DAVID J. WILLIS ATTORNEY
Copyright © 2013. All rights reserved worldwide.
LIEN REMOVAL IN TEXAS
by David J. Willis, J.D., LL.M.
This article addresses procedures available to secure the release of the following types of liens:
(1) invalid mechanic´s and materialmen´s liens ("M&M liens");
(2) judgment liens against the homestead;
(3) child support liens; and
(4) fraudulent liens.
Tax liens (for ad valorem taxes as well as federal income tax liens resulting from the tax debt of both spouses) are expressly permitted by Art. 16, Sec. 50(a) of the Texas Constitution. There is no removal procedure for such liens other than entering into a payment arrangement with the taxing authority.
The existence of a lien (often discovered when a title company checks the county real property records and produces a title commitment in anticipation of a sale or refinance) can adversely affect the marketability of property. This is so because title companies are notoriously conservative and risk averse institutions who often demand that the lien be paid and released as a condition of issuing a title policy – regardless of whether the lien is valid or not. The title company is being asked to insure title and is going to look after its own interests first and foremost. Fair? No. A fact of life? Yes.
The First Step in Lien Removal
This first step is to contact the judgment creditor or its attorneys, inform them that the lien is invalid (see Part One below) or is currently showing against the homestead (see Parts Two and Three below) and formally demand that the creditor execute a release or a partial release (as the case may be) or legal action will be taken without further notice. Creditor attorneys are knowledgeable concerning the potential liability here for their clients, so they will often cooperate and advise the creditor to sign a release. Sometimes, however, this does not happen and it will be necessary to proceed with the steps outlined below.
The best way to go through the above process is to ask your real estate lawyer to send a demand letter with an already-prepared release enclosed, ready to be signed by the creditor. This approach has far more credibility. Any old release will not do. The release must be carefully and correctly drafted or (1) the creditor may not sign it and (2) the title company may not accept it.
PART ONE: STATUTORY PROCEDURE FOR REMOVING INVALID M&M LIENS
The Bias of Texas Law
It is no secret that Texas law is biased in favor of the worker who supplies labor and materials in the construction of a new building, whether residential or commercial. The right to an M&M lien is enshrined in the Texas Constitution (Art 16, Sec. 37) which states:
Mechanics, artisans and materialmen, of every class, shall have a lien upon the buildings and articles made or repaired by them for the value of their labor done thereon, or material furnished therefor; and the Legislature shall provide by law for the speed and efficient enforcement of said liens.
This constitutional lien is in addition to the statutory mechanics lien available pursuant to Sec. 53.001 et seq. of the Texas Property Code. All of this legal protection assumes that contractors and sub-contractors will act in good faith, timely comply with notice requirements, and file only liens which reflect money that is legitimately owed them. But this is not always – not even usually the case. It has been said that the majority of liens filed in Texas are defective in some way, and that is probably true. And there are always nefarious characters who file wrongful or invalid liens in an effort to shake-down an owner or stop a closing until they are paid. Unfortunately, this happens often.
General Rule Applicable to M&M Liens
Property Code Sec. 53.157 lists six ways that a mechanics´ lien may be discharged of record. The best method is the filing of a release. Four other methods listed in the statute require the filing of a bond. The sixth means of discharge is failure by the lienholder to foreclose within the statute of limitations, which is two years.
