An Original Contractor’s Introduction to Texas Lien Laws and
Residential Construction Contract Requirements
by Ken East In theory, contractors and material suppliers should always get paid for labor provided or materials
furnished for projects that improve real property because, in theory, they have the right to attach, and even foreclose upon, liens against the real property being improved. Texas lien laws, however, are highly technical. In order for even an original contractor to enforce its lien rights against a property owner, very specific steps must be followed. Subcontractors and material suppliers who do not contract directly with the property owner have
even more hoops to jump through before they can successfully enforce their lien rights in the event the general contractor fails to pay and, to some extent, are dependent on the original contractor taking certain necessary measures to protect everyone; this paper does not address those additional requirements. Extra care and additional steps must also be taken if the project improves residential property. Please note that it is far beyond the scope of this paper to provide all the information and forms necessary to guide an original contractor through the entire lien process. Failure to follow the law may result in the contractor being liable to the property owner for damages and may additionally constitute a violation of the Deceptive Practices-Consumer Protection Act (the “DTPA”). This paper, rather, is designed merely to acquaint the reader with some of the terms and concepts involved in the process. Some of the definitions relevant to mechanic’s lien law contained in the Texas Property Code are
as follows: "Original contractor" means a person contracting with an owner either directly or through the
owner's agent. "Residence" means a single-family house, duplex, triplex, or quadruplex or a unit in a multiunit
structure used for residential purposes that is: (A) owned by one or more adult persons; and (B) used or intended to be used as a dwelling by one of the owners.
"Residential construction contract" means a contract between an owner and a contractor in which
the contractor agrees to construct or repair the owner's residence, including improvements appurtenant to the residence. "Residential construction project" means a project for the construction or repair of a new or existing residence, including improvements appurtenant to the residence, as provided by a residential construction contract. "Retainage" means an amount representing part of a contract payment that is not required to be paid to the claimant within the month following the month in which labor is performed, material is furnished, or specially fabricated material is delivered. The term does not include retainage under Subchapter E. "Subcontractor" means a person who has furnished labor or materials to fulfill an obligation to an original contractor or to a subcontractor to perform all or part of the work required by an original contract. "Work" means any part of construction or repair performed under an original contract. "Completion" of an original contract means the actual completion of the work, including any extras
or change orders reasonably required or contemplated under the original contract, other than warranty work or replacement or repair of the work performed under the contract. See Tex. Prop. Code § 53.001. An original must make several disclosures to property owners prior to entering into a contract.
Required Disclosure Statement The Property Code provides: (a) Before a residential construction contract is executed by the owner, the original contractor shall deliver to the owner a disclosure statement described by this section. (b) The disclosure statement must read substantially similar to [that included at the end of this paper as Exhibit “A”].
Tex. Prop. Code § 53.255. Additional Disclosures Required for Home Improvement Projects The following language must be incorporated into an original contractor’s home improvement contract in at least 10-point bold type: "IMPORTANT NOTICE: You and your contractor are responsible for meeting the terms and conditions of this contract. If you sign this contract and you fail to meet the terms and conditions of this contract, you may lose your legal ownership rights in your home. KNOW YOUR RIGHTS AND DUTIES UNDER THE LAW."
Tex. Prop. Code § 41.07. Failure to comply with this provision constitutes a violation of the Texas Deceptive Trade Practices-Consumer Protection Act. Right to Rescind The Texas Business & Commerce provides consumers of household services a three-day right to rescind and requires that notice and a form be supplied. Failure to supply these right to rescind items constitutes a DTPA violation. (a) A merchant must provide a consumer with a complete receipt or copy of any contract pertaining to the consumer transaction at the time of its execution. (b) The document provided under Subsection (a) must: (1) be in the same language as that principally used in the oral sales presentation;
(2) show the date of the transaction;
(3) contain the name and address of the merchant; and
(4) contain in immediate proximity to the space reserved in the contract for the signature of the consumer, or on the front page of the receipt if a contract is not used, a statement in bold-faced type of a minimum size of 10 points in substantially the following form: YOU, THE BUYER, MAY CANCEL THIS TRANSACTION AT ANY TIME PRIOR TO MIDNIGHT OF THE THIRD BUSINESS DAY AFTER THE DATE OF THIS TRANSACTION. SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANATION OF THIS RIGHT. (c) The merchant must attach to the document provided under Subsection (a) a completed notice of cancellation form in duplicate. The form must: (1) be easily detachable;
(2) be in the same language as the document provided under Subsection (a); and
