SOUTHERN STATES
LIEN LAWS

Foreword

This information concerning lien laws in southern states is intended to provide only a brief, non-technical overview. There is no intent to provide legal advice or information that could be used in lieu of the professional services of a local lawyer.

Lien laws are different from state to state. Some are extremely technical, even to the extent that there is an exact format for claims and notices. Lien laws, like all laws, are subject to change and interpretation by the courts. Advice of a local attorney is absolutely necessary when seeking to file and perfect a lien.

The Alabama Branch AGC owes a debt of gratitude to other branches that provided copies of lien laws and other pertinent information used in this synopsis.

There are essentially two types of liens in Alabama: 1. The "unpaid balance" lien in which a contractor or person furnishing material may file a lien for the unpaid balance due the contractor by the owner; 2. the "full price" lien in favor of those in direct contact with the owner and -- in some cases -- materialmen.

The unpaid balance lien is only good if full payment has not been made to the prime contractor. When there is no unpaid balance due the contractor, no lien may be established. This lien also covers employees of the contractor or persons furnishing materials to him. The full price lien favors the supplier only if the supplier gave notice to the owner before furnishing materials.

All potential lienors, with the exception of an original contractor (a contractor with a direct contract with the owner who is exempted from the notice requirement), must fulfill three basic pre-requisite steps to perfecting a lien: 1. provide statutory notice to the owner; file a verified statement of lien in the probate office of the county where the improvement is located; and file suit to enforce the lien.

A full price lien requires written notice to the owner that "such certain, specified material will be furnished by (the supplier) to the contractor or subcontractor for use in the building or improvements on the land of the owner or proprietor at certain specified prices. While the statute does not specify how much notice is required to establish a full price lien, it is presumed that sufficient notice must be given to provide the owner reasonable opportunity to object in writing "before the material is used."

Even though the time may have passed to provide the advance notice of a full price lien, the potential lienor may provide the owner written notice to establish an unpaid balance lien. The only timing provision for such notice is that it be given before the filing of a verified statement of lien. Once the notice is given, any unpaid balance in the hands of the owner is held subject to such a lien.

When filing any lien, special attention should be paid to the property description. The statute specifically provides that, with regard to property located in a city or town, a "description by house number, name of street and name of city or town" is sufficient.

The verified statement of lien must be filed in the office of the judge of probate of the county where the subject property is located. When the property is located in more than one county, the statement must be filed in each county.

Laborers must file the statement within 30 days, original contractors must file within six months and every other claimant must file within four months after the last item of work or materials has been performed or furnished.

The third and final step is to file suit in the circuit court (or district court when the amount is $50 or less) of the county where the property is located. If the subject property is located in two or more counties, separate actions must be brought in each of the involved counties. Suit must be filed within six months from the time when the debt is contractually due and payable to the lienor.

If the lien claimant intends to establish a priority over another party interested in the property, such as a mortgagee, then that other person should be made a party to bind it to the judgment. The owner or proprietor of the subject property is a necessary party to the suit. Where the lien claimant seeks to establish an unpaid balance lien, the general contractor is a necessary party.

Basically, most persons involved with the project will have lien rights. A subcontractor is defined as one with a contract with the contractor or a person with a contract with someone who has a direct contract with the contractor. This means that the subcontractor to a subcontractor would have lien rights, but anyone farther down the line is not covered.

In 1995 the Arkansas legislature made changes in the state's lien laws. However, much of the old statute and old case law remain. The right of a materialman to a lien is wholly dependent on the statute and its provisions. Enforcement of the materialman's lien will still require proof that the goods or services were delivered and incorporated into the improvement. The burden is placed on the person claiming a lien to show the actual use of the goods or work. The law has not been altered concerning the matter of profits and the merchant is permitted to obtain the retail price for goods that include an element of profit. Ten days notice prior to filing the lien still applies to all but general contractors. The statement of account still must be filed with the circuit court in the proper county within 120 days after the material has been furnished or the work performed. The statement is a just and true account of the demand due or owed after all credits.

Liens have equal priority over each other without regard to the date of filing the account or lien or the date when the particular labor or material was performed or furnished. All such liens shall date from the time that the construction or repair first commences.

Notice of the right to claim a lien may be "incorporated into the contract, or affixed thereto, and shall be conspicuous ..." The notice then may be placed in the contract. A prudent person should still state the statutory notice in all capitals with a separate signature.

