"NOTICE: THIS IS NOT A LIEN.

THIS
IS ONLY AN AFFIDAVIT
CLAIMING A LIEN"

Texas Property Code §53.254(f). The affidavit must be filed by a person claiming a lien on a
residential construction project not later than the fifteenth (15) day of the third (3d) calendar
month after the day on which the indebtedness "accrues." Texas Property Code §53.052(b).
The definition of "accrual of indebtedness" is discussed in Section F of this paper.

The Property Code also requires that, for a lien on a homestead to be valid, the notice required
under other sections to be given to the owner must include a statement which advises the
owner of his or her obligations to withhold ten percent (10%) of the contract price or value of
the work for thirty (30) days after completion of the construction, and that if the owner
withholds the retainage and an amount sufficient to cover any written notice of claim and has
paid that amount, if any, to the claimant, any lien claim filed against the homestead by a
subcontractor or supplier who does not contract directly with the owner will not be a valid lien.
Texas Property Code §53.254(g). This notice provision is expressly set out in Section
53.254(g) of the Property Code, and you are advised to duplicate the required language
exactly.

E. Property Subject to Lien.

Generally speaking, a mechanic's lien attaches to whatever was enhanced by the value of the
labor or material covered by the lien. The property to which a mechanic's lien extends includes
the house or building, fixtures and other improvements, and whatever land or lot of land is
necessarily connected with the covered work or activity, except for abutting sidewalks, streets,
and utilities that are public property. See Texas Property Code §53.022.

The term "lot" is not statutorily defined, but the Texas Supreme Court considers the most
reasonable meaning of the term to be a single tract of land as recorded in the deed records of
the county in which the property is situated. Under certain circumstances, however, the lien
may be held to attach to contiguous lots, provided the owner has elected to treat them as a
unit. This would be true for both residential and commercial projects in a city, town, or village,
but in rural settings the lien may extend to up to fifty (50) acres, provided, of course, that the
improvement covered by the lien is found upon the acreage. Texas Property Code
§53.022(d).

Once it is perfected, a mechanic's lien extends to the improvements affected by the covered
work, the land upon which the improvements are situated, and to the fixtures, tools, and
machinery actually incorporated into the improvement. Remember, however, that specially
fabricated material is covered, even if it never reaches the work site or is used. Texas
Property Code §53.021(b).

Also, a general or prime contractor's lien extends to the entire job or improvement, including
those components which have been supplied by subcontractors. Under ordinary
circumstances, a lien will only attach to the interest of the person who contracted for the work,
meaning that, in the case of a tenant, the lien will attach only to the tenant's leasehold
interest. An owner, however, either himself or through an agent, may create a situation in
which the lien will extend even to the owner's interest, as well as to the tenant's leasehold.

1
F. Effect of Recording Lien.

A mechanic's lien will not be enforced if it is not properly perfected by a process of written
notices to those entitled to notice and by public recording of a properly completed and
executed affidavit. The single most important tool necessary to ensure proper compliance with
the elaborate notice requirement imposed by Texas law is one of the oldest devices available:
a calendar.

Notices must be given by the prime contractor to the owner, and by derivative claimants to
both the contractor and the owner, pursuant to the Texas Property Code. Notices must also be
given to the proper persons, and the affidavits must be recorded within the time required by
the statute, in order to "perfect" the lien. Although the lien perfection process is covered in
another portion of this seminar, it is worthwhile to set out the basic requirements at this point.

For non-residential construction projects, both original contractors and subcontractors must file
their lien affidavits within the same period of time, which is by the fifteenth (15th) day of the
fourth (4th) calendar month following the day the claimant's indebtedness "accrues." Texas
Property Code §53.052(a). Lien affidavits must be filed by the fifteenth (15th) day of the third
(3d) calendar month following the day the claimant's indebtedness "accrues" for residential
construction projects. Texas Property Code §53.052(b). The claimant's debt accrues at
different times, however, depending upon whether the claimant is an original contractor or a
subcontractor. The debt to an original contractor accrues, by statute, either "on the last day of
the month in which a written declaration by the original contractor or the owner is received by
the other party stating that the contract has been terminated," or "on the last day of the
month in which the original contract has been completed, finally settled, or abandoned."
Texas Property Code §53.053(b). Indebtedness to a subcontractor accrues on the last day of
the last month in which the labor was performed or the material furnished. Texas Property
Code §53.053(c).