(3) contain the following information and statements in 10-point bold-facedtype: The requird Notice of Cancellation can be found in Exhibit “B” at the end of this paper. Tex. Bus. & Comm. Code § 39.004. Residential Construction Liability Act Notice Contractors are required by the Residential Construction Liability Act (Ch. 27 of the Property
Code) to provide the following notice. Failure to do so gives the customer a right to recover $500 from the contractor. A written contract subject to this chapter must contain next to the signature lines in the contract a
notice printed or typed in 10-point boldface type or the computer equivalent that reads substantially similar to the following: This contract is subject to Chapter 27 of the Texas Property Code. The provisions of that chapter may affect your right to recover damages arising from the performance of this contract. If you have a complaint concerning a construction defect arising from the performance of this contract and that defect has not been corrected through normal warranty service, you must provide the notice required by Chapter 27 of the Texas Property Code to the contractor by certified mail, return receipt requested, not later than the 60th day before the date you file suit to recover damages in a court of law or initiate arbitration. The notice must refer to Chapter 27 of the Texas Property Code and must describe the construction defect. If requested by the contractor, you must provide the contractor an opportunity to inspect and cure the defect as provided by Section 27.004 of the Texas Property Code. Tex. Prop. Code § 27.007. List of Subs The Property Code provides that the original contractor must either supply a list of its subcontractors and suppliers or have the customer sign a waiver of this requirement. (a) Except as provided by Subsection (d), for the construction of improvements under a residential construction contract, the original contractor shall: (1) furnish to the owner before the commencement of construction a written list that identifies by name, address, and telephone number each subcontractor and supplier the contractor intends to use in the work to be performed; and (2) provide the owner with an updated list of subcontractors and suppliers not later than the 15th day after the date a subcontractor or supplier is added or deleted.
(b) The list must contain the following notice conspicuously printed, stamped, or typed in a size equal to at least 10-point boldface or the computer equivalent: "NOTICE: THIS LIST OF SUBCONTRACTORS AND SUPPLIERS MAY NOT BE A FINAL LISTING. UNLESS YOU SIGN A WAIVER OF YOUR RIGHT TO RECEIVE UPDATED INFORMATION, THE CONTRACTOR IS REQUIRED BY LAW TO SUPPLY UPDATED INFORMATION, AS THE INFORMATION BECOMES AVAILABLE, FOR EACH SUBCONTRACTOR OR SUPPLIER USED IN THE WORK PERFORMED ON YOUR RESIDENCE." (c) An owner may waive the right to receive the list of subcontractors and suppliers or any updated information required by this section only as provided by this subsection. The waiver must be in writing and may be included in the residential construction contract. If the waiver is not included as a provision of the residential construction contract, the separate waiver statement must be signed by the owner. The waiver must be conspicuously printed in at least 10-point bold-faced type and read substantially similar to the following: "WAIVER OF THE LIST OF SUBCONTRACTORS AND SUPPLIERS. AN OWNER IS NOT REQUIRED TO WAIVE THE RIGHT GRANTED BY SECTION 53.256, PROPERTY CODE, TO RECEIVE FROM THE CONTRACTOR AN ORIGINAL OR UPDATED LIST OF SUBCONTRACTORS AND SUPPLIERS. "BY SIGNING THIS DOCUMENT, I AGREE TO WAIVE MY RIGHT TO RECEIVE FROM THE CONTRACTOR AN ORIGINAL OR UPDATED LIST OF SUBCONTRACTORS AND SUPPLIERS. "I UNDERSTAND AND ACKNOWLEDGE THAT, AFTER SIGNING THIS DOCUMENT, THIS WAIVER MAY NOT BE CANCELED AT A LATER DATE. "I HAVE VOLUNTARILY CONSENTED TO THIS WAIVER."
Tex. Prop. Code § 53.256. The Property Code also requires the original contractor to provide a disbursement statement upon
request of payment, section 53.258, and a “bills-paid” affidavit as a condition of final payment, section 53.259. Providing this information incorrectly carries the potential for substantial penalties against the contractor. Enforcing lien rights To perfect a lien against a residential property, generally, the following procedures should be followed: “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.” Tex. Prop. Code § 53.052. “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.
Tex. Prop. Code § 53.053. Additional requirements for homestead properties (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."
Tex. Prop. Code § 53.254. Contents of Affidavit (a) The affidavit must be signed by the person claiming the lien or by another person on the claimant's behalf and must contain substantially: (1) a sworn statement of the amount of the claim; (2) the name and last known address of the owner or reputed owner; (3) a general statement of the kind of work done and materials furnished by the claimant and, for a claimant other than an original contractor, a statement of each month in which the work was done and materials furnished for which payment is requested; (4) the name and last known address of the person by whom the claimant was employed or to whom the claimant furnished the materials or labor; (5) the name and last known address of the original contractor; (6) a description, legally sufficient for identification, of the property sought to be charged with the lien; and (7) the claimant's name, mailing address, and, if different, physical address; (b) The claimant may attach to the affidavit a copy of any applicable written agreement or contract and a copy of each notice sent to the owner. (c) The affidavit is not required to set forth individual items of work done or material furnished or specially fabricated. The affidavit may use any abbreviations or symbols customary in the trade.
