We have spent the week breaking down the proposed changes to Texas lien law brought forward in House Bill 3065 and Senate Bill 1506 earlier this month. The bills are identical, and would go into effect in May of 2018 if passed. While the individual posts give a much better breakdown of the proposed changes, we understand if you don’t have time to read 6,000+ words on changes that might never come to fruition. For a basic overview of some of the most important changes proposed, we have a recap of issues previous posts touched on.
But first, let’s discuss what would be removed from Texas lien law…
While there are a number of amendments, edits, and additions to provisions under these proposed changes to Texas lien laws, there are also some provisions that would be repealed in whole or in part. One particularly interesting change is that retainage provisions from Subchapter E would be deleted entirely. There would be no more statutory retainage in Texas.
Here’s a quick list of the provisions that would be repealed:
Definitions 53.001: Definition of Retainage would be removed.
Property to Which Lien Extends 53.022(b): Provision stating liens do not extend to sidewalks, streets, or utilities, etc.
Limitation on Ordinary Retainage Lien 53.025
Accrual of Indebtedness 53.053
Derivative Claimant: Notice to Owner or Original Contractor 53.056
Derivative Claimant: Notice for Contractual Retainage Claim 53.057
Derivative Claimant: Notice of Specially Fabricated Materials 53.058
Payment to Claimant on Demand 53.083
Owner’s Liability 53.084
Subchapter E, Chapter 53: The entire section “Required Retainage for Benefit of Lien Claimants” would be removed.
Perfection of Claim 53.206(c): Provision stating that a person must give notice for a claim to be valid, but the content need only provide fair notice of the amount and nature of the claim
Derivative Claimant: Notice to Owner or Original Contractor 53.252
Derivative Claimant: Notice for Specially Fabricated Items 53.253
Homestead 53.254(g): Provision requiring a specific statement be attached in order for a lien on a homestead to be valid would be removed. A disclosure statement would still be required for residential construction contracts pursuant to 53.255.
Recap of Proposed Changes to Texas Lien Law
Because of the vast scope of the proposed changes, thus far we have only provided modest takeaways for each section. While the changes are still a lot to digest, here are some of the alterations we think will be the most impactful:
Property to Which a Lien Extends (53.022)
The description of the property to which a lien extends would be revised to include instances where the owner who initiated work may not be the sole owner of a property and declares that only the interest of the owner who initiated work may be liened. The lien exists even if that ownership now belongs to some successor.
Another change under this section is that it will now provide for situations where a project was initiated on property that stands adjacent to (rather than actually on) the property owned by the person who initiated the project.
Lastly, this section specified how lien rights apply to condominium projects.
For the details on these changes, head over to the post on The Basics.
Limitation on Subcontractor’s Lien (53.024)
The amount for which a subcontractor is entitled to a mechanics lien now includes change orders and possibly delays. Specifically, the statute states that the amount includes “all additional amounts to which the subcontractor is entitled as an adjustment to the subcontract.”
Lien Website (53.011)
The proposed legislation would also call for the creation of a lien website where project information would be housed and documents would be posted.
For more details on the lien website, the first half of the Lien Website and Filing a Lien post is the place to be.
With this revised legislation would come a slew of new required notices. These would include: notice of commencement, notice of furnishing, notice of demand, and notice of completion. Also, the notice of affidavit would become “notice of lien claim affidavit.”
For a full recap of the new notice requirements that would be instituted, here’s our Notices post.
Personal Liability for Liens (53.0841)
One of the most confounding proposed changes to Texas lien law is the addition of personal liability for liens. It is discussed in greater detail on the Personal Liability and Priority post, but creating a debt personal to the property owner is something not typically done in lien law. It will be interesting to see if this provision is edited or at least clarified throughout the drafting process (assuming it will occur).
Inception of a Mechanics Lien (53.124)
After putting a new notice system in place, the bill changes the time at which mechanics lien rights begin to run. Generally, lien rights would now run from the notice of commencement, though there are some exceptions in the details. Any other type of lien, encumbrance, or mortgage filed either on or before the date of the inception of lien rights takes priority over mechanics lien rights. Lastly, the priority of a mechanics lien for landscaping or demolition work is affected by whether or not the work was included in the property owner’s notice of commencement.
Period for Bringing Suit to Foreclose Lien (53.158)
Under the proposed bill, the period to bring a suit to foreclose a lien would be cut in half. However, this time frame could be extended by one year if agreed upon by the owner, general contractor, and the claimant. Residential projects would also now be relegated to the same period for foreclosure as other projects.
For the specifics, head over to our post on Waiver, Foreclosure, and Bonding.
Unconditional Waiver and Release: Payment Required (52.283)
A contractual requirement for a party to waive or release their lien rights for work that has not yet been performed would be void under the proposed legislation. However, a party could agree to an unconditional waiver before payment is received if it is delivered in trust to a third party (specifically, an attorney, title insurance company, title insurance agent, or bank) acting as an escrow agent. The escrow agent may only deliver the waiver and release after the waiving party has confirmed receipt of payment in good and sufficient funds.
Bonding Off a Lien (53.172)
Currently, if a lien exceeds $40,000, a bond to indemnify against lien must be in an amount 1.5 times the amount of the lien or the sum of $40,000 plus the amount of the lien, whichever is greater. Under the proposed bill, the threshold, as well as the amount to be added to the lien, would both be increased to $60,000. For liens that do not meet the threshold, a bond would still be twice the amount of the liens.
As much fun as it has been learning about these proposed changes to Texas lien law, I’d be happy to not hear the word “Texas” again for a while. However, considering the implications of removing all the current retainage provisions from Texas lien law without any apparent substitute, we may find ourselves talking about these proposed changes sooner than later.
We regularly put out content regarding Texas lien law, so head over to the Texas tag on the blog for more on the Lone Star State.