of limitations for their lien claim, as the time differs based on the type of construction project.
In order to enforce a mechanic’s lien, the claimant must prove the contract with the owner, the location of the property, the labor or materials furnished, and that the lien has been properly perfected. Once a valid lien is established, a lien on removables will have priority over deed of trust lienholders of the same property. As against other perfected mechanic’s liens on the same property, each lien will be on equal footing with the other without regard to the date of filing of the liens.
Mechanic’s liens are complicated procedures and require the attention of an expert. Please contact the attorneys at Beard & Lane for assistance in filing, enforcing, and advocating for or against your Mechanic’s and Materialman’s Lien.
Sources:
Sterling W. Steves & Wayne Barnes, The Complete Guide to Mechanic’s and Materialman’s Lien Laws of Texas (LexisNexis Matthew Bender).
3 Tex. Prac. Guide Real Estate Litig. § 10:122-240.