Tex. Prop. Code § 53.054. Notice of Filed Affidavit 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. Tex. Prop. Code § 53.055. Conclusion The mechanic’s lien process is complex and filled with pitfalls, and this paper certainly does not
answer all the questions a contractor or property owner may have. If you need further information, please feel free to contact us. Exhibit “A” "KNOW YOUR RIGHTS AND RESPONSIBILITIES UNDER THE LAW. You are about to enter into a transaction to build a new home or remodel existing residential property. Texas law requires your contractor to provide you with this brief overview of some of your rights, responsibilities, and risks in this transaction. "CONVEYANCE TO CONTRACTOR NOT REQUIRED. Your contractor may not require you to convey your real property to your contractor as a condition to the agreement for the construction of improvements on your property. "KNOW YOUR CONTRACTOR. Before you enter into your agreement for the construction of improvements to your real property, make sure that you have investigated your contractor. Obtain and verify references from other people who have used the contractor for the type and size of construction project on your property. "GET IT IN WRITING. Make sure that you have a written agreement with your contractor that includes: (1) a description of the work the contractor is to perform; (2) the required or estimated time for completion of the work; (3) the cost of the work or how the cost will be determined; and (4) the procedure and method of payment, including provisions for statutory retainage and conditions for final payment. If your contractor made a promise, warranty, or representation to you concerning the work the contractor is to perform, make sure that promise, warranty, or representation is specified in the written agreement. An oral promise that is not included in the written agreement may not be enforceable under Texas law. "READ BEFORE YOU SIGN. Do not sign any document before you have read and understood it. NEVER SIGN A DOCUMENT THAT INCLUDES AN UNTRUE STATEMENT. Take your time in reviewing documents. If you borrow money from a lender to pay for the improvements, you are entitled to have the loan closing documents furnished to you for review at least one business day before the closing. Do not waive this requirement unless a bona fide emergency or another good cause exists, and make sure you understand the documents before you sign them. If you fail to comply with the terms of the documents, you could lose your property. You are entitled to have your own attorney review any documents. If you have any question about the meaning of a document, consult an attorney. "GET A LIST OF SUBCONTRACTORS AND SUPPLIERS. Before construction commences, your contractor is required to provide you with a list of the subcontractors and suppliers the contractor intends to use on your project. Your contractor is required to supply updated information on any subcontractors and suppliers added after the list is provided. Your contractor is not required to supply this information if you sign a written waiver of your rights to receive this information. "MONITOR THE WORK. Lenders and governmental authorities may inspect the work in progress from time to time for their own purposes. These inspections are not intended as quality control inspections. Quality control is a matter for you and your contractor. To ensure that your home is being constructed in accordance with your wishes and specifications, you should inspect the work yourself or have your own independent inspector review the work in progress. "MONITOR PAYMENTS. If you use a lender, your lender is required to provide you with a periodic statement showing the money disbursed by the lender from the proceeds of your loan. Each time your contractor requests payment from you or your lender for work performed, your contractor is also required to furnish you with a disbursement statement that lists the name and address of each subcontractor or supplier that the contractor intends to pay from the requested funds. Review these statements and make sure that the money is being properly disbursed. "CLAIMS BY SUBCONTRACTORS AND SUPPLIERS. Under Texas law, if a subcontractor or supplier who furnishes labor or materials for the construction of improvements on your property is not paid, you may become liable and your property may be subject to a lien for the unpaid amount, even if you have not contracted directly with the subcontractor or supplier. To avoid liability, you should take the following actions: (1) If you receive a written notice from a subcontractor or supplier, you should withhold payment from your contractor for the amount of the claim stated in the notice until the dispute between your contractor and the subcontractor or supplier is resolved. If your lender is disbursing money directly to your contractor, you should immediately provide a copy of the notice to your lender and instruct the lender to withhold payment in the amount of the claim stated in the notice. If you continue to pay the contractor after receiving the written notice without withholding the amount of the claim, you may be liable and your property may be subject to a lien for the amount you failed to withhold. (2) During construction and for 30 days after final completion, termination, or abandonment of the contract by the contractor, you should withhold or cause your lender to withhold 10 percent of the amount of payments made for the work performed by your contractor. This is sometimes referred to as 'statutory retainage.' If you choose not to withhold the 10 percent for at least 30 days after final completion, termination, or abandonment of the contract by the contractor and if a valid claim is timely made by a claimant and your contractor fails to pay the claim, you may be personally liable and your property may be subject to a lien up to the amount that you failed to withhold.