Removal if No Release or Other Discharge Pursuant to Sec. 53.157
What if the mechanics´ lien is alleged to be invalid or defective? Sec. 53.160 of the Texas Property Code provides an expedited procedure for removal of an "invalid or unenforceable" lien from any real property, whether homestead or not. Grounds must be among those specified in the statute, specifically:
(1) notice of claim was not furnished to the owner or original contractor as required by Section 53.056, 53.057, 53.058, 53.252, or 53.253;
(2) an affidavit claiming a lien failed to comply with Section 53.054 or was not filed as required by Section 53.052;
(3) notice of the filed affidavit was not furnished to the owner or original contractor as required by Section 53.055;
(4) the owner complied with the requirements of Section 53.101 and paid the retainage and all other funds owed to the original contractor before:
(A) the claimant perfected the lien claim; and
(B) the owner received a notice of the claim as required by this chapter;
(5) all funds subject to the notice of a claim to the owner and the perfection of a claim against the statutory retainage have been deposited in the registry of the court and the owner has no additional liability to the claimant;
(6) when the lien affidavit was filed on homestead property:
(A) no contract was executed or filed as required by Section 53.254;
(B) the affidavit claiming a lien failed to contain the notice as required by Section 53.254; or
(C) the notice of the claim failed to include the statement required by Section 53.254; and
(7) the claimant executed a valid and enforceable waiver or release of the claim or lien claimed in the affidavit.
Filing Suit to Remove an M&M Lien
The least expensive means of contesting a wrongful or invalid M&M lien would be to file a countervailing affidavit in the real property records – but this would merely state your sworn opinion that the lien is invalid, perhaps for some title company to evaluate with regard to a future transaction. It would not remove the lien.
Sec. 53.169 prescribes the approved procedure for removing the lien. Although the statute talks about a "motion to remove a claim or lien," it is better practice to file a suit, obtain a case number and court assignment, get service on the defendant, and then file the motion. This method allows the plaintiff to pursue all available avenues of relief against the defendant (including fraud and deceptive trade practices, for example) that go beyond the scope of the statutory motion. What makes the motion procedure beneficial is the speed with which it can be heard and adjudicated. So, what we really have here is an expedited form of lawsuit.
The motion procedure requires that the defendant (i.e., the person who filed the lien) be given at least 21 days notice of the hearing. The motion should be supported by all relevant documents and at least one sworn affidavit. The hearing is an evidentiary hearing, a "mini-trial" really, meaning that testimony will be taken for the record. The judge then rules and the effect is immediate (i.e., there is no requirement that 30 days elapse before the ruling is final, as is the case with a final judgment in the case). A certified copy of the order should then be filed in the real property records and forwarded to any title company that may be involved. Sale of the property can then proceed without further delay.
Sec. 53.156 provides that "the court may award costs and reasonable attorney´s fees as are equitable and just." An affidavit of attorney´s fees and costs should be attached to the motion.
It is at the discretion of the plaintiff as to whether or not, following a ruling on the motion, the underlying suit should continue or be dismissed. It is likely that this decision will turn on whether or not the ruling itself provides the plaintiff with sufficient compensation.
PART TWO: RELEASE OF JUDGMENT LIENS AGAINST THE HOMESTEAD
Two Sets of Rules Apply
In order to determine which rules apply, you will need to determine if the judgment in question was abstracted before or after Sept. 1, 2007.
To begin the process you will need copies of (1) the lien or judgment, (2) warranty deed to the subject property, and (3) documentation from the appraisal district or other official evidence that the subject property is in fact the homestead of the debtor.
Judgment Liens Abstracted after Sept. 1, 2007 (The New Law Applies)
Sec. 52.0012(c) of the Property Code (the new law, effective September 1, 2007) deals with judgment liens against the homestead which were abstracted after that date. Note the use of the word "abstracted." If the judgment was rendered before this key date but it was not abstracted until afterward, then the new law would apply.
Sec. 52.0012(c) affirms that a judgment lien does not attach to, and does not constitute a lien on, a judgment debtor´s exempt real property, including the debtor´s homestead. It can be difficult, however, to persuade a title company of this fact that they should ignore a judgment. A title company´s automatic, self-serving reaction is usually to require that all liens be cleared. The homeowner should resist this pressure and insist on his or her homestead rights.
