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Building your dream home with a construction loan can be a thrilling endeavour. You may spend hours pouring over possible designs and colors. You think through all the possible extra touches and appliances. You dream about the day you will finally move in. It can also be exciting to remodel your home. Thinking about your home’s new look and watching too much HG TV are just part of the process.
Taking out a loan to pay for the construction or renovation doesn’t seem like a big deal at the time. After all, your home is your refuge and you can afford the loan.
However, for many homeowners, taking out a construction or remodeling loan can turn into a financial and personal nightmare if the construction team doesn’t do a good job.
The Dream Turns to Nightmare
Maybe you are targeted by a construction company with ulterior motives or outright fraudulent practices. Maybe you hire a guy that your brother’s friend recommends without doing any due diligence or perhaps you find someone on Craig’s list who has a great per hour rate.
You look at their work and it is not up to standard at all. If you end up having a dispute with and refuse to pay your contractors or any of the design or construction workers, you could end up with a lien that you are desperate to be rid of.
One type of lien that is common when someone takes out a loan to build a new home is called an “Intervening” mechanic’s lien. You can have an intervening mechanic’s lien if you or your general contractor has a dispute with a materials supplier or the subcontractor who is building your home. If the general contractor refuses to pay the subcontractor due to the quality of the work, the subcontractor may choose not to fix the bad work. At this point, if the general contractor doesn’t pay the last installment of the construction loan and the subcontractor files a lien, this lien can effectively prevent you from qualifying for the loan you need to buy the newly constructed home. It can also prevent the selling of your property.
The Law
According to Texas law, it is illegal for someone to use a lien against real or personal property with the knowledge that the lien is fraudulent. It is also illegal to use a lien to intentionally cause another to suffer financial injury, mental anguish, or emotional distress. The law makes it clear that intent is important in these cases.
What Steps Do I Take to Remove a False Lien?
If you are the victim of a fraudulent lien, you may bring an action to enjoin violation or recover damages. This means taking the lien filer to court. However, once you threaten to take them to court with carefully laid out reasons why their claim is invalid or fraudulent, many lien filers will back off and remove the lien.
Complicated Lien Laws
The lien laws in Texas can be complicated to decipher. There are extensive sites online for contractors and others that make the process of filing a lien easy. There are attorneys who will write up a lien in a hot second and miss necessary and important details.
Liens are recorded and held at the county clerk’s office. Many liens in Texas miss the mark and are not actually valid. The clerk’s office does not thoroughly inspect each lien that is filed. Just because someone files a lien doesn’t mean that it is valid and can hold up in a court of law.
If you know and understand the laws behind the lien process, you can effectively negotiate with the lien placer.
How to Negotiate a Lien
If you are aware that the lien holder knowingly filed an invalid lien, you can discredit the lien and demand it released by giving notice to the lienholder.
Consider these points of Texas lien law when looking for ways to invalidate a lien:
- There must be a “legally sufficient for identification” description of the property
- Lien must include who the claimant and property owners are and the amount owed, a description of the unpaid work and when it was done, and a sworn statement that the affidavit is true and correct
- Lien must be recorded in the county where the work was performed or it is invalid
- Lien must include the correct language to file a valid statutory or constitutional lien. Texas law sets forth numerous requirements for the lien affidavit.
- Notices must be sent via certified mail, return receipt requested or there is no proof that they sent the required legal notices or that you received them.
- After the lien is filed, property owner must be served with the lien by certified mail within 5 business days.
- A valid lien must be sent to you before specific dates related to the construction or remodeling process.
- If you personally hire someone to do work for you, they are considered a general contractor. General contractors can get a constitutional lien, which means that they do not have to serve you an “intent to lien” before filing the actual lien. However, subcontractors, material suppliers, and laborers do have to serve you an “intent to lien” before filing the lien with the county clerk’s office. The type of lien they can put on your home is called a statutory lien.
- “Intent to lien” has to be served to you and the general contractor who hired them. These notices of “intent to lien” must be “timely”. If they are not done in the timeline that the law recommends, the lien is invalid.
The law in Texas has convoluted laws about exact dates that notices and affidavits must be filed. Talk to an attorney who specializes in real estate law for more detailed dates or read the Texas Bar Association’s Introduction to Mechanic’s Liens
Give the Bogus Lien a Boot
Let the lienholder know how the story will go if they continue to refuse to release the lien. A lienholder who is truly committing fraud or trying to hurt you financially will buckle if you show them you can prove it in a court of law. Texas courts don’t mess around with fraud. What happens to a bogus lien holder when a property owner fights back? Here is a possible scenario:
- Lienholder has intent to defraud or harm you by holding the lien on your property
- You hire an attorney and properly notify the lienholder that their claim is fraudulent or invalid
- Lienholder refuses to remove the lien by the 21st day after the date you requested the release of the fraudulent lien
- Your attorney brings an action to enjoin violation or recover damages
- The case goes to court
- Your attorney shows proof of the fraudulent or invalid nature of the lien
- Faced with possible crime and penalties, most fraudulent or invalid lienholders are willing to negotiate or drop their claim altogether before it reaches the courthouse.
- If it goes to court, the lienholder is found with failure to strictly comply with the requirements of filing the lien, the lien is invalid.
- If the court sides with you, you recover your attorneys’ fees and the costs incurred to remove the lien. In addition, if you can show that the lien holder filed an invalid lien with the intent to cause you harm, you may be entitled to damages in the thousands of dollars.
Lawsuits Timelines
If the lien holder does not file a lawsuit, they cannot force you to pay the lien. If you don’t file a lawsuit, you can’t force them to relinquish the lien. If you were constructing a house or getting a remodel when the lien was filed, the lienholder must start a lawsuit before 1 year from the last date that the lien affidavit could be filed or else the lien becomes automatically invalid. Constitutional loans may have longer statutes of limitations, even up to 4 years.
Seek Help
If you are trying to remove a fraudulent or invalid lien, seek out an experienced and knowledgeable real estate attorney who specializes in these types of situations. You need someone who can fight for your rights inside and outside of the courtroom. Most invalid liens can be easily negotiated once you know which laws are on your side. Don’t go through this complex real estate battle alone.
- https://statutes.capitol.texas.gov/Docs/PR/htm/PR.53.htm
- https://www.levelset.com/blog/texas-constitutional-mechanics-lien/
- https://www.texasbar.com (An Introduction to Mechanics Liens – State Bar of Texas)