TEXAS

Tuesday, June 17, 2008

Texas offers different liens for different types of jobs -- private, state and local government and federal, or Miller Act.

To perfect an original contractor's statutory lien on a private job, the contractor must file an affidavit claiming a lien no later than the 15th day of the 4th month following the month in which the original contract was materially breached or terminated, completed, finally settled or abandoned. The affidavit must contain a sworn statement of the claim, a legally sufficient description of the real property, a description of the work performed by the claimant, the amount due, the name and address of the reputed owner and the name and address of the claimant. The affidavit must be filed within the required time period with the county clerk in the county in which the property is located. The original contractor must send a copy of the lien affidavit to the owner at his last know business or residential address no later than the deadline for filing the affidavit or the 10th day following the filing of the affidavit, whichever is earlier.

There are two types of statutory liens for subcontractors.

The first is fund trapping: A claimant can obtain a lien on the property and subject the property owner to personal liability to the extent that the owner has received the requisite statutory notice and fails to withhold any further payments from the contractor in an amount sufficient to cover the stated claim. In other words, when an owner receives the required "fund-trapping" notice, any unpaid contract funds (up to the amount of the claim as stated in the notice) are "trapped" in the hands of the owner. The claimant has a lien on the real property and a claim against the owner personally for the funds that were "trapped" by the notice letter. There is a significant problem with this method, however. If the owner has already paid all of the contract funds by the time it receives the "fund-trapping" notice letter, there may be no contract funds trapped. In that case, the claimant does not have a valid lien on the property.

The other method is statutory retainage: To ensure that at least some contract funds will be available to satisfy claims arising toward the completion of construction, the property code requires ]an owner to retain 10 percent of the contract amount (or value of the work then completed) during the course of construction and for 30 days following final completion. The statutory obligation to retain contract funds is commonly known as "statutory retainage." This required retainage creates a fund for the benefit of claimants who have filed lien affidavits within 30 days after the completion of the original contract and who have sent the required notices. If an owner fails to retain sufficient funds as required by the code, the owner will be personally liable and his property subject to a lien to the extent of the funds that should have been retained.

The requirements for a subcontractor's lien (that is a subcontractor or supplier who has a director contract with the original contractor) are the same as those for an original contractor's statutory lien, except for the requirement of one additional notice to the owner. The second-tier contractor is required to furnish the owner with a written notice of its claim. The notice letter must be sent to the owner no later than the 15th day of the third month following each month during which the claimant performed work for which payment is sought. For the subcontractor's lien to "trap any contract funds," the letter must contain a specific statutory warning which advises the owner that he will be personally liable and his property will be subject to a lien if he fails to withhold sufficient contract funds to pay your claim. The letter must also be sent to the original contractor by actual delivery or certified mail.

Requirements for a third-tier subcontractor are the same as for a second-tier subcontractor, except that the third-tier subcontractor must also send a letter of notice to the original contractor. Because the third-tier subcontractor does not, by definition, have any direct contractual relationship with the original contractor, the property code requires third-tier subcontractors to send an early notice to the original contractor so that it can minimize its exposure to double payments to its subcontractors. The notice letter must be sent to the original contractor no later than the 15th day of the second month after each month in which the work was performed or materials were delivered. As with the notice letter to the owner, the letter to the original contractor must set out the amount of the claim and must be sent by actual delivery or mailed by certified mail.

One last type of lien on private projects is the bond claim. If the property owner required the original contractor to furnish a statutory payment bond, a subcontractor claimant may be denied the opportunity to secure a lien on the owner's real property; however, the claimant will have a claim against a surety on the bond. As long as the statutory requirements are met for perfecting the bond claim, a claimant's valid claim should be paid by the surety. The best way for perfecting a bond claim is to satisfy the requirements for a lien claim. The lien, if properly perfected, will be treated automatically as a valid claim against the bond. Claimants should elect to perfect the claim as if a lien was being sought because, if the bond is defective in some way, the claimant will be able to fall back on its lien claim. The alternate method for perfecting the claim against a payment bond is to furnish the surety with the same notices that were required to be sent to the owner for a lien claim. In other words, the claimant must send a written notice to the surety giving it fair notice of the amount and nature of the claim asserted no later than the 15th day of the third month following the month in which the work was performed (or material delivered). The claimant must also send the required notices to the original contractor.