Indebtedness for specially fabricated material accrues on the last day of the month (a.) in
which materials were delivered; (b.) in which delivery of the last of such material would
normally have been required at the job site; or (c.) in which any material breach or termination
of the original contract by the owner or contractor or of the subcontract under which the
material was furnished occurred. Texas Property Code §53.053(d). A claim for retainage
accrues on the last day of the month in which all work called for by the contract between the
owner and contractor has been completed, finally settled, or abandoned. Texas Property
Code §53.053(e).

Any party filing an affidavit must send a copy by registered or certified mail to the owner, at
the owner's last known business or residence address, not later than one business day after
the date the affidavit is filed with the county clerk. Texas Property Code §53.055(a). If the
person is not an original contractor, the person filing the affidavit must also send a copy to the
original contractor, again at its last known business or residence address, within the same time
period. Texas Property Code §53.055(b).

2
In addition to the filing and service of the affidavit under the statutes cited above, a derivative
claimant (a contractor or supplier on a tier below the original contractor) must also send timely
notice of its unpaid claim to the owner and, if the claimant did not contract directly with a
prime contractor, but with another subcontractor, to the contractor, as well. These notices
must be given by the derivative claimant to its prime contractor not later than the fifteenth
(15th) day of the second (2d) month following each month in which all or part of the claimant's
labor was performed or its material delivered, and to the owner not later than the fifteenth
(15th) day of the third (3d) month following each month in which all or part of the labor was
performed or material delivered. Texas Property Code §53.056.

Once the owner has received notice of a derivative claim, the owner may withhold from the
contractor any amounts necessary to pay the covered claim. Texas Property Code §53.081.
In other words, provided proper statutory compliance has been achieved, the effect is to trap
funds in the hands of the owner and transfer to the derivative claimant the owner's obligation
to pay the prime contractor, to the extent necessary to satisfy the claim. To authorize the
owner to withhold funds (i.e. to "trap" them), the notice to the owner must be sent to the
owner by registered or certified mail, and it must state that, if the claim remains unpaid, the
owner may be personally liable and the owner's property subject to a lien unless the owner
withholds payments from the contractor for payment of the claim or the claim is otherwise
paid or settled. Texas Property Code §53.056. The owner is then required to withhold the
funds until the time for recording the affidavit has passed or, if it is recorded, until the claim
has been either satisfied or released. Texas Property Code §53.082. As the required notice
states, the owner may become personally liable for the claim if he pays the contractor after
receiving notice of a derivative claim.(2)

Regardless of whether funds are successfully trapped, the owner is required by statute to
withhold and retain ten percent (10%) of the original contract price or value of the work during
the course of the contract and for an additional thirty (30) days after completion. Texas
Property Code §53.101(a). A claimant who sends the notices required by the statute and files
an affidavit claiming a lien not later than the thirtieth (30th) day after the work is completed
has a lien on the retained funds. Texas Property Code §53.103.

3
G. Priority of Lien.

Texas Property Code Sections 53.121 through 53.124. govern the hierarchy, or priorities, of
competing liens. Generally speaking, once it is properly perfected, a mechanic's lien "relates
back" to the date of the inception of the lien. The inception date of a lien is generally the date
of commencement of construction of the improvements or the date materials were delivered
to the site. Usually, construction is considered to have commenced when the construction or
material is actually visibly apparent on the land, so long as the activity is a defined
improvement under the statute. Texas Property Code §53.124. Excavation for or the actual
laying of a foundation are included.

A properly perfected mechanic's lien attaches to the covered property in preference to other
prior liens, encumbrances, or mortgages, although it does not affect any lien, encumbrance, or
mortgage which was on the land at the time of the inception of the mechanic's lien, except as
to "removables." Texas Property Code §53.123. All properly perfected mechanic's liens are
on equal footing with one another without reference to the date each respective lien affidavit
was filed. Texas Property Code §53.122. An exception to this rule is the lien of an architect,
engineer, or surveyor, which is determined by the date of recording. Texas Property Code
§§53.122(a) and 53.124(e).

Section 53.123 of the Texas Property Code also provides to a valid mechanic's lien holder a
priority over all deed of trust liens as to covered improvements which are considered to be
"removables." In order to be considered a "removable," an improvement must be capable of
being removed from the construction without material injury to the land, other preexisting
improvements, or the improvement being removed.