Bulletin: TX2011004

Date:
August 09, 2011
To:
All Texas Issuing Offices
RE:
2011 Legislative changes to Mechanic's Lien Laws

Dear Associates:   

The Texas Legislature passed a number of bills that make substantial changes to mechanic’s lien law and practices.  Some of the bills passed as amendments to other bills and are so noted. 

HB 1456 deals with releases and waivers.  

The bill takes effect January 1, 2012, for all contracts entered after that date. 

Subcontractors were concerned that they were being required to sign lien waivers stating that they had been paid in full whether they were seeking partial or full payment for their labor or materials.  Of course, if they were seeking payment, they had not been fully paid and the affidavits were false.  This bill creates statutory forms for seeking payment.  The forms are not mandatory but any release or waiver must comply substantially with them. 

The statute provides forms for conditional and unconditional waivers/releases of such liens.   

Sec. 53.281.  WAIVER AND RELEASE OF LIEN OR PAYMENT BOND CLAIM

(a) Any waiver and release of a lien or payment bond claim under this chapter is unenforceable unless a waiver and release is executed and delivered in accordance with this subchapter. 

(b) A waiver and release is effective to release the owner, the owner's property, the contractor, and the surety on a payment bond from claims and liens only if: 

(1) the waiver and release substantially complies with one of the forms prescribed by Section 53.284; 

(2) the waiver and release is signed by the claimant or the claimant's authorized agent and notarized; and 

(3) in the case of a conditional release, evidence of payment to the claimant exists 

Comment: Copies of the statutory form of waiver and release are attached to this bulletin. 

Sec. 53.282.  CONDITIONS FOR WAIVER, RELEASE, OR IMPAIRMENT OF LIEN OR PAYMENT BOND CLAIM

(a) A statement purporting to waive, release, or otherwise adversely affect a lien or payment bond claim is not enforceable and does not create an estoppel or impairment of a lien or payment bond claim unless: 

(1) the statement is in writing and substantially complies with a form prescribed by Section 53.284; 

(2) the claimant has actually received payment in good and sufficient funds in full for the lien or payment bond claim; or 

(3) the statement is: 

(A) in a written original contract or subcontract for the construction, remodel, or repair of a single-family house, townhouse, or duplex or for land development related to a single-family house, townhouse, or duplex; and

(B) made before labor or materials are provided under the original contract or subcontract. 

Comment:  It is important to note here that the bill seeks mostly to impact commercial contracts and allows a waiver in a single family contract.  Note: the language does not use the customary 1-4 family designation. 

Sec. 53.283.  UNCONDITIONAL WAIVER AND RELEASE: PAYMENT REQUIRED.   

A person may not require a claimant or potential claimant to execute an unconditional waiver and release for a progress payment or final payment amount unless the claimant or potential claimant received payment in that amount in good and sufficient funds. 

NOTE: You may rely on the accuracy of the release document as long as it is fully completed and is executed by the proper parties and contains the notice provisions in at least 10 point type and you have no information that would lead to a conclusion that the document is false. 

HB 2525:  Extends MLAs to landscaping services

- Original Bill was too expansive 

- STG objected as did TLTA 

- Simply allows a written contract with the owner or the owner's agent, contractor, subcontractor, trustee, or receiver who has a lien on the property.  

- Amended to be acceptable. Attached to HB 1456 (see above) in Senate and was thus passed. 

What you should do:  Require a release of any recorded MLA for landscaping or yard services. 

HB 1390 deals with the time periods applicable to retainage

SECTION 1.  Section 53.053(e), Property Code, is amended to read as follows: 

(e) A claim for retainage accrues on the earliest of the last day of the month in which all work called for by the contract between the owner and the original contractor has been completed, finally settled, terminated, or abandoned. 

Comment:  The language here is awkward but means that the claim accrues on the last day of the month in which the work is done or terminated or abandoned or the parties agree as to the amount owed. 