No material supplier or laborer shall be entitled to a lien unless the material supplier or laborer notifies the owner of the commercial real estate being improved, in writing, that such material supplier or laborer is currently entitled to payment but has not been paid. This notice shall be sent to the owner and to the contractor by registered mail, return receipt requested, before 75 days have elapsed from the time that the labor was supplied or the material furnished. The notice must contain: 1. a general description of the labor, service or material furnished and the amount due and unpaid; 2. the name and address of the person furnishing the labor, service or materials; 3. the name of the person who contracted for purchase of the labor, service or materials; 4. a description of the job site sufficient for identification; 5. a particular notice listed in the appendix must be set out in boldface type.

Preconstruction notice must be give in order to safeguard lien rights. Previously, subcontractors and suppliers have been at the mercy of the prime contractor for this notice. Since the prime contractor did not previously need the notice to perfect its own rights, there was little incentive to give the notice. A subcontractor or supplier now has the right to demand the prime contractor provide a certificate that the owner has received the preliminary notice.

If work commences on a project before the filing of the construction money mortgage, then the lender's priority is lost. The result could be the loss of a project if a lender refuses to issue the construction financing because there is a question concerning whether construction site activity is commencement. The new law defines commencement as: 1. delivery of a significant amount of building material to the site; 2. grading or excavating the site; 3. laying out lines or grade stakes; 4. demolition in an existing structure.

In cases where the contractor does work and is not paid by the owner for the full amount that is due, the contractor can file a lien against the owner's property. The Claim of Lien must be filed with the Clerk of the Circuit Court in the county where the property is located. This filing must be done within 90 days of when the contractor last performed any labor or services or furnished materials. Providing labor or services includes any work done by a subcontractor hired by the contractor. Also, for purposes of this time period, any materials furnished to the job site that the contractor must pay for will extend the time within which a lien can be filed even though the contractor does not deliver the materials himself. This 90-day time period generally will not be extended because of warranty work performed by the contractor or any of his subcontractors. The contractor must also serve a copy of the Claim of Lien on the owner and the lender (if any) within 15 days of the date the Claim of Lien is recorded.

If the Claim of Lien contains an error or omission, the Claim of Lien can be amended. However, the amendment to the Claim of Lien can only be made within the same 90-day period that the original lien could have been filed. Even if the amendment is recorded within this time period, the amendment can be avoided by any person who has relied upon and taken action, in good faith, as a result of the original Claim of Lien.

The contractor is not required to give a Notice To Owner as a condition for obtaining a lien against the owner's property. However, if the contractor is entitled to receive his final payment, the contractor must give the owner a Contractor's Affidavit before any lien can be effective. A Contractor's Affidavit must state that all subcontractors, sub-subcontractors and material suppliers have been paid. If everyone working on the job has not been paid, then the Contractor's Affidavit must list those who remain unpaid and the amount due each person. If the final payment is due, the contractor has no lien rights until the Contractor's Affidavit is given to the owner.

Even if the contractor is not entitled to the final payment, the owner can require the contractor to provide a Contractor's Affidavit any time a progress payment is due. The Contractor's Affidavit must be given to the owner at least five days before the contractor can file a lawsuit to enforce his lien. This is true even if the owner has wrongfully terminated the contract or if the contractor has no one working for him on the job. Although disregarding this requirement does not cause the lien itself to be invalid, it could be the basis for dismissing the contractor's lawsuit if the affidavit is not given at least five days before the case is filed.

If the direct contract between the owner and the contractor is less than $2,500, subcontractors and suppliers who do not have a direct contract with the owner have no lien rights on the job. Only the contractor (the person with a direct contract with the owner) can file a lien on jobs of less than $2,500.

This exemption from subcontractor's liens does not apply merely because the contract between the contractor and subcontractor is less than $2,500. For example, if an owner and a contractor have a $10,000 contract to remodel the owner's office, the contractor has lien rights on that job. If the contractor hires a subcontractor to do $1,000 of the work, that subcontractor also has lien rights because the direct contract with the owner is greater than $2,500.

Using that same example, if the contract to remodel the owner's office was only $2,000, the contractor could record a Claim of Lien but the subcontractor who did $1,000 of the work could not assert a lien against the owner's property.

There is no compelling reason for the exemption to apply only to contracts of less than $2,500. The Lien Law merely recognizes that owners with very small construction contracts should not be put at the risk of double liability if subcontractors or suppliers are not paid.

