Proposed Texas Bill Would Change State’s Mechanic’s Lien Process

The Texas legislature is considering House Bill 2237, which would alter how material suppliers file mechanic's liens within the state. If the bill is approved, it would change notice requirements and deadlines.

To provide a quick overview, here's a list of what this proposed legislation would do:

  • Eliminates the subcontractors' and material suppliers' second-month notice to the original contractor. The notice is currently due the 15th day of the second month that follows the month in which work was performed or material was delivered (third-month notice remains in place).
  • Eliminates the requirement that notices and affidavits of lien be sent by certified mail.
  • Shortens the statute of limitations to bring suit on a lien from two years to one year.
  • Makes the deadline to file a lien on retainage no later than the 15th day of the third month after the original contract is completed.
  • Extends lien and notice deadlines that fall on a weekend or holiday to the next business day.
  • Eliminates Section 53.083, Payment to Claimant on Demand. This section requires an owner to pay an original contractor's undisputed claim within 30 days after the original contractor receives a copy of the claimant's payment demand to the owner.
  • Provides an expedited discovery process after a claimant files a motion to remove an invalid lien.

The bill, sponsored by state representatives Joe Deshotel (D) and Dustin Burrows (R), moved March 15 to the House's Business and Industry Committee.

Although the proposed legislation is meant to make it easier for subs and suppliers to perfect liens, various members of NACM Southwest recently shared concerns over the removal of the second lien notice. Some credit professionals describe it as a quintessential collection tool.

"If this notice requirement is removed, it will increase DSO for suppliers," said Connie Baker, director of operations for NACM STS. "Subcontractors will have no reason to pay sooner because the general contractor won't receive notification of nonpayment until the third-month 15th-day notice."

Overall, Andrews Myers PC's senior associate, Katy Baird, sees the proposed changes as a "mixed bag." Many subcontractors and suppliers find that the second-month notice prompts payment and negates the need to file a claim, Baird said.

"If you're a subcontractor selling to a general contractor or a material supplier selling to the general contractor removal of the 15th day second-month notice is not a big deal," said Chris Ring, of NACM STS. "If you're a material supplier selling to a subcontractor, the removal of the 15th day second-month notice is a huge deal!" Basically, this gives subcontractors 30 more days to pay the material supplier, Ring added. "I'm not sure that is the intent of that part of the proposed legislation change, but if passed will surely be the result."

If the legislation passes, sending it might not be an option, Baird cautions. "If subcontractors and suppliers continue to send the second month notice, it may give upstream parties a potential claim for tortious interference with their business practices." These types of claims often occur when a defendant wrongfully interferes with the plaintiff's contractual or business relationships.

Even if a tortious interference claim did not prevail, it could "create a new set of arguments that can delay collection efforts," she added.

Some of the bill's more positive aspects include the extension of filing deadlines for fund-trapping notices on retainage and for liens and notices to the next business day after a holiday or weekend can make collection efforts easier.

To argue the more troublesome parts of the bill, NACM Southwest is currently raising money to hire a lobbyist. "We look forward to working with legislators to revise portions of this bill to better address the needs of NACM Southwest members," said Randall Lindley, a partner at Bell Nunnally, who is coordinating NACM member efforts with the lobbyist. "At the top of our priority list is maintaining the 'second-month notice,' which is a valuable collection tool for our members." 

Bryan Mason, editorial associate

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Wednesday, 22 September 2021

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