What is a Contractor Lien Release Form?
Contractor lien release forms are an important part of the construction process. If you are a contractor and perform work on your customer’s residential property in Texas, you probably haven’t spent much time thinking about notices of completion or lien releases in the past. However, in 2013, Texas law was revised under S.B. 1269 to address these issues more explicitly in an attempt to improve the quality of information available to homeowners and contractors.
In this section you will learn about the purpose of a lien release form and the lien release form required by Texas Occupations Code § 53.254. Additionally, you will learn about the alternative of waiving down the unpaid balance due for the services and materials.
My hope is that the information provided here will be helpful because it is quite common to find homeowners who have no idea what the "lien release" the contractor had them sign after a project was complete is really or why they should have to sign it. The release is essentially an acknowledgement from the contractor that the contract price or some portion of it was paid by the homeowner as the project progressed. The contractor agrees that upon payment , they will not file a mechanics lien against the property on account of the amount that was paid or about the services or materials paid for. The contractor’s signature on the lien release form certifies that the payment was actually made and that the contractor is free to lien for any unpaid balance for services or materials, if they choose to.
There is often confusion between the "lien release" and the "lien waiver" in homeowners’ minds. If the release is signed before the project is performed by the contractor or the material supplier, then the document is treated as one that has waived the right to lien for the services or material performed before the date it was signed. However, if there is work to be performed by the contractor or supplier after the lien release is signed, then the release only acknowledges the payment of that particular portion of the contract or agreement; it does not prevent the contractor or supplier from filing a mechanics lien for the remaining balance that is due. Another reason that contractors and suppliers might prefer to waive rather than execute a release is to avoid the expense of explaining this concept to every customer.
Contractor Lien Release Forms Types
There are three types of contractor lien release forms in Texas: the partial lien release, the final lien release, and the conditional lien release. A partial lien release is used when a construction project ends without the total cost being paid; the general contractor or supplier will only ask you to release a portion of your lien. The contractor will then release the remainder of the lien when they are paid in full.
The final lien release is used once the contractor has been paid in full for their work on the property. In most cases, a general contractor will require a final lien release prior to making full payment.
The conditional lien release is a separate contract between the property owner and the contractor. Because it is a contract between the owner and the contractor, it does not have to be filed in the county records like a lien. An owner will make payment for a certain date and that payment will be conditioned on the contractor giving them a signed release by a specified date.
The conditional lien release protects both contractors and owners. The contractor can obtain payment on their invoice sooner, and the owner is assured that if they pay for the project, they will no longer have to worry about a mechanic’s lien being filed against their property. While a conditional lien release is more formal than a verbal agreement between a contractor and an owner, they are generally less formal than lien waivers used in most other states.
Requisites Under Texas Lien Laws
Texas has specific lien laws that must be followed when claiming a lien or removing a lien from the property once it has been paid for. These laws can differ from state to state and contractor to contractor. It is vital that you understand the laws in the state in which you are working.
According to Texas law, if the owner of a property receives a lien release form from the contractor or sub-contractor, then they may remove or withhold money due to the sub-contractor from the general contractor. This means that if the owner receives a lien release from the contractor, but the general contractor does not pay the sub-contractor, then the owner has no legal obligation to pay the general contractor.
In Texas, sub-contractors must file a Mechanic’s and Materialman’s Lien when there are disputes over payments. This type of lien must specify the work performed or materials supplied, the amount of money owed to the sub-contractor and the specific property the lien is attached to. The Mechanic’s and Materialman’s Lien, as well as the lien release forms matched with them, must be filed with the county clerk in the county where the property is located.
The contractor must ensure that before filing the Mechanic’s and Materialman’s Lien, they send the owner of the property a statement of the contract and the balance due under the contract. Many contractors receive the payment 10 days after the property owner has received this notice. This notice is required to be delivered to the owner of the property in order to enforce the lien on the property.
How to Fill Out a Contractor Lien Release Form?
The first box you want to fill in is the name of the property owner. You want this to be the same as what is on the title. Folks sometimes go wrong by putting the trustee in there, or somebody who’s not officially on the title, but you’re going to want to put the full legal name of whoever owns the property that the lien is going against.
