How Does a Material Supplier Get Payment from a Contractor?
Full Question:
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There are several types of liens, all of which could cloud the title and prevent the seller from conveying marketable title to the buyer. A judgment lien is created when a court grants a creditor an interest in the debtor's property, based upon a court judgment. A judgment lien can be filed if an actual judgment in a lawsuit is obtained from a court. Such cases include failure to pay a debt, including credit cards, bank loans, or deficiency judgments on repossessed vehicles. In some circumstances, judgments can be enforced by sale of property until the amount due is satisfied. A plaintiff who obtains a monetary judgment is termed a "judgment creditor." The defendant becomes a "judgment debtor." secure payment of the claim to the injured party. After the judgment creditor places a lien upon the attached property, the next step in the collection process is to conduct a sale of the attached property to satisfy the judgment debt. If a lien were placed on a home, the judgment creditor would then seek to foreclose on the property, in the same way a mortgage holder such as a bank would foreclose if it were not paid. Laws regarding judgment liens vary by jurisdiction, so local laws should be consulted for specific requirements.
Liens that arise in construction situations include construction liens, contractor liens, mechanic liens, attorney liens, architect liens and other liens applicable in your state. Contractors, subcontractors, material suppliers, and laborers can place liens against property for the value of work or materials installed on that property. The filing requirements and statutes of limitation for these liens vary according to the law of each state. In some states, contractors and subcontractors must notify the property owner prior to filing a lien, but in other states such liens can be filed without any notification to the owner. Lien claimants who are contractors or subcontractors are protected under this legal doctrine because all their materials and labor are "buried" in the real estate, having become part of it. Unlike mortgage liens, however, the liens of these claimants cannot force a foreclosure.
A lien is the right to retain the lawful possession of the property of another until the owner fulfills a legal duty to the person holding the property, such as the payment of lawful charges for work done on the property. The right of lien generally arises by operation of law, but in some cases it is created by express contract. Liens that arise in construction situations include construction liens, contractor liens, mechanic liens, attorney liens, architect liens and other liens applicable in your state. By virtue of express statutes in most states, mechanics and material men or persons who furnish materials for the erection of houses or other buildings, are entitled to a lien or preference in the payment of debts out of the houses and buildings so erected and to the land, to a greater or lessor extent, on which they are erected. It is used to enforce payment in order to clear the title to the property, because property with a lien on it cannot be easily sold until the lien is satisfied (paid off). In some states, a claim must be filed in the office of the clerk of the court or a suit brought within a limited time. On the sale of the building these liens are to be paid pro rata. In some states no lien is created unless the work done or the goods furnished amount to a certain specified sum, while in others there is no limit to the amount.
The priority of liens on a construction project does not depend upon the time of completion of the particular job, but rather everything relates back to the first visible commencement of the work. This stipulation means the final work, such as painting, is equal in priority to the initial work of laying a cement foundation. Therefore, during the entire work of construction, the owner must obtain lien releases or waivers of lien from each subcontractor and material supplier. Without these waivers or releases the real estate is subject to liens of all the subcontractors, even if the general contractor, though paid in full, fails to pay the subcontractors. Lien claimants who are contractors or subcontractors are protected under this legal doctrine because all their materials and labor are "buried" in the real estate, having become part of it. Unlike mortgage liens, however, the liens of these claimants cannot force a foreclosure. People having a home built can require contractors and subcontractors to provide lien releases or waivers as part of a written project contract. The contract can mandate a lien release be issued before the contractor receives payment for services, in which case it is called a lien waiver. If payments are made to a general contractor in stages for work performed by subcontractors, the owner can obtain lien releases from the various subcontractors as their part of the project is completed. Sometimes, construction loan documents drafted by a bank may indicate that the bank will obtain lien releases, but the bank may do this solely for its own benefit. Therefore, the property owner's requiring lien releases should be clearly stated and independent of any agreement made by or with the bank.
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The following are TX statutes:
§ 53.052 PROP. Filing of Affidavit
(a) Except as provided by Subsection (b), the person claiming the lien
must file an affidavit with the county clerk of the county in which the
property is located or into which the railroad extends not later than the
15th day of the fourth calendar month after the day on which the
indebtedness accrues.
(b) A person claiming a lien arising from a residential construction
project must file an affidavit with the county clerk of the county in
which the property is located not later than the 15th day of the third
calendar month after the day on which the indebtedness accrues.
(c) The county clerk shall record the affidavit in records kept for
that purpose and shall index and cross-index the affidavit in the names
of the claimant, the original contractor, and the owner. Failure of the
county clerk to properly record or index a filed affidavit does not
invalidate the lien.