All subcontractors and material suppliers who do not have a contract directly with the owner must send a Notice to Owner in order to have any lien rights on the job. It does not matter that the owner is your best friend or that he sees you on the job every day. If the subcontractor or supplier does not have a contract with the owner and does not give a Notice to Owner, he cannot file a lien on that project. The Notice to Owner should be sent to the owner and the lender (if any) before the subcontractor does any work or the supplier delivers any materials or rental equipment to the job site. At the absolute latest, the Notice to Owner must be served within 45 days of when a subcontractor starts to work on the job. In the case of a material or rental equipment supplier, the Notice to Owner must be sent to the owner within 45 days of the date the first materials or rental equipment are delivered to the job site.

If the work involves specially fabricated materials, the 45-day time period does not begin to run until the supplier begins to assemble the materials. Labor performed for the design work does not trigger the time period for the Notice to Owner.

A subcontractor or supplier should not wait until the 45 days is about to run out before giving a Notice to Owner. There is one situation in which the Lien Law does not give subcontractors or suppliers the full 45 days in which to give the Notice to Owner.

The Notice to Owner must be given to the owner before the contractor provides the owner with the Final Contractor's Affidavit and is paid his final payment. In certain situations, the final payment could occur before the 45 days. To be absolutely safe, the subcontractor or supplier should give the Notice to Owner before the work begins.

The Notice to Owner form includes certain important disclosures to the owner regarding the legal significance of the Notice of Owner. In some areas of Florida, contractors have attempted to prohibit subcontractors or suppliers from serving Notices to Owner. That practice is a violation of the contractor's licensing law and can result in disciplinary action by the Construction Industry Licensing Board.

Subcontractors must also refrain from any actions that would be viewed as discouraging a sub-subcontractor or supplier from serving a Notice to Owner. Subcontractors who are certified or registered with the Construction Industry Licensing Board can also be subject to licensure discipline as a result of any such actions.

Even when all required notices are given and the claim of lien is recorded in a timely manner, lien rights may be lost by the application of certain lien law land mines. A comprehensive discussion of all of those land mines is beyond the scope of this overview. The subject matter of the most common land mines are:

• Validity of lien waivers.
• Overstated or exaggerated notices.
• Improper service of required notices.
• Failure to properly respond to a demand for sworn statement of account.
• Failure to demand a designation of account.
• Improper licensing of the lienor.
• Misapplication of construction funds.

You should become familiar with the provisions of the lien law relating to each of these land mines.

A lien can only be filed if the party filing the lien -- general contractor, subcontractor, supplier, etc. -- has substantial compliance in the contract with the owner. Also, a lien must be filed with the clerk of the superior court of the county where the property is located within three months after completion of the work.

When filing a lien, the claimant must send a copy of the lien by registered or certified mail to the owner of the property or the contractor as the agent of the owner. The party filing the lien has 14 days to file the lien with the clerk of the superior court in the county where the property is located. This notice must refer to the then-owner of the property against which the lien was filed and referring to a deed or other recorded instrument with the chain of title of the affected property.

If the contractor or subcontractor shall abscond or die or leave the state within 12 months from the date such services, labor, supplies or material are furnished to him, so that the personal jurisdiction cannot be obtained on the contractor or subcontractor or if the contractor or subcontractor shall be adjudicated a bankrupt, the claimants on the lien do not have to file a claim against the contractor or subcontractor as a prerequisite to enforcing a lien against the property improved by the contractor or subcontractor. The claimant may enforce the lien against the property so improved in an action against the owner if filed within 12 months from the time the lien becomes due. The notice shall identify the court wherein the action is brought; the style and number of the action, including the names of all parties thereto; the date of the filing of the action; and the book and page number of the records of the county wherein the subject lien is recorded.

Liens rank in importance according to the date they were filed -- first liens being more important than last liens. Liens are inferior to liens for taxes, to the general and special liens of laborers, to the general lien of landlords of rent when a distress warrant is issued out and levied, to claims for purchase money due persons who have only given bonds for titles.

Written notice of contract which exceeds $25,000 must be timely filed by general contractor, with Recorder of Mortgages of the parish in which the work is to be performed. The Notice must: be signed by owner and contractor, identify work to be done, identify parties giving addresses, state price or method of calculating price, when payment is due and general terms. Notice is not improperly filed because of error or omission or because bond is not attached. The former law requiring filing of contract before work is commenced and within 30 days after execution has been suppressed as being of no value.

Subcontractors, laborers, employees, suppliers and lessors have a claim against the owner and the general contractor. Owner is relieved of claims against him when claims arise from performance by general contractor for whom bond is given and notice properly and timely filed. Amount of required bond is dependent on size of contract. Surety shall not be bound for a sum in excess of total amount expressed in the bond but is bound by deemed inclusion of specific conditions. Such claims are in addition to other contractual or legal rights. An owner is a person deemed to own - or have right to the use or enjoyment of an immovable or have interest therein. Claims against owner are limited to owner or owners having legal contract with contractor. If more than one owner has contracted each is liable for the claim.

