As a contractor, late payments can drastically affect the financial position of your business. Even if you’d otherwise have a healthy 10% profit margin, slow payments have an impact. You have to account for carrying costs (which bring their own administrative burdens), stress about days of cash left, and you may even turn down projects because you’re waiting for the cash needed to start new work. Nearly one in three construction firms had to finance some money in the interim, and almost as many had to wait over 90 days for retainage payments on commercial projects.
All of this points to two things:
- It’s critical for your business to receive the payments you’ve earned and;
- Since filing a lien in Texas is one of the best legal pathways available to pursue those payments, you must be able to file liens and apply pressure on late payors.
Unfortunately, the lien filing process can be confusing. It’s easy to miss deadlines, send a notice out of time or to the wrong person, and lose your lien rights entirely. Although learning about the entire lien process is an excellent first step, more is needed to make your internal processes compliant.
Instead, develop effective strategies and processes for avoiding complications, staying on top of the requirements for maintaining your lien rights, and making sure pursuing old payments consumes only a little of your team’s valuable time. This guide walks you through four fundamental complexities that can trip up contractors and offers five strategies every contractor in Texas should implement.
Four Challenges of Filing a Lien in Texas
Before businesses can develop strategies to file a lien in Texas effectively, it’s essential to identify the complexities that can get in the way. Here are four key factors that can compromise your rights to file a lien:
Challenge #1: Requirements and Deadlines Are Specific
Filing a lien in Texas is more complex than filing a single document and letting the process play out. Instead, it requires completing several essential steps.
Subcontractors and suppliers must send an invoice to request payment no later than the 15th of the second month after the month when the work was performed. If payment is not received promptly, the following deadlines cannot be missed:
- The deadline for sending a pre-lien notice for subcontractors and suppliers. Before filing a mechanic’s lien with a county in Texas, it is imperative to provide notice to the property owner and general contractor. This notice, also known as pre-lien notice, must be sent no later than the 15th day of the third month following each month in which the subcontractor or supplier delivered the services that remain unpaid. For example, if a subcontractor performed work during March, the pre-lien notice must be sent by June 15th.
- The deadline for filing the lien affidavit. The lien affidavit and its content are crucial to the process. It must include the legal description or enough information to accurately identify the property, the amount owed, dates and delivery method of every pre-lien notice sent and to whom, and the description of the unpaid work or services, among other information. You must file the affidavit with the County Clerk of the Property Records Office of the county where the property is located. This affidavit must be filed by the 15th day of the fourth month.
- The deadline for serving the lien to relevant parties. A copy of this affidavit must be sent to the property owner and the general contractor within the next five calendar days. This step is vital so the relevant parties are aware that you remain unpaid, and they can promptly take the steps needed to resolve the issue.
Challenge #2: Pre-Lien Filing Notice Requirements Can Be Different for Different Jobs
It’s important to remember that to maintain your right to file a lien against a property, notice requirements change based on what tier of contractor you are for each job.
As mentioned above, the original contractor does not need to send a pre-lien notice and can file a lien by the 15th of the fourth month after the month when any of the following occurred:
a) Written Termination
b) Abandonment of Project
c) Settlement or;
d) Completion of the Contract
But first and second-tier subcontractors hired by the general contractor must send an invoice and a pre-lien notice before filing a lien. For example:
- A subcontractor completes work in February.
- The subcontractor must request payment or send an invoice by April 15th.
- The subcontractor must send a pre-lien notice by May 15th.
- With these steps completed, the subcontractor is in a position to file the lien by June 15th.
However, if you serve notices late or skip a notice requirement, you may inadvertently lose your lien rights. For this reason, sending the monthly pre-lien notices on time, every time and every month, and even sending them early, is crucial.
Related: How to File a Lien on Property in Texas Online
This approach minimizes the risk of losing your rights before you need them. Of course, you don’t want to sour a working relationship just to maintain lien rights you may not need. So be sure to carefully balance sending notices with maintaining courteous and positive communications.
Challenge #3: The Process Changed in 2022, So Your Team’s Knowledge May Be Out of Date
In 2021, the Texas legislature voted to modify the Texas Property Code and the established processes for filing a mechanic’s lien. Many of these changes were designed to simplify the process, clarify confusing requirements and language, remove some requirements, and even expand what types of labor and services can be listed as part of unpaid services when filing a lien.
One of these changes impacted sub-subcontractors, effectively removing their second-month notice requirement, and leaving the third-month notice (or pre-lien notice) as the only notice required to be sent before filing a lien. These changes went into effect on January 1, 2022. While these changes benefit the process of filing a lien, your company’s standard processes may still reflect the old requirements and be outdated, leading to confusion, missed notice opportunities, and wasted effort complying with older standards.
Challenge #4: Failure to Follow All the Steps May Terminate Your Lien Rights
The significance of this challenge cannot be overstated. The process of filing a lien is intricate, and as a contractor or subcontractor, your schedule is packed. It’s quite simple to make an error or overlook a deadline. However, if you do, you might not be able to file a lien at all. This doesn’t imply that you can’t seek payment anymore, but you would need to file a lawsuit and employ more intricate and expensive legal procedures.
The best way to eliminate this risk is to have an efficient, standardized process for consistently managing your notice requirements—every time.
