Effectively Increase Collections With Statutory and Constitutional M & M Liens
This article discusses mechanic’s and materialmen’s liens “M & M liens” and adds practical comments to help you increase profits through more effective collection of accounts.
All M & M lien situations are not the same
The laws governing M & M liens in Texas are complex. For instance, the law relating to an original contractor who deals directly with the property owner is different from the law relating to subcontractors. Also, the law relating to homestead is different than the law related to business properties. Since a full discussion of M & M lien law is beyond the scope of this article, we will only focus on the law as it pertains to original contractors who work primarily with businesses.
People who are entitled to an M & M lien
The Texas Property Code and the Texas constitution both provide that a person who furnishes material or labor for construction or repair of a house, a commercial building, or certain other structures is entitled to an M & M lien on the property to secure payment for the material or services provided. People who specially fabricate material and those who provide, pursuant to a written contract, architectural, engineering and landscaping services are also entitled to a lien if they are not paid.
Statutory and constitutional liens The lien authorized by the Property Code is called a statutory lien and the lien created by the Texas constitution is called a constitutional lien. The statutory lien is governed by rules, which if not followed, will not create a valid lien on the property. The constitutional lien, on the other hand is automatically created at the time of completion of the work.
Constitutional lien limitations
The constitutional lien can be claimed only by the original contractor who contracts with the owner of the property being constructed or repaired. It is never available to a subcontractor. In addition, it only extends to work performed on an “article” or a “building”. What constitutes an article or a building can sometimes be confusing. For instance, floor covering used in construction of a house is covered but appliances such as refrigerators or ranges installed in an apartment are not. Cleaning and repairing carpet is covered but clearing brush or laying sewer lines is not.
Time limits for statutory liens
The statutory lien requires a claimant to file a lien affidavit in the real property records of the county in which the property is located in a timely manner. Liens on residential properties, must be filed no later than the 15th day of the third calendar month after the date on which the indebtedness accrues. For non-residential projects, including apartment complexes, the claimant must file the lien affidavit no later than the 15th day of the fourth calendar month after the date on which the indebtedness accrues. For example: work performed in January, the lien must be filed by May 15; work performed in February, the lien must be filed by June 15
No time limits for constitutional liens
You may file a constitutional lien even if the time for filing a statutory lien has expired. Because a constitutional lien is automatic, compliance with statutory filing and notice is not required. However, as a practical matter, filing and giving notice is essential because it encourages the owner to pay the debt and it puts a potential buyer of the property on notice so the lien will be enforceable against the new owner if the property is later sold. Although the constitutional lien is appealing, particularly if the time for filing a statutory lien has passed, it is usually best to file both a constitutional and a statutory lien if at all possible.
Contents of lien affidavit
The lien affidavit must state the name and address of the claimant, the name and address of the owner, a description of the material furnished or labor performed, the correct legal description of the property, the amount being claimed, and the months in which the work was performed. It must be signed before a notary by the person claiming the lien or the authorized representative of the company claiming the lien. The claimant then must send a copy of the affidavit to the owner by certified or registered mail no later than the 5th day after the filing.
Steps to create a valid and enforceable lien
- Get the legal description of the property and determine who owns it. Do not rely on tax records because they are frequently unreliable. To be sure you have correct information, get a title report from a title company.
- Do some research to identify anyone who might have an interest in the property. The goal at this point is to get someone’s attention. Find someone who will be concerned if a lien is filed on the property. That’s the person who can help you get paid.
- Send a written demand letter to the debtor. The demand should be sent to the owner with a copy to the management company if the property is managed by someone other than the owner and to anyone else you have identified as having an interest in the property. Include a statement that if payment is not received by a certain date, you will file a lien against the property. Consider including a copy of the lien affidavit with the demand letter.
- Prepare and file a statutory and/or constitutional lien affidavit. If filing a statutory lien, make sure the time for filing has not passed.
- Immediately send copies of the lien affidavit to all interested parties. Sending one copy by certified mail and one copy by regular mail to each person might get the debtor’s attention faster than if you mail only one copy.
- Be prepared to negotiate. If the owner is having cash flow problems, you may want to consider accepting installment payments, waiving interest or accepting somewhat less than the full amount if payment will be immediate.
- Once payment has been received, prepare a release of lien and send it to the owner for filing.
- Collection of accounts can be challenging, particularly in a down economy. Persistence is key, and your knowledge of the proper use of both statutory and constitutional M & M liens is a great tool for effective collection of accounts and increased profitability.