A general contractor is one who contracts with an owner to perform all or part of a work. A subcontractor is one who contracts with general contractor to do all or part of the work contracted by the general contractor. Work performed under a contract is deemed to be separate work even thought it may be part of a larger project being carried out by the owner. Where claims are made, if notice and bond are not filed then questions of who performed work is left to determination of the courts. If amount owed exceeds total amount of bond then surety liability is discharged: First pro rata to persons with their claims properly preserved, second to persons who do not properly preserve claims, in order in which claim is presented, to who contractor is otherwise liable and third to the owner. A laborers privilege is given priority over all other except those securing ad valorem taxes or assessments. Other privileges rank in order in which they become effective. All claims of materialmen, subcontractors and lessors of movables rank equally and ahead of the privilege of contractor and surveyors, architects and engineers which also rank equally. If no claimant conclusively establishes prior claim superior to others a pro rata distribution is assumed.

If proper notice is filed, whether timely or not, person to who claim of privilege is granted shall within 30 days after filing notice of termination of work file statement of claims or privilege and, deliver copy to owner. A general contractor to who privilege is granted and preserved shall file statement of privilege within 60 days after filing notice of termination of work. Persons granted claim and privilege for work arising out of general contract, notice of which is not filed, shall file a statement of claims and privileges before time for filing expires, which is within 60 days after: the filing of notice of termination of the work or the substantial completion or abandonment of work if notice of termination is not filed.

Notice of termination of work shall identify the immovable, be signed in good faith by owner or his representative, certify that work is substantially complete, or, the work has been abandoned by the owner, or a contractor is in default under the terms of the contract. Notices of termination may be filed from time to time for specific portion of work. Work is substantially complete when, last work is performed or material delivered to site, or the owner accepts the improvement, possesses or occupies the immovable. Work is abandoned by owner if he notified person engaged in its performance that he is no longer to continue.

Claims against owner and privilege securing it and a claim against the contractor is extinguished if: claimant or holder of privilege does not preserve it, does not institute action against owner within one year after time for filing statement of claim or privilege, or the obligation which it secures is extinguished by failure to file statement of claim or privilege if it is delivered to contractor within allowed period. Failure to file action against owner shall not extinguish claim against contractor if action against contractor is instituted within one year after time for filing statement of claim or privilege to preserve it.

Extinguishment of claim shall not affect other rights against owner, contractor or surety. Privilege is extinguished if bond is filed by owner or by the contractor.

The recorder of mortgages shall cancel notice of contract upon written request made more than 30 days after filing notice of termination if statement of claim or privilege was not filed in the 30 days and request contains written concurrence of contractor or acknowledgment of payment in full. If request for cancellation does not contain written concurrence or receipt but statement of claim or privilege was not filed in the 30 days, all claims except that of contractor are canceled. Notice of contract is completely canceled upon written request of any person if made more than 60 days after notice of termination and contractor did not file claim within that time or request shows concurrence or a written receipt of payment in full by contractor.

Authorization for cancellation of an extinguished lien is required from person who filed lien within 10 days after written request is received from person entitled to demand it and failure to so deliver written authorization to cancel lien shall make person liable for damages. The recorder of mortgages shall cancel statement of claim by notation on recorded statement on receipt of written authorization by person filing claim or certified copy of executory judgment declaring claim extinguished Claim as to third person must be filed within one year after expiration of time as provided for other claims against owner or contractor with proper reference to notice of contract.

The effect of filing a notice of contract ceases five years after it is filed unless written request for its reinscription is properly made. The effect of the reinscription ceases five years after request for a reinscription if filed.

A proper bond, cash, certified funds or a federally insured certificate of deposit may be deposited with recorder of mortgages to guarantee payment of obligation up to a total of one hundred and twenty-five percent of stated claim. Bond shall be retained as part of records with approval noted in margin of statement of claim and statement of claim canceled as provided.

After period for filing claim has expired, any interested party may convoke a concursus (interpleader) citing owner, contractor, surety and all persons having claims or privileges to establish validity and rank of claims. Owner who is involved may deposit in registry of court the amounts owed by him to the contractor. Owner may by rule order other parties to show cause why claims should not be canceled. This is tried separately from main cause of action. Judgment shall be rendered directing recorder to cancel claims if court determines that claims have been paid and declaring owner free from further liability. the same procedures apply to surety except that amount deposited is equal to lesser of: full amount of bond or 125 percent of total claims properly filed.