§ 53.053 PROP. Accrual of Indebtedness
(a) For purposes of Section 53.052, indebtedness accrues on a contract
under which a plan or plat is prepared, labor was performed, materials
furnished, or specially fabricated materials are to be furnished in
accordance with this section.
(b) Indebtedness to an original contractor accrues:
(1) on the last day of the month in which a written declaration by the
original contractor or the owner is received by the other party to the
original contract stating that the original contract has been
terminated; or
(2) on the last day of the month in which the original contract has
been completed, finally settled, or abandoned.
(c) Indebtedness to a subcontractor, or to any person not covered by
Subsection (b) or (d), who has furnished labor or material to an original
contractor or to another subcontractor accrues on the last day of the
last month in which the labor was performed or the material furnished.
(d) Indebtedness for specially fabricated material accrues:
(1) on the last day of the last month in which materials were
delivered;
(2) on the last day of the last month in which delivery of the last of
the material would normally have been required at the job site; or
(3) on the last day of the month of any material breach or termination
of the original contract by the owner or contractor or of the subcontract
under which the specially fabricated material was furnished.
(e) A claim for retainage accrues on the last day of the month in which
all work called for by the contract between the owner and the original
contractor has been completed, finally settled, or abandoned.
§ 53.055 PROP. Notice of Filed Affidavit
(a) A person who files an affidavit must send a copy of the affidavit
by registered or certified mail to the owner or reputed owner at the
owner's last known business or residence address not later than the fifth
day after the date the affidavit is filed with the county clerk.
(b) If the person is not an original contractor, the person must also
send a copy of the affidavit to the original contractor at the original
contractor's last known business or residence address within the same
period.
§ 53.056 PROP. Derivative Claimant: Notice to Owner or Original
Contractor
(a) Except as provided by Subchapter K, a claimant other than an
original contractor must give the notice prescribed by this section for
the lien to be valid.
(b) If the lien claim arises from a debt incurred by a subcontractor,
the claimant must give to the original contractor written notice of the
unpaid balance. The claimant must give the notice not later than the 15th
day of the second month following each month in which all or part of the
claimant's labor was performed or material delivered. The claimant must
give the same notice to the owner or reputed owner and the original
contractor not later than the 15th day of the third month following each
month in which all or part of the claimant's labor was performed or
material or specially fabricated material was delivered.
(c) If the lien claim arises from a debt incurred by the original
contractor, the claimant must give notice to the owner or reputed owner,
with a copy to the original contractor, in accordance with
Subsection (b).
(d) To authorize the owner to withhold funds under Subchapter D, the
notice to the owner must state that if the claim remains unpaid, the
owner may be personally liable and the owner's property may be subjected
to a lien unless:
(1) the owner withholds payments from the contractor for payment of the
claim; or
(2) the claim is otherwise paid or settled.
(e) The notice must be sent by registered or certified mail and must be
addressed to the owner or reputed owner or the original contractor, as
applicable, at his last known business or residence address.
(f) A copy of the statement or billing in the usual and customary form
is sufficient as notice under this section.
§ 53.057 PROP. Derivative Claimant: Notice for Contractual Retainage
Claim
(a) A claimant may give notice under this section instead of or in
addition to notice under Section 53.056 or 53.252 if the claimant is to
labor, furnish labor or materials, or specially fabricate materials under
an agreement with an original contractor or a subcontractor providing for
retainage.
(b) The claimant must give the owner or reputed owner notice of the
retainage agreement not later than the 15th day of the second month
following the delivery of materials or the performance of labor by the
claimant that first occurs after the claimant has agreed to the
contractual retainage. If the agreement is with a subcontractor, the
claimant must also give notice within that time to the original
contractor.
(c) The notice must contain:
(1) the sum to be retained;
(2) the due date or dates, if known; and
(3) a general indication of the nature of the agreement.
(d) The notice must be sent by registered or certified mail to the last
known business or residence address of the owner or reputed owner or the
original contractor, as applicable.
(e) If a claimant gives notice under this section and Section 53.055
or, if the claim relates to a residential construction project, under
this section and Section 53.252, the claimant is not required to give any
other notice as to the retainage.
§ 53.058 PROP. Derivative Claimant: Notice for Specially Fabricated
Items
(a) Except as provided by Subchapter K, a claimant who specially
fabricates material must give notice under this section for the lien to
be valid.
(b) The claimant must give the owner or reputed owner notice not later
than the 15th day of the second month after the month in which the
claimant receives and accepts the order for the material. If the
indebtedness is incurred by a person other than the original contractor,
the claimant must also give notice within that time to the original
contractor.
(c) The notice must contain:
(1) a statement that the order has been received and accepted; and
(2) the price of the order.