As in the case of other liens, the first step in the lien removal process under the new law is a demand letter – in this case, a 30 day letter to the judgment creditor and its attorney. If there is no response, Section 52.0012 provides that a judgment debtor may file a "Homestead Affidavit as Release of Judgment Lien" which "serves as a release of record of a judgment lien established under this chapter." The affidavit must be in proper form, meeting all the requirements of the statute. However, if the judgment creditor files a contradicting affidavit, and if after filing such contradicting affidavit a purchaser or mortgagee of real property acquires the purchaser´s or mortgagee´s interest from the judgment debtor, then the debtor´s affidavit does not act as a release of the judgment lien with respect to the purchaser or mortgagee.
The following is a checklist for evaluating whether or not this procedure applies in a particular case. A title company will not "insure over" a homestead lien using the new law unless:
1. The abstract of judgment is recorded after September 1, 2007.
2. A 30-day demand letter has been sent by CM/RRR to the judgment debtor to the creditor and its attorney enclosing a copy of the affidavit that is intended to be filed. Evidence of homestead status should be included.
3. Proof exists (e.g., a signed USPS green card) that the creditor and its attorney received the letter and affidavit at least 30 days prior to the date that the affidavit was recorded.
4. The title company´s plant is certified to the 31st day following the mailing of the letter and affidavit.
5. No contradicting affidavit has been recorded by the creditor.
6. The size of the property does not exceed 10 acres, if urban, or 200 acres, if rural (100 acres if the debtor is single).
7. The proposed purchaser or lender is a bona fide third party, paying money for or lending money against the property.
Judgment Liens Abstracted Prior to Sept. 1, 2007 (The Old Law Applies)
In the case of judgment liens abstracted prior to September 1, 2007, the old law as set out in the1992 case of Tarrant Bank v. Miller (833 S.W.2D 366) applies. Tarrant decided that a judgment creditor, in this case a bank, was liable in damages if it failed after demand to give a partial release of a judgment as to the debtor´s homestead. The best approach to removing an older lien would therefore be to send the creditor´s attorney a demand for a partial release accompanied a credible threat of litigation if the release is not signed.
The Flaw in the Process
There is nothing in the statute that requires a title company to accept the affidavit provided for in Sec. 52.0012 (the new law) and then go forward with closing and issuing one or more title policies. In other words, the law is not self-enforcing. Title companies, being the conservative institutions that they are, may hesitate or refuse to go along. As in other situations, it may be necessary to "shop" title companies until one is found that is amenable to this process.
What does the attorney need from the client?
When asking that an attorney initiate the process of removing a lien from the homestead, the client should be prepared with an number of items: (1) a copy the abstract of judgment (if a copy of the judgment itself is available, supply that as well); (2) a copy of the warranty deed to the homestead; (3) a print-out from the local appraisal district indicating that the property is classified as homestead; (4) the name and address of each judgment creditor and/or their attorneys; and (5) any correspondence between the judgment creditor and the client.
Note item (4). Clients often expect a lawyer to be able to locate their creditors. This may not always be the case, since lawyers are not usually also investigators. If an investigator is needed, the client should be prepared to bear that expense.
PART THREE: RELEASE OF CHILD SUPPORT LIENS
S.B. 1661, passed by the 81st Legislature, amends the Texas Family Code to establish a process by which an obligor may obtain the release of a child support lien against the obligor´s homestead. The procedure involves the filing of an affidavit and is identical to that contained in Sec. 52.0012 (discussed above). The law states that "the obligor is considered to be a judgment debtor under that section and the claimant under the child support lien is considered to be a judgment creditor under that section." The person claiming the lien may file a contradicting affidavit: "If the claimant files a contradicting affidavit as described by Subsection (d), the issue of whether the real property is subject to the lien must be resolved in an action brought for that purpose in the district court of the county in which the real property is located and the lien was filed." If the property is in the same county in which a divorce or action for child support was had, then the court that heard the case would likely have jurisdiction over the lien issue as well.