Only subcontractors may file claims under state and local public works because a bond from the prime contractor is required on those jobs and he does not have a claim against his own bond.

To perfect a claim against a government code payment bond, the subcontractor who contracts directly with the prime contractor must send a notice to the prime contractor and the surety. The notice must be sent by certified or registered mail no later than the 15th day of the third month following each month in which labor was performed or materials were furnished for which payment has not been made. The notice must include a sworn statement of account which provides the following information:

A. The sworn statement must state that the "amount claimed is just and correct and that all just and lawful offsets, payments and credits known to the affiant have been allowed" and should state the amount of any retainage withheld but not yet due.

B. If no written contract exists, the notice must identify the party who employed the claimant, the date of the performance of labor or delivery of materials, a description of the labor or materials and prices, or a similar itemization of the claim; it should also include, if possible, copies of invoices, delivery tickets or orders showing a reasonable identification of the project and destination of delivery.

C. If a written contract exists, the claimant may attach to the sworn statement of account, as its notice, a copy of the contract advising of the completion of the same or the value of partial completion; if a written unit price agreement exists, a claimant may attach to the sworn statement a list of units and unit prices and a statement of the units completed or partially completed.

D. If the claim is for multiple items of labor or materials to be paid for on a lump sum basis, the notice must identify the party who employed the claimant or to whom the materials were delivered, the amount of the contract and whether it was written or oral, the amount claimed, the approximate date or dates of performance or delivery and a description of the labor or materials.

As with the notice to owner required on a private works project, the notice to surety must be sent as to each month in which the claimant furnished labor or materials for which payment is sought.

Subcontractors or suppliers who do not have a direct contractual relationship with the prime contractor perfect their claims I the same manner as direct subcontractors except that they have an additional notice requirement. Derivative subcontractors must send a notice of the unpaid amount to the prime contractor no later than the 15th day of the second month after each month in which labor was performed or materials were provided for which payment is sought. Like the second month notice to original contractor for private works, this second months notice to prime contractor must be sent for each month in which there is unpaid labor or materials. In other words, the notice can only cover work performed or materials supplied within the prior two months.

Texas courts require strict compliance with the notice deadlines. A notice give one day late will not suffice. Although notices can be hand delivered, they should also be mailed by registered or certified mail, return receipt requested. Proof should be retained which reflect when the notices were deposited in the United States mail. All notices sent to the surety and the prime contractor should also be sent to the governmental entity by certified mail.

If there is no bond (or if the entity illegally fails to require a bond for a larger contract), the claimant may secure a lien on the contract funds remaining in the hands of the governmental entity. To obtain a lien on the contract funds, the claimant must send a written notice to the public official responsible for the project and the prime contractor by certified mail no later than the 15th day of the second month following each month in which the claimant provided unpaid labor or materials. The notice must state: the amount claimed, the name of the party to whom the materials were delivered or for whom the work was performed, the dates and places of delivery or performance, a reasonable description of the work, an identification of the project, a statement of the amount due and the claimant's business address.

There are three primary differences between the protection afforded by the Texas Government Code and the federal Miller Act: third-tier claimants are not protected by the bond, the Miller Act treats suppliers and subcontractors differently (suppliers are not covered), the Miller Act does not require bonds for prime contracts between $25,000 and $100,000.

A subcontractor who has a contract directly with the prime contractor is not required to notify the surety or the prime contractor of its claim, but a formal demand for payment should be made. However, a derivative subcontractor (one that does not have a direct contract with the prime) must notify the prime contractor within 90 days from the date on which the claimant last furnished labor or materials for which the claim is made. The derivative subcontractor's notice must state "with substantial accuracy" the amount claimed and the identity of the party with whom the claimant dealt. The notice should be sent by registered mail. If the claim is not paid within 90 days after the last date on which the claimant furnished labor or materials to the project, the claimant may institute suit in United States District Court against the surety for payment. There is only a brief, nine-month window in which suit may be brought against the surety. There is a one year statute of limitations. In other words, suit cannot be brought against the surety more than one year after the last date that the claimant furnished labor or materials to the project. Warranty or corrective work will not extend this time period.

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