The bill makes several changes to Section 53.057 Property Code: 

(a) A claimant may give notice under this section instead of or in addition to notice under Section 53.056 or 53.252 if the claimant is to labor, furnish labor or materials, or specially fabricate materials, or has labored, furnished labor or materials, or specially fabricated materials, under an agreement with an original contractor or a subcontractor providing for retainage  

(b) The claimant must give the owner or reputed owner notice of contractual retainage not later than the earlier of: 

(1) the 30th day after the date the claimant's agreement providing for retainage is completed, terminated, or abandoned; or 

(2) the 30th day after the date the original contract is terminated or abandoned  

Comment:  this section extends the time for providing the owner with notice of a claim for retainage from 15 to 30 days. 

(b-1)  If an agreement for contractual retainage is with a subcontractor, the claimant must also give the notice of contractual retainage to the original contractor within the period prescribed by Subsection (b). 

(c) The notice must generally state the existence of a requirement for retainage and contain: 

(1) the name and address of the claimant; and 

(2) if the agreement is with a subcontractor, the name and address of the subcontractor  

(d) The notice must be sent to the last known business or residence address of the owner or reputed owner or the original contractor, as applicable. 

Comment:  The section requires a subcontractor to a subcontractor to provide notice in the manner set out.   

(f) A claimant has a lien on, and the owner is personally liable to the claimant for, the retained funds under Subchapter E if the claimant: 

(1) gives notice in accordance with this section and: 

(A) complies with Subchapter E; or 

(B) files an affidavit claiming a lien not later than the earliest of:  

(i) the date required for filing an affidavit under Section 53.052; 

(ii) the 40th day after the date stated in an affidavit of completion as the date of completion of the work under the original contract, if the owner sent the claimant notice of an affidavit of completion in the time and manner required; 

(iii) the 40th day after the date of termination or abandonment of the original contract, if the owner sent the claimant a notice of such termination or abandonment in the time and manner required; or

(iv) the 30th day after the date the owner sent to the claimant to the claimant's address provided in the notice for contractual retainage, as required under Subsection (c), a written notice of demand for the claimant to file the affidavit claiming a lien; and

(2) gives the notice of the filed affidavit as required by Section 53.055. 

(g) The written demand under Subsection (f)(1)(B)(iv): 

(1) must contain the owner's name and address and a description, legally sufficient for identification, of the real property on which the improvement is located;

(2) must state that the claimant must file the lien affidavit not later than the 30th day after the date the demand is sent; and

(3) is effective only for the amount of contractual retainage earned by the claimant as of the day the demand was sent. 

Comment:  While this section is quite detailed, the main point to remember is that a claim for retainage may now be made at any time up to 40 days (increased from 30 days) after the work is done

What you should do:  Even when the construction contract calls for retainage, you should not remove the P-8 exceptions from the policy until at least 40 days have passed from the end of construction.  Read and understand Bulletins SLS 2009007 and TX2010008. 

A subcontractor who does not receive proper notices as required under this bill may file a mechanic’s lien claim in the usual manner. 

What you should do:  Require a release of any MLA filed against the property being insured.  The bill is effective as to any contracts entered into after September 1, 2011. 

SB 539 relates to the payment of costs and attorney’s fees in a foreclosure 

Sec. 53.156.  COSTS AND ATTORNEY'S FEES

In any proceeding to foreclose a lien or to enforce a claim against a bond issued under Subchapter H, I, or J or in any proceeding to declare that any lien or claim is invalid or unenforceable in whole or in part, the court shall [may] award costs and reasonable attorney's fees as are equitable and just.  With respect to a lien or claim arising out of a residential construction contract, the court is not required to order the property owner to pay costs and attorney's fees under this section. 

Comment:  This bill makes court costs and attorney fees mandatory in proceedings to foreclose a lien or enforce a claim against a bond in cases dealing with commercial property.  For residential construction contracts, the court is not required to order the property owner to pay costs and attorney fees. 