Any document shall be deemed to have been given or delivered when it is delivered to person entitled to receive it or when document is deposited in U.S. mails for delivery by certified or registered mail.

Lien for laborers, materialmen and architects shall take effect only from time of commencing suit or from time of filing contract in office of Chancery Court Clerk.

Delivery of material to job is prima facie evidence of its use therein.

Lien declared in foregoing is limited to contractor or employee and when contract or employment is made by owner or his agent.

Lien suit exceeding $200 must commence by petition with required details in Circuit Court of county where property is located within 12 months next after time when money was due. If amount of controversy does not exceed $200, justices of the peace shall have jurisdiction.

All parties claiming liens on the same property shall be made parties to the suit.

Process shall be served personally on each defendant. If the defendant is a non-resident or can't be found, process can be served by publication as in Chancery Court.

Any sale of property made shall be by a special writ of execution and all liens paid pro rata.

Subcontractors and laborers may bond amount due by general by written notice to owner. Owner may pay amount due into court for final distribution according to rights of parties.

No contractor shall assign or dispose of proceeds from a contract except where solvent bond is provided. Any person furnishing labor or material under said contract has right to intervene and be made party to action instituted on such bond and right to pro rata share of funds after paying full amount to obligee. This bond does not protect a remote materialman or subcontractor unless it has a specific clause to that effect.

Unless owner institutes action against contractor within six months, subcontractors and materialmen have right to institute action. Action on any bond shall not be commenced until after completion of contract and within one year and notice must be published. Only one action may be brought on a bond and any party may intervene.

All action within no other specified period of limitation shall be commenced within six years. Action on any unwritten contract, express or implied, shall commence within three years.

On contracts with state or county or municipality or agency, bonds in addition to usual bonding shall be provided to assure payment of taxes, licenses, contributions, etc.

Lien law applies to all non-public work.

All claims of lien must be filed in the office of the clerk of superior court in each county wherein the real property subject to the claim of lien is located.

Claims of lien may be filed at any time after the obligation becomes due, but not later than 120 days after the last furnishing of labor or materials at the site of the improvement by the person claiming the lien.

All claims of lien must be filed using the form outlined in NC GS 44-A-12.

Contractors can be required to pay claims of second or third tier subcontractors, even though the subcontractor has been previously paid. To avoid double payment the contractor must:

1. Within 30 days following the date that the building permit is issued, post on the construction site in a visible location adjacent to the posted building permit and file in the office of the Clerk of Superior Court in the county where the project is located, a completed and signed Notice of Contract form.
2. After receiving a completed and signed Notice of Subcontract form from the second or third tier subcontractor, the contractor within five days following each subsequent payment must notify the second or third tier subcontractor of payments made to the first tier subcontractor, with whom the second or third tier subcontractor has a contract. The notice by the contractor shall specify the period covered by the payment and the date payment was made.

The forms to be used by the contractor and the second or third tier subcontractor are contained in NC GS 44A-23.

A person furnishing labor or material actually used in improving real property by agreement with or consent of owner shall have a lien on such property and on interest of owner up to amount due him in contract. South Carolina courts define "consent" to require a contract between mechanic and owner, before labor and material is furnished. Site preparation and security guards are considered labor performed.

Every laborer, mechanic or subcontractor of person furnishing material or labor for the improvement of real property authorized by owner has lien on property to value of labor or material furnished on contract price subject to existing liens of which he has actual or constructive notice. Subcontractor dealing with contractor has lien on funds remaining to be disbursed by owner and is entitled to payment in preference to contractor after notice to owner in writing of labor or material furnished.

Historically, general contractors who paid their subcontractors on a timely basis and in full in South Carolina faced the prospect of having liens filed against the project if the first-tier subcontractors failed to pay their own subcontractors and suppliers. Legislation enacted in 1992 is intended to eliminate this dilemma by allowing general contractors and second-tier subcontractors and suppliers to file public notices that will limit a general contractor's lien liability and at the same time protect a diligent supplier's or subcontractor's right to recover against the project under a lien.

To realize the benefits of the new legislation, the general contractor must give a "Notice of Project Commencement" within 15 days from commencing work. This notice must be filed with the Clerk of the Court of Common Pleas or the Register of Mesne Conveyances in the county or counties where the project is located, and must contain:

1. The name and address of the person filing the notice.
2. The name and address of the owner or developer of the project.
3. A general description of the improvement being construction.
4. The location of the project.

The general contractor also must post a notice at the project stating that "the contractor on the project has filed a Notice of Project Commencement at the county courthouse."

