Liens Flashcards
Vendor’s Lien
A lien in favor of a seller of real property to secure payment of the unpaid portion of the purchase price of the property
The usual practice in Tx is to expressly reserve a vendor’s lien in the deed to the purchaser so that when the deed is recorded, third parties will have notice of the lien
The effect of the vendor’s lien is to reserve “superior title” to the property in the seller until such a time as the remainder of the purchase price is paid
*IRS Fed Tax Liens
Fed tax liens have priority over other liens on a taxpayer’s property only if the IRS lien was recorded first
In the non-judicial foreclosure proceeding of a lien w/ priority to the IRS lien, the Sec. of Treasury may redeem the property w/in 120 days from the date of sale
Vendor’s Lien is Fully Assignable
A vendor’s lien is fully assignable in Tx. Therefore, whenever a purchaser obtains a conventional loan from a person or entity other than the seller, the deed will often transfer and assign the vendor’s lien to the 3P lender to further secure the obligation to it
Vendor’s lien is in addition to, not in place of, deed of trust lien
Vendor’s Lien Implied by Operation of Law
A vendor’s lien is implied by operation of law where it is not reserved in the deed but the purchase price is not fully paid at the time of closing
However, there is no retention of “superior title” to the seller if the lien is not expressly reserved
Constitutional Mechanics’ Liens
Art. XVI, Sec. 37 of Tx Const. created broad, non-statutory lien protection for mechanics, artisans, and materialmen who have a direct contractual relationship w/ the owner of the property being improved or repaired
For a claimant who has provided services or materials to be entitled to a constitutional lien, Tx courts generally have required the following:
For a claimant who has provided services or materials to be entitled to a constitutional lien, Tx courts generally have required the following:
(i) Debtor owns the building or article;
(ii) Materialman was in privity of K w/ the debtor;
(iii) Materialman made or repaired the building or article by:
a. supplying goods & constructing all or part of it
b. supplying goods & repairing it
c. supplying unique goods manufactured in accordance w/ the debtor’s specifications, or
d. furnishing off-the-shelf general inventory goods w/ the intent that they be incorporated into it;
(iv) Materialman actually supplied those goods to the debtor; and
(v) Good were incorporated into the building or article
Constitutional provision relating to liens is self-executing and automatic and exists independently and apart from any legislative act. This automatic protection obviates any need for the claimant in privity w/ the owner to comply w/ any statutory notice or filing requirements relating to the lien
The constitutional lien is ineffective against subsequent bona fide good faith purchasers for value w/o notice. It is superior to a prior recorded deed of trust lien on the improvements and materials for which the mechanic’s lien exists if the materials supplied can be removed w/o material injury to the property or materials
Neither a constitutional nor a statutory mechanic’s lien may be enforced against a HOMESTEAD unless a written K for the work and materials to be supplied is signed by all owners prior to the work commencing
*Statutory Mechanics’ Liens
Contractors, subcontractors, craftsmen, artisans, and suppliers of materials for use in construction of improvements on real property may obtain security for credit extended by perfecting liens that are provided by statute in Tx (MMLs)
The statutory schemes for creation and perfection of these types of liens must be followed strictly. Additionally, if the liens are on property claimed as a homestead, the rules of compliance are even more complex.
When is a perfected MML effective?
A perfected MML is effective as of the date when visible construction or delivery of materials begins. This relation-back provision fixes the protections and obligations of the lien statutes in general as having arisen on the inception date and takes priority over any subsequent transfer of interest by the owner
Perfecting MML: Need Affidavit of MML + Notice (see below)
A person claiming a statutory MML must file a signed affidavit w/ the clerk of the county in which the property is located no later than the 15th day of the fourth calendar month (or third calendar month for residential projects) after the day on which the indebtedness accrues
Determining when the indebtedness accrues depends on the type of claimant and type of material furnished
A copy of the affidavit must be sent by contractor no later than 5 business days after the date the affidavit is filed w/ the county clerk
Affidavit must contain:
(i) sworn statement of the amount of claim
(ii) the names and addresses of the owner, original contractor, claimant, and claimant’s employer
(iii) a general statement of the kind of work done and materials furnished
(iv) a legal description of the property sought to be charged w/ the lien
(v) if the claimant is not the original contractor, the affidavit must also identify each month in which the work was done and materials were furnished
(vi) the date and method by which each notice of the claim was sent to the owner
*Notice of Claim for MML
A derivative claimant (i.e., a subcontractor) must then give the notice prescribed by statute for the lien to be valid.
Generally, notice must be given no later than the 15th day of the second and third months following each month in which all or part of the claimant’s labor was performed or material was delivered
For RESIDENTIAL projects, however, the second notice is not required
*Source of Funds for MML
(1) Fund Trapping
(2) Statutory Retainage
*Fund trapping
Fund trapping allows a subcontractor to trap, in the owner’s hands, funds payable to the general contractor if the owner receives notice from the subcontractor that it is not being paid. Unless payment of the claim is made on demand or the claim is otherwise settled, discharged, or determined to be invalid, the owner must retain the withheld funds until:
a. the time for the filing of the affidavit of MML has passed, or
b. if a lien affidavit has been filed, until the lien claim has been satisfied or released
If the owner never pays any money to the original contractor after receiving notice from the subcontractor, the owner’s property is subject to a lien to the extent of the money paid.
A subcontractor may make written demand for payment out of trapped funds. The subcontractor must send a copy of the demand to the original contractor, who has 30 days to provide the owner w/ written notice that it intends to dispute the claim. If the original contractor does not give the owner timely notice, it is considered to have assented to the demand, and the owner must pay the claim
*Statutory Retainage
Regardless of notice of a claim, the owner of property must retain during the progress of the work and for 30 days after the work is completed either:
(i) 10% of K price of the work to the owner, or
(ii) 10% of the value of the work, measured by the proportion of work done to the work to be done, using the K price or, if none, the reasonable value of the completed work
The owner’s failure to hold back the statutory retainage may result in lien exposure at least to the extent of the amount that should have been retained
*Preferences and Priorities of MML
All subcontractors, laborers, and materialmen who have a MML have preference over other creditors of the original contractor. This is b/c the materialman has contributed to the improvement and additional value of the real property.
Generally, perfected MMLs are on equal footing w/o reference to the date of filing the affidavit of lien. Thus, if proceeds of a foreclosure sale are insufficient to discharge all MMLs against the property, the proceeds are paid pro rata.
Exceptions = w/ respect to other MMLs, the priority of a lien claimed by an architect, engineer, surveyor, landscaper, or one who provides demolition services is determined by the date the affidavit is recorded
Foreclosure of MML
A MML may be foreclosed on on j/m of a court
District courts have exclusive jurisdiction over suits to enforce and foreclose MML
For non-residential construction, a suit to foreclose a MML must be filed w/in 2 years after filing the lien affidavit or w/in a year of completion, termination, or abandonment of the work under the original K, whichever is later
However, when there is direct privity of K b/w the owner and contractor, a suit for debt can still be filed w/o consideration of any claim under a lien
Construction Payments as Trust Funds
Under the statute, payments made to a contractor or subcontractor under a construction K for the improvement of real property are “trust funds.”
No proof of creation of a trust is necessary. The funds are held by the recipients for the benefit of the contractor or subcontractor w/o regard to whether it has complied w/ the procedural requirements for creating and perfecting MMLs