The second box is going to be the mailing address for the owner. This is the address you’ll be sending the form to and they’ll be keeping records of it.
The third block, right above the date, is going to be the document number of the lien. This is a one-off thing, so if you don’t have one yet, it’s no problem, just leave it blank.
The fourth is the county clerk’s file number for the lien filed against the title. That should be self-explanatory.
Then there’s the recording information, and that’s pretty basic. You’re just putting in what’s on the actual recorded lien that you filed with the county clerk. Then you have the grantor, which is essentially the contractor, or whoever is wanting to take the lien off.
After that, you have the part where you write what lien you want to remove from the title. This is where guys might make a mistake—they might try to take all of them off instead of just the one they intend to remove.
Then, you’ll have the signature fields themselves. Obviously, you need three of those, and whoever the contractor is needs to sign. After that, you’re going to want to put everybody’s name in the block just below their signature, so it’s really clear who’s signing off on the release.
Then, there’s the acknowledgement of the third party, which is the county court. That’s basically acknowledging the county clerk for accepting and recording this. It’s not too important personally; it’s just a formality.
Finally, the county clerk information is again informative only. You don’t have to fill this in if you don’t want to.
Benefits of Filing Lien Release Forms
Contractor lien release forms can greatly reduce the risk of an unpaid work claim by ensuring that the contractor has been paid by the client for hours worked. These also protect against the potential hassle of having to deal with a problem with unpaid wages at some point in the future. It is understood that contractor lien release forms are not legally binding; however , they can provide some protection and help to avoid problems later on.
As an example, a payroll processor could absolutely have a client sign a lien release that states, "I/We, [applicable Company name], hereby acknowledge that I/We have received payment in full from [applicable client company name] for all hours worked on [from date to date]." This may be a great alternative to signing blank checks.
Impact of Not Issuing Lien Release Forms
The most significant risk to a contractor not getting a lien release form signed is in the event of a bankruptcy. If a contractor does not have a lien waiver signed, he can run the risk that the owner will plead subordination and potentially avoid its obligations to pay for materials and labor which were supplied by the subcontractor. Even if a court does not find subordination, it could order that a subcontractor return any funds previously received to the bankruptcy estate. This scenario is most likely to happen in commercial construction litigation cases where the owner is the debtor in bankruptcy. Most states have laws which provide that a lien waiver signed before a debt is owed is presumptively valid. For this reason, a contractor should always attempt to have a lien release form executed when it is either paid or in full satisfaction of its contract including a retention balance. The contractor should submit a properly drafted lien release form as soon as possible after a payment is received unless there are identified debts owed by the party who is paying the contractor.
How to Dispute Liens in Texas
If you are a property owner and want to dispute a lien that has been placed on your property, the first step is to reach out to the lienor (the person or entity who filed the lien) directly. You can call or email the lienor to to ask them to withdraw the lien. Most of the time, the lienor will agree because the law does not favor the existence of invalid or incorrect liens. If you cannot resolve the issue, you can take legal action to have the lien removed, but be aware that liens filed on the property in the past two years may be difficult to remove without litigation.
If a contractor or other lienor disputes a lien, Texas’s lien statutes provides those contractors with a remedy as well. The Texas lien statutes permit contractors to recover their attorney’s fees if they successfully prosecute a lawsuit to foreclose a mechanic’s lien . In some instances, however, courts will award attorneys’ fees to the owner, provided that the lienor had no justiciable interest (i.e., an arguable, legitimate basis) for taking the appealed position in the litigation. For this reason, a contractor should confer counsel before filing a lawsuit or appealing a court’s judgment in a lapsed foreclosure lawsuit.
For a contractor or subcontractor seeking to enforce a lien, they are required by Texas law to timely file an affidavit of mechanic’s lien within 6 months after the last day of work is performed on the property or last day materials are used or incorporated into the property. A contractor or subcontractor must then foreclose on the lien within 2 years from the filing of the lien affidavit. If the contractor has previously released the lien or if it lapsed, the lienor cannot foreclose on the property and obtain a court judgment which can then be enforced prospectively by the constable.
