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Protect Your Lien Rights in Texas

Lien rights grant legal authority for contractors, subcontractors and suppliers to file a mechanic's lien against the owner's property or, in the case of a government project, the right to make a bond claim. It is also a security to force payment. But statutory changes like with Texas' recent property code make it harder to protect those lien rights. In order to protect their lien rights, credit professionals must inform their customers of statutory changes immediately.

Why It Matters:

Many customers are not aware of the Texas statutory change and are reluctant in providing job information to credit professionals. The new statute does not only protect your lien rights, but also prevents project or payment delays. "Thanks to NACM, I used the new statute in the legal process in order to retrieve information from a customer who owed us half a million dollars in Texas," said Heidi Watkins, office manager of credit at Alecom Metal Works, Inc. (Euless, TX).

But it's important to differentiate which contracts apply to the new statute. Any general contract signed prior to Jan. 1, 2022 falls under the old statute and any general contract signed after Jan. 1, 2022 falls under the new statute. "People must understand which statute they are following to protect their lien rights," said Chris Ring of NACM's Secured Transaction Services. "Sharing this new statute will help them divulge the necessary information. You can also use it as a training tool for sales reps as they are often tasked with collecting this information."

Texas Property Code Change:
Section 53.159
Obligation to Furnish Information

As of Jan. 1 2022, a Texas statute went into effect that allows for request for contract and job information. The statute states that:

(a) an owner, on written request, shall furnish the following information within a reasonable time, but not later than the 10th day after the date the request is received, to any person furnishing labor or materials for the project:

(1) a description of the real property being improved legally sufficient to identify it;

(2) whether there is a surety bond and if so, the name and last known address of the surety and a copy of the bond;

(3) whether there are any prior recorded liens or security interests on the real property being improved and if so, the name and address of the person having the lien or security interest; and

(4) the date on which the original contract for the project was executed.

(b) An original contractor, on written request by a person who furnished work under the original contract, shall furnish to the person the following information within a reasonable time, but not later than the 10th day after the date the request is received:

(1) the name and last known address of the person to whom the original contractor furnished labor or materials for the construction project;

(2) whether the original contractor has furnished or has been furnished a payment bond for any of the work on the construction project and if so, the name and last known address of the surety and a copy of the bond; and

(3) the date on which the original contract for the project was executed.

(c) A subcontractor, on written request by an owner of the property being improved, the original contractor, a surety on a bond covering the original contract, or any person furnishing work under the subcontract, shall furnish to the person the following information within a reasonable time, but not later than the 10th day after the date the request is received:

(1) the name and last known address of each person from whom the subcontractor purchased labor or materials for the construction project, other than those materials that were furnished to the project from the subcontractor's inventory;

(2) the name and last known address of each person to whom the subcontractor furnished labor or materials for the construction project; and

(3) whether the subcontractor has furnished or has been furnished a payment bond for any of the work on the construction project and if so, the name and last known address of the surety and a copy of the bond.

(d) Not later than the 30th day after the date a written request is received from the owner, the contractor under whom a claim of lien or under whom a bond is made, or a surety on a bond on which a claim is made, a claimant for a lien or under a bond shall furnish to the requesting person a copy of any applicable written agreement, purchase order, or contract and any billing, statement, or payment request of the claimant reflecting the amount claimed and the work performed by the claimant for which the claim is made. If requested, the claimant shall provide the estimated amount due for each calendar month in which the claimant has performed labor or furnished materials.

(e) If a person from whom information is requested does not have a direct contractual relationship on the project with the person requesting the information, the person from whom information is requested, other than a claimant requested to furnish information under Subsection (d), may require payment of the actual costs, not to exceed $25, in furnishing the requested information.

(f) A person, other than a claimant requested to furnish information under Subsection (d), who fails to furnish information as required by this section is liable to the requesting person for that person's reasonable and necessary costs incurred in procuring the requested information.

-Jamilex Gotay, editorial associate

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Wednesday, 29 May 2024

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