If the contractor properly and timely files the Notice of Project Commencement, the aggregate amount of liens which can be enforced on account of a subcontractor's non-payment to its own subcontractors and suppliers cannot exceed the amount of any remaining payments the general owes to the subcontractor. If, however, a second-tier subcontractor or supplier gives a "Notice of Intent to Lien" to the general contractor by certified or registered mail, any subsequent payments by the general contractor to the subcontractor will not reduce the amount recoverable from the general contractor by the person giving the Notice of Intent to Lien. Proper notice to the owner, if he can be found, is required within 90 days after completion or ceasing to provide labor and material. Lien attaches on recording date and is dissolved if suit to enforce lien is not commenced in six months after ceasing to provide labor and material.

The Notice of Intent to Lien must include:

1. The name of the claimant.
2. The name of the person with whom the claimant contracted or was employed.
3. A general description of the labor, services or materials furnished and their contract price or value.
4. A description of the project sufficient for identification.
5. The first and last dates on which materials, labor or services were provided or scheduled to be provided.
6. The amount due.

The Notice of Project Commencement and the Notice of Intent to Lien do not encumber or create any lien on the owner's project. Neither notice should delay, hinder or affect the owner's payment to the contractor.

The new legislation would allow a general contractor who has filed a Notice of Project Commencement, posted the required notice and received no Notice of Intent to Lien to pay a subcontractor in full without fearing that later liens could be enforced by an unpaid second-tier subcontractor or supplier to that subcontractor. If, however, the general contractor receives a Notice of Intent to Lien, he may implement safeguards to assure that the claimant is paid by the subcontractor. An additional benefit is that the general contractor now should know all persons who are supplying labor, materials or services to the project.

The most important legal concept related to the mechanics' lien statute is that it is strictly construed. This is important because numerous Tennessee cases have held that a lien claimant has no lien if the claimant makes even a minor mistake in filing this notice of lien, etc. A single misstep can be fatal to the mechanics' lien.

The lien attaches only to whatever interest the owner has in the land. Thus, if an owner is leasing land under a lease which does not require the owner to make improvements to the property, the lien may only be asserted against the leasehold interest, not the ownership interest of the lessor.

A mechanics' lien may not be asserted against public lands and/or projects.

There must be an agreement to improve the real property, written or unwritten, express or implied. This contract includes "extras," which are defined by the statute to mean "labor performed or materials furnished for improving real property, authorized by the owner and not included in previous contracts." it thus appears that a lien may be asserted on additional work done or materials supplied beyond those required under the original contract so long as the owner has authorized the additional work or materials.

Because the liens created under the statute attach at the same time, the lienors share pro rata when the liens are settled. However, the liens of laborers have preference over all other liens created by the mechanics' lien statute.

Obligatory advances for commercial purposes will be superior to an intervening lien only if the mortgage contains a statement giving notice that it secures obligatory advances and that it is for commercial purposes. An optional advance will be prior to an intervening lien only if the mortgagee has to actual notice of the intervening lien prior to making the advance.

A contractor who contracts directly with the owner need not give any formal notice to the owner in order to preserve his lien rights against the owner. A contractor who contracts directly with the owner has this lien for a period of one years after the work is finished or materials were supplied. The contractor who contracts directly with the owner must therefore bring suit to enforce the lien within this one-year period.

Although the contractor who contracts directly with the owner need not give formal notice to the owner, if the contractor desires to "preserve the virtue of the lien" as against someone who purchases or takes an interest in the owner's land without notice of the lien (a bona fide purchaser), then the contractor must take one of two specific actions. The most popular of those actions is for the contractor to file a sworn statement of the amount due and a reasonably certain description of the land within 90 days after the project is completed or within 90 days from the contractor's last work on the project. A "reasonably certain" description of the land is a complete legal description. Anything less than a complete legal description is apt to raise some question as to whether it is "reasonably certain."

The contractor without a direct contract with the owner must give two separate and distinct notices (although there is no reason why they cannot be done in the same document, if within the proper time period) to the owner and the contractor.

Within 60 days of the last day of the month in which work was performed or materials were furnished, the contractor must send a notice of nonpayment to the owner and the contractor who has a contract with the owner. The notice of nonpayment must contain all of the following information: The name and address of the contractor sending the notice of nonpayment; a general description of the work, services or materials provided; a statement of the last date the contractor performed work or furnished materials; and a description "sufficient to identify the real property" on which a lien may be claimed.