What you should do:  Require a release of the lien for court costs and attorney fees any time you find a court case foreclosing a lien or enforcing a lien against a bond.  

SB 361: Indemnification agreements in construction contracts passed as a rider to HB 2093: 

  • Amends Sec. 151.001 and 151.105, Insurance Code. 
  • A provision in a construction  contract, or in an agreement collateral to or affecting a construction contract, is void and unenforceable as against public  policy to the extent that it requires an indemnitor to indemnify, hold harmless, or defend another party to the construction contract  or a third party against a claim caused by the negligence or fault, the breach or violation of a statute, ordinance, governmental regulation, standard, or rule, or the breach of contract of the indemnitee, its agent or employee, or any third party under the control or supervision of the indemnitee, other than the indemnitor or its agent, employee, or subcontractor of any tier.  
  • Other types of indemnity are ok.
  • This bill is effective September 1, 2011 for construction contracts entered into after that date.   

What you should do:  Nothing. This provision does not impose burdens on title insurance transactions. 

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

Attachments
Statutory Waivers
Conditional and Unconditional 

CONDITIONAL WAIVER AND RELEASE ON PROGRESS PAYMENT

 Project ___________________

 Job No. ___________________

On receipt by the signer of this document of a check from ________________ (maker of check) in the sum of $__________ payable to _____________________ (payee or payees of check) and when the check has been properly endorsed and has been paid by the bank on which it is drawn, this document becomes effective to release any mechanic's lien right, any right arising from a payment bond that complies with a state or federal statute, any common law payment bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute related to claim or payment rights for persons in the signer's position  that the signer has on the property of ________________  (owner) located at ______________________ (location) to the following extent: ______________________ (job description). 

This release covers a progress payment for all labor, services, equipment, or materials furnished to the property or to __________________ (person with whom signer contracted) as indicated in the attached statement(s) or progress payment request(s), except for unpaid retention, pending modifications and changes, or other items furnished. 

Before any recipient of this document relies on this document, the recipient should verify evidence of payment to the signer. 

The signer warrants that the signer has already paid or will use the funds received from this progress payment to promptly pay in full all of the signer's laborers, subcontractors, materialmen, and suppliers for all work, materials, equipment, or services provided for or to the above referenced project in regard to the attached statement(s) or progress payment request(s). 

Date ____________________________

_________________________________ (Company name)

 

By ______________________________ (Signature)

_________________________________ (Title)

Unconditional

NOTICE: 

This document waives rights unconditionally and states that you have been paid for giving up those rights.  It is prohibited for a person to require you to sign this document if you have not been paid the payment amount set forth below.  If you have not been paid, use a conditional release form; and 

(2)  below the notice, read: 

UNCONDITIONAL WAIVER AND RELEASE ON FINAL PAYMENT 

Project ___________________ 

Job No. __________________ 

The signer of this document has been paid in full for all labor, services, equipment, or materials furnished to the property or to ___________________ (person with whom signer contracted) on the property of ______________________ (owner) located at ______________________ (location) to the following extent: ______________________ (job description).  The signer therefore waives and releases any mechanic's lien right, any right arising from a payment bond that complies with a state or federal statute, any common law payment bond right, any claim for payment, and any rights under any similar ordinance, rule, or statute related to claim or payment rights for persons in the signer's position. 

The signer warrants that the signer has already paid or will use the funds received from this final payment to promptly pay in full all of the signer's laborers, subcontractors, materialmen, and suppliers for all work, materials, equipment, or services provided for or to the above referenced project up to the date of this waiver and release. 

Date ____________________________

_________________________________ (Company name)

 

By ______________________________ (Signature)

_________________________________ (Title)

 

NOTE:  THESE FORMS ARE STATUTORY BUT OTHER FORMS THAT SUBSTANTIALLY COMPLY WITH THIS FORMAT MAY BE USED.