"If a claim is not paid within a certain time period, the claimant is required to file a mechanic's lien affidavit in the real property records in the county where the property is located. A mechanic's lien affidavit is not a lien on your property, but the filing of the affidavit could result in a court imposing a lien on your property if the claimant is successful in litigation to enforce the lien claim. "SOME CLAIMS MAY NOT BE VALID. When you receive a written notice of a claim or when a mechanic's lien affidavit is filed on your property, you should know your legal rights and responsibilities regarding the claim. Not all claims are valid. A notice of a claim by a subcontractor or supplier is required to be sent, and the mechanic's lien affidavit is required to be filed, within strict time periods. The notice and the affidavit must contain certain information. All claimants may not fully comply with the legal requirements to collect on a claim. If you have paid the contractor in full before receiving a notice of a claim and have fully complied with the law regarding statutory retainage, you may not be liable for that claim. Accordingly, you should consult your attorney when you receive a written notice of a claim to determine the true extent of your liability or potential liability for that claim. "OBTAIN A LIEN RELEASE AND A BILLS-PAID AFFIDAVIT. When you receive a notice of claim, do not release withheld funds without obtaining a signed and notarized release of lien and claim from the claimant. You can also reduce the risk of having a claim filed by a subcontractor or supplier by requiring as a condition of each payment made by you or your lender that your contractor furnish you with an affidavit stating that all bills have been paid. Under Texas law, on final completion of the work and before final payment, the contractor is required to furnish you with an affidavit stating that all bills have been paid. If the contractor discloses any unpaid bill in the affidavit, you should withhold payment in the amount of the unpaid bill until you receive a waiver of lien or release from that subcontractor or supplier. "OBTAIN TITLE INSURANCE PROTECTION. You may be able to obtain a title insurance policy to insure that the title to your property and the existing improvements on your property are free from liens claimed by subcontractors and suppliers. If your policy is issued before the improvements are completed and covers the value of the improvements to be completed, you should obtain, on the completion of the improvements and as a condition of your final payment, a 'completion of improvements' policy endorsement. This endorsement will protect your property from liens claimed by subcontractors and suppliers that may arise from the date the original title policy is issued to the date of the endorsement."
Exhibit “B”
NOTICE OF CANCELLATION Date of transaction:__________________________________ YOU MAY CANCEL THIS TRANSACTION, WITHOUT ANY PENALTY OR OBLIGATION, WITHIN THREE BUSINESS DAYS FROM THE ABOVE DATE. IF YOU CANCEL, ANY PROPERTY TRADED IN, ANY PAYMENTS MADE BY YOU UNDER THE CONTRACT OR SALE, AND ANY NEGOTIABLE INSTRUMENT EXECUTED BY YOU WILL BE RETURNED WITHIN 10 BUSINESS DAYS FOLLOWING RECEIPT BY THE MERCHANT OF YOUR CANCELLATION NOTICE, AND ANY SECURITY INTEREST ARISING OUT OF THE TRANSACTION WILL BE CANCELLED. IF YOU CANCEL, YOU MUST MAKE AVAILABLE TO THE MERCHANT AT YOUR RESIDENCE, IN SUBSTANTIALLY AS GOOD CONDITION AS WHEN RECEIVED, ANY GOODS DELIVERED TO YOU UNDER THIS CONTRACT OR SALE; OR YOU MAY IF YOU WISH, COMPLY WITH THE INSTRUCTIONS OF THE MERCHANT REGARDING THE RETURN SHIPMENT OF THE GOODS AT THE MERCHANT'S EXPENSE AND RISK. IF YOU DO NOT AGREE TO RETURN THE GOODS TO THE MERCHANT OR IF THE MERCHANT DOES NOT PICK THEM UP WITHIN 20 DAYS OF THE DATE OF YOUR NOTICE OF CANCELLATION, YOU MAY RETAIN OR DISPOSE OF THE GOODS WITHOUT ANY FURTHER OBLIGATION. TO CANCEL THIS TRANSACTION, MAIL OR DELIVER A SIGNED AND DATED COPY OF THIS CANCELLATION NOTICE OR ANY OTHER WRITTEN NOTICE, OR SEND A TELEGRAM, TO (name of merchant), AT (address of merchant's place of business) NOT LATER THAN MIDNIGHT OF (date). I HEREBY CANCEL THIS TRANSACTION. Date:________________________
__________________________________________________
Customer’s Signature | 