PART FOUR: REMOVAL OF FRAUDULENT LIENS
Removal of a Fraudulent Lien
Finally, there are instances where a purported lien or claim against real property is outright fraudulent. Subchapter J of the Government Code provides three forms of relief in the event a fraudulent instrument is filed. The first is based on action to be taken by the clerk. If a court clerk or county clerk has a reasonable basis for believing that a filed document is fraudulent, Sec. 51.901 provides that the clerk shall, after giving notice "(1) request the assistance of the county or district attorney to determine whether the document is fraudulent before filing or recording the document; (2) request that the prospective filer provide to the county clerk additional documentation supporting the existence of the lien, such as a contract or other document that contains the alleged debtor or obligor´s signature; and (3) forward any additional documentation received to the county or district attorney."
What would provide a "reasonable basis" for a clerk to take action? Someone would have to point out the issue or supply the clerk with an appropriate affidavit.
The second avenue of relief is provided by Sec. 51.902 and is based on action by the person aggrieved by the filing of a fraudulent judgment lien:
Sec. 51.902. ACTION ON FRAUDULENT JUDGMENT LIEN. (a) A person against whom a purported judgment was rendered who has reason to believe that a document previously filed or recorded or submitted for filing or for filing and recording is fraudulent may complete and file with the district clerk a motion, verified by affidavit . . . requesting a judicial determination of the status of a court, judicial entity, or judicial officer purporting to have taken an action that is the basis of a judgment lien filed in the office of said clerk.
If the motion is successful, a district judge will rule that the instrument in question not be accorded "lien status."
A third type of action is contained in Sec. 51.903 and again requires the action and initiative of the person who was harmed by the fraudulent instrument:
Sec. 51.903. ACTION ON FRAUDULENT LIEN ON PROPERTY. (a) A person who is the purported debtor or obligor or who owns real or personal property or an interest in real or personal property and who has reason to believe that the document purporting to create a lien or a claim against the real or personal property or an interest in the real or personal property previously filed or submitted for filing and recording is fraudulent may complete and file with the district clerk a motion [entitled "Motion for Judicial Review of Documentation or Instrument Purporting to Create a Lien or Claim"] verified by affidavit . . . requesting a judicial determination of the status of documentation or an instrument purporting to create an interest in real or personal property or a lien or claim on real or personal property or an interest in real or personal property.
Since the foregoing paragraph expressly mentions instruments "purporting to create an interest in real or personal property," this statute includes fraudulent deeds filed in the county clerk´s real property records.
The district court is asked to enter a judgment making one or more findings stating that the instrument:
(1) IS NOT provided for by specific state or federal statutes or constitutional provisions;
(2) IS NOT created by implied or express consent or agreement of the obligor, debtor, or the owner of the real or personal property or an interest in the real or personal property, if required under the law of this state or by implied or express consent or agreement of an agent, fiduciary, or other representative of that person;
(3) IS NOT an equitable, constructive, or other lien imposed by a court of competent jurisdiction created by or established under the constitution or laws of this state or the United States; or
(4) IS NOT asserted against real or personal property or an interest in real or personal property. There is no valid lien or claim created by this documentation or instrument.
Penalties for Fraudulent Liens
Sec. 12.002 of the Civil Practice & Remedies Code addresses "Liability related to . a fraudulent lien or claim filed against real or personal property." A person who knowingly and intentionally files a fraudulent lien may be held liable in civil district court for the greater of $10,000 or actual damages, exemplary damages, and recovery of attorney´s fees and costs. It is also a criminal offense (See Sec. 37.01 of the Penal Code). If applicable, a cause of action under Chapter 12 should be included in any suit against the lien claimant.
Filing of a fraudulent lien may under certain circumstances also form part of a cause of action under the Deceptive Trade Practices Act (Sec. 17.44 et seq., Business & Commerce Code).
Information in this article is proved for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well. This firm does not represent you unless and until it is expressly retained in writing to do so.
Copyright © 2013 by David J. Willis. All rights reserved worldwide. David J. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his web site, http://www.LoneStarLandLaw.com.