(d) The notice must be sent by registered or certified mail to the last
known business or residence address of the owner or the reputed owner or
the original contractor, as applicable.
(e) In addition to notice under this section, the claimant must give
notice under Section 53.056 if delivery has been made or if the normal
delivery time for the job has passed.
(f) The lien of a claimant who accepts an order but fails to give
notice under this section is valid as to delivered items if the claimant
has given notice under Section 53.056.
(g) If a retainage agreement consists in whole or part of an obligation
to furnish specially fabricated materials and the claimant has given
notice under Section 53.057, the claimant is not required to give notice
under this section.
The following TX statutes apply only to residential projects:
§ 53.252 PROP. Derivative Claimant: Notice to Owner or Original
Contractor
(a) A claimant other than an original contractor must give the notice
prescribed by this section for the lien to be valid. If the property that
is the subject of the lien is a homestead, the notice must also comply
with Section 53.254.
(b) The claimant must give to the owner or reputed owner and the
original contractor written notice of the unpaid balance. The claimant
must give the notice not later than the 15th day of the second month
following each month in which all or part of the claimant's labor was
performed or material or specially fabricated material was delivered.
(c) To authorize the owner to withhold funds under Subchapter D, the
notice to the owner must state that if the claim remains unpaid, the
owner may be personally liable and the owner's property may be subjected
to a lien unless:
(1) the owner withholds payments from the contractor for payment of the
claim; or
(2) the claim is otherwise paid or settled.
(d) The notice must be sent by registered or certified mail and must be
addressed to the owner or reputed owner and the original contractor, as
applicable, at the person's last known business or residence address.
(e) A copy of the statement or billing in the usual and customary form
is sufficient as notice under this section.
§ 53.253 PROP. Derivative Claimant: Notice for Specially Fabricated
Items
(a) If specially fabricated materials have not been delivered to the
property or incorporated in the residential construction project, the
claimant who specially fabricates material for incorporation in the
residential construction project must give notice under this section for
the lien to be valid.
(b) Once the specially fabricated materials have been delivered, the
claimant must give notice under Section 53.252.
(c) The claimant must give the owner or reputed owner notice not later
than the 15th day of the second month after the month in which the
claimant receives and accepts the order for the material. If the
indebtedness is incurred by a person other than the original contractor,
the claimant must also give notice within that time to the original
contractor.
(d) The notice must contain:
(1) a statement that the order has been received and accepted; and
(2) the price of the order.
(e) The notice must be sent by registered or certified mail to the last
known business or residence address of the owner or the reputed owner or
the original contractor, as applicable.
(f) The lien of a claimant who accepts an order but fails to give
notice under this section is valid as to delivered items if the claimant
has given notice under Section 53.252.
§ 53.254 PROP. Homestead
(a) To fix a lien on a homestead, the person who is to furnish material
or perform labor and the owner must execute a written contract setting
forth the terms of the agreement.
(b) The contract must be executed before the material is furnished or
the labor is performed.
(c) If the owner is married, the contract must be signed by both
spouses.
(d) If the contract is made by an original contractor, the contract
inures to the benefit of all persons who labor or furnish material for
the original contractor.
(e) The contract must be filed with the county clerk of the county in
which the homestead is located. The county clerk shall record the
contract in records kept for that purpose.
(f) An affidavit for lien filed under this subchapter that relates to a
homestead must contain the following notice conspicuously printed,
stamped, or typed in a size equal to at least 10-point boldface or the
computer equivalent, at the top of the page:
"NOTICE: THIS IS NOT A LIEN. THIS IS ONLY AN AFFIDAVIT CLAIMING A
LIEN."
(g) For the lien on a homestead to be valid, the notice required to be
given to the owner under Section 53.252 must include or have attached the
following statement:
"If a subcontractor or supplier who furnishes materials or performs
labor for construction of improvements on your property is not paid, your
property may be subject to a lien for the unpaid amount if:
(1) after receiving notice of the unpaid claim from the claimant, you
fail to withhold payment to your contractor that is sufficient to cover
the unpaid claim until the dispute is resolved; or
(2) during construction and for 30 days after completion of
construction, you fail to retain 10 percent of the contract price or 10
percent of the value of the work performed by your contractor.
"If you have complied with the law regarding the 10 percent retainage
and you have withheld payment to the contractor sufficient to cover any
written notice of claim and have paid that amount, if any, to the
claimant, any lien claim filed on your property by a subcontractor or
supplier, other than a person who contracted directly with you, will not
be a valid lien on your property. In addition, except for the required 10
percent retainage, you are not liable to a subcontractor or supplier for
any amount paid to your contractor before you received written notice of
the claim."