In addition to the notice of nonpayment, the contractor must also send to the owner a notice that the lien is claimed. This notice to the owner must be sent within 90 days from either the time the work is complete or within 90 days from the completion of the improvements. The lien of a contractor who did not contract directly with the owner is valid for 90 days from the date of the notice claiming the lien. The lien continues to be valid until the final termination of any suit for enforcement brought within the 90-day period.

A contractor without a direct contract with the owner must also file a sworn statement and notice of the lien in order to be protected from purchasers without notice.

Texas offers different liens for different types of jobs -- private, state and local government and federal, or Miller Act.

To perfect an original contractor's statutory lien on a private job, the contractor must file an affidavit claiming a lien no later than the 15th day of the 4th month following the month in which the original contract was materially breached or terminated, completed, finally settled or abandoned. The affidavit must contain a sworn statement of the claim, a legally sufficient description of the real property, a description of the work performed by the claimant, the amount due, the name and address of the reputed owner and the name and address of the claimant. The affidavit must be filed within the required time period with the county clerk in the county in which the property is located. The original contractor must send a copy of the lien affidavit to the owner at his last know business or residential address no later than the deadline for filing the affidavit or the 10th day following the filing of the affidavit, whichever is earlier.

There are two types of statutory liens for subcontractors.

The first is fund trapping: A claimant can obtain a lien on the property and subject the property owner to personal liability to the extent that the owner has received the requisite statutory notice and fails to withhold any further payments from the contractor in an amount sufficient to cover the stated claim. In other words, when an owner receives the required "fund-trapping" notice, any unpaid contract funds (up to the amount of the claim as stated in the notice) are "trapped" in the hands of the owner. The claimant has a lien on the real property and a claim against the owner personally for the funds that were "trapped" by the notice letter. There is a significant problem with this method, however. If the owner has already paid all of the contract funds by the time it receives the "fund-trapping" notice letter, there may be no contract funds trapped. In that case, the claimant does not have a valid lien on the property.

The other method is statutory retainage: To ensure that at least some contract funds will be available to satisfy claims arising toward the completion of construction, the property code requires ]an owner to retain 10 percent of the contract amount (or value of the work then completed) during the course of construction and for 30 days following final completion. The statutory obligation to retain contract funds is commonly known as "statutory retainage." This required retainage creates a fund for the benefit of claimants who have filed lien affidavits within 30 days after the completion of the original contract and who have sent the required notices. If an owner fails to retain sufficient funds as required by the code, the owner will be personally liable and his property subject to a lien to the extent of the funds that should have been retained.

The requirements for a subcontractor's lien (that is a subcontractor or supplier who has a director contract with the original contractor) are the same as those for an original contractor's statutory lien, except for the requirement of one additional notice to the owner. The second-tier contractor is required to furnish the owner with a written notice of its claim. The notice letter must be sent to the owner no later than the 15th day of the third month following each month during which the claimant performed work for which payment is sought. For the subcontractor's lien to "trap any contract funds," the letter must contain a specific statutory warning which advises the owner that he will be personally liable and his property will be subject to a lien if he fails to withhold sufficient contract funds to pay your claim. The letter must also be sent to the original contractor by actual delivery or certified mail.

Requirements for a third-tier subcontractor are the same as for a second-tier subcontractor, except that the third-tier subcontractor must also send a letter of notice to the original contractor. Because the third-tier subcontractor does not, by definition, have any direct contractual relationship with the original contractor, the property code requires third-tier subcontractors to send an early notice to the original contractor so that it can minimize its exposure to double payments to its subcontractors. The notice letter must be sent to the original contractor no later than the 15th day of the second month after each month in which the work was performed or materials were delivered. As with the notice letter to the owner, the letter to the original contractor must set out the amount of the claim and must be sent by actual delivery or mailed by certified mail.

One last type of lien on private projects is the bond claim. If the property owner required the original contractor to furnish a statutory payment bond, a subcontractor claimant may be denied the opportunity to secure a lien on the owner's real property; however, the claimant will have a claim against a surety on the bond. As long as the statutory requirements are met for perfecting the bond claim, a claimant's valid claim should be paid by the surety. The best way for perfecting a bond claim is to satisfy the requirements for a lien claim. The lien, if properly perfected, will be treated automatically as a valid claim against the bond. Claimants should elect to perfect the claim as if a lien was being sought because, if the bond is defective in some way, the claimant will be able to fall back on its lien claim. The alternate method for perfecting the claim against a payment bond is to furnish the surety with the same notices that were required to be sent to the owner for a lien claim. In other words, the claimant must send a written notice to the surety giving it fair notice of the amount and nature of the claim asserted no later than the 15th day of the third month following the month in which the work was performed (or material delivered). The claimant must also send the required notices to the original contractor.