5 Strategies to Make Filing a Lien in Texas Easy
Looking at the challenges can make filing a lien in Texas seem like an overwhelming process with many notices and deadlines. But it’s an essential part of doing business as a contractor, architect, or supplier in Texas. You will encounter clients who cannot pay on time for one reason or another, and learning these processes to pursue payments is business-critical.
Don’t wait for another unpaid invoice. Take proactive steps now to develop strategies that streamline the management of pre-lien filing notices and documentation, and keep your options open. Implement these five strategies to make the process as efficient, streamlined, and foolproof as possible.
1. Implement a Systematic Approach for Your Team to Follow
Systematic workflows are suitable for every part of your business operations. Just like you have checklists for negotiating project contracts and completing services, keep a checklist for managing pre-lien and lien obligations.
Instead of trying to develop a full in-house process, opt to work with a third party that specializes in the lien filing process. If you have an online portal that automatically alerts you of deadlines, helps you fill out the paperwork correctly, and ensures you send out notices to all of the appropriate parties, you minimize the risks of missing deadlines or leaving out required information.
When there’s a set process with easy instructions to lean on, your team can consistently complete these tasks. You won’t need in-house legal counsel or a go-to lien expert on staff. Instead, the appropriate staff member can keep up with all the to-dos.
2. Meet Deadlines and Create a Paper Trail by Managing the Entire Process Online
Make the process easier by filing your lien paperwork and notices online. Some of the difficulties of the lien filing process are in the logistical details:
- Sending notices to the correct addresses
- Ensuring they are sent by certified mail
- Securing documentation and evidence that you mailed the notices as required by their required deadlines
Working with the correct online platform can simplify these details. Online filing systems provide mailing services, including digital proof of document delivery dates and times. This means that even if you wait until the end of the day, you don’t have to worry that the post office is closed. If you’re finishing paperwork in your office late on a Friday evening, you can simply log in and submit your pre-lien notices online.
Related: TexasEasyLien.com Compared to a Lawyer
Transitioning to a digital process provides more than convenience when you must provide documentation to prove that you complied with the lien requirements. A digital paper trail is easier to search and keep accessible — much faster than tracking down receipts and forms that could span several months of doing business.
3. Create Clear Internal Workflows So Everyone Knows Their Responsibilities
Once you have clear processes and user-friendly tools in place, it’s time to establish your ideal internal procedures. If you’re a solo operator, you’re likely handling every aspect of sending notices and meeting lien requirements yourself. However, if you have a team, it’s essential to clarify responsibilities. Who is accountable for each step? Is it the project manager or the billing specialist? Do you have a designated manager responsible for maintaining lien compliance and safeguarding your company’s lien rights?
Carefully consider these questions and ensure that role responsibilities are clearly defined. This internal organization will allow your company to file liens for current projects when needed efficiently. Moreover, it provides a robust foundation for scaling up while effectively managing the financial and legal aspects of receiving payment for your efforts.
4. Use Automation Whenever Possible
Utilize automation wherever possible to streamline your processes. Here are key areas where automation adds significant value in sending notices and filing liens:
- Flagging failures to pay: Keep track of overdue payments digitally. Sync your billing and accounting software with your lien processes to immediately identify when clients fall behind on payments, even if they make partial payments.
- Sending notices on time: Avoid missing deadlines once the clock starts ticking. Set up automatic reminders for each invoice and its deadline, including third, and fourth-month deadlines, the five-day deadline for notifying and sending copies of the filed lien, and any other timelines.
- Gathering documentation automatically: Simplify the collection of evidence. Automation can assist in gathering proof of sent notices, payment, and non-payment documentation and facilitating the organization of original contracts to attach all necessary paperwork to the filing process.
5. Use Courteous Pre-Lien Notices and Reminders to Keep Payment on Track
The easiest lien is the lien you never have to file in the first place. Before lien deadlines start impacting your business operations, proactively send out multiple notices and reminders to prompt payment. Staying ahead of the issue from the outset can ensure that clients settle their dues before the need for a lien arises.
However, it’s also important for your business operations to maintain positive relationships with your clients. The last thing you want is to inadvertently offend a valued business partner or strategic client by sending notices that come across as accusatory or bothersome. Professional businesses will likely understand that you’re simply fulfilling your obligations and protecting your business. However, clients of residential projects may be less familiar with the process and might feel put off if they get notices that they perceive as hostile.
To navigate this delicate balance, send courteous notices using neutral language. Clearly explain that the notice is simply in compliance with the Texas Property Code. This approach communicates several key points:
- You don’t mistrust them, and you aren’t being overly demanding.
- You understand and comply with the Texas Property Code.
- You will file liens as needed but hope not to reach that point.
Sending polite, templated notices as a standard business practice can maintain positive relationships without jeopardizing your lien rights or business reputation.
Simplify the Process for Filing a Lien in Texas with the Right Help
By understanding the challenges of filing a lien in Texas and implementing some key strategies you can simplify the process of protecting your rights, filing a lien when needed, and securing the hard-earned payment you deserve. At Texas Easy Lien, we provide contractors and material suppliers with online tools designed to streamline the entire process of sending notices, filing liens, and managing everything seamlessly. Sign up today to experience our efficient process yourself and start filing.