Only subcontractors may file claims under state and local public works because a bond from the prime contractor is required on those jobs and he does not have a claim against his own bond.

To perfect a claim against a government code payment bond, the subcontractor who contracts directly with the prime contractor must send a notice to the prime contractor and the surety. The notice must be sent by certified or registered mail no later than the 15th day of the third month following each month in which labor was performed or materials were furnished for which payment has not been made. The notice must include a sworn statement of account which provides the following information:

A. The sworn statement must state that the "amount claimed is just and correct and that all just and lawful offsets, payments and credits known to the affiant have been allowed" and should state the amount of any retainage withheld but not yet due.

B. If no written contract exists, the notice must identify the party who employed the claimant, the date of the performance of labor or delivery of materials, a description of the labor or materials and prices, or a similar itemization of the claim; it should also include, if possible, copies of invoices, delivery tickets or orders showing a reasonable identification of the project and destination of delivery.

C. If a written contract exists, the claimant may attach to the sworn statement of account, as its notice, a copy of the contract advising of the completion of the same or the value of partial completion; if a written unit price agreement exists, a claimant may attach to the sworn statement a list of units and unit prices and a statement of the units completed or partially completed.

D. If the claim is for multiple items of labor or materials to be paid for on a lump sum basis, the notice must identify the party who employed the claimant or to whom the materials were delivered, the amount of the contract and whether it was written or oral, the amount claimed, the approximate date or dates of performance or delivery and a description of the labor or materials.

As with the notice to owner required on a private works project, the notice to surety must be sent as to each month in which the claimant furnished labor or materials for which payment is sought.

Subcontractors or suppliers who do not have a direct contractual relationship with the prime contractor perfect their claims I the same manner as direct subcontractors except that they have an additional notice requirement. Derivative subcontractors must send a notice of the unpaid amount to the prime contractor no later than the 15th day of the second month after each month in which labor was performed or materials were provided for which payment is sought. Like the second month notice to original contractor for private works, this second months notice to prime contractor must be sent for each month in which there is unpaid labor or materials. In other words, the notice can only cover work performed or materials supplied within the prior two months.

Texas courts require strict compliance with the notice deadlines. A notice give one day late will not suffice. Although notices can be hand delivered, they should also be mailed by registered or certified mail, return receipt requested. Proof should be retained which reflect when the notices were deposited in the United States mail. All notices sent to the surety and the prime contractor should also be sent to the governmental entity by certified mail.

If there is no bond (or if the entity illegally fails to require a bond for a larger contract), the claimant may secure a lien on the contract funds remaining in the hands of the governmental entity. To obtain a lien on the contract funds, the claimant must send a written notice to the public official responsible for the project and the prime contractor by certified mail no later than the 15th day of the second month following each month in which the claimant provided unpaid labor or materials. The notice must state: the amount claimed, the name of the party to whom the materials were delivered or for whom the work was performed, the dates and places of delivery or performance, a reasonable description of the work, an identification of the project, a statement of the amount due and the claimant's business address.

There are three primary differences between the protection afforded by the Texas Government Code and the federal Miller Act: third-tier claimants are not protected by the bond, the Miller Act treats suppliers and subcontractors differently (suppliers are not covered), the Miller Act does not require bonds for prime contracts between $25,000 and $100,000.

A subcontractor who has a contract directly with the prime contractor is not required to notify the surety or the prime contractor of its claim, but a formal demand for payment should be made. However, a derivative subcontractor (one that does not have a direct contract with the prime) must notify the prime contractor within 90 days from the date on which the claimant last furnished labor or materials for which the claim is made. The derivative subcontractor's notice must state "with substantial accuracy" the amount claimed and the identity of the party with whom the claimant dealt. The notice should be sent by registered mail. If the claim is not paid within 90 days after the last date on which the claimant furnished labor or materials to the project, the claimant may institute suit in United States District Court against the surety for payment. There is only a brief, nine-month window in which suit may be brought against the surety. There is a one year statute of limitations. In other words, suit cannot be brought against the surety more than one year after the last date that the claimant furnished labor or materials to the project. Warranty or corrective work will not extend this time period.

All persons performing labor or furnishing materials of the value of $50 or more for the construction, removal, repair or improvement of any structure may file a lien upon the structure. Those who may use the mechanic's lien laws include general contractors (those who contract directly with the owner), subcontractors (those who contract, not with an owner, but with a general contractor), and sub-subcontractors (those who contract with a subcontractor). Materialmen who supply goods to the owner or any general contractor, subcontractor or sub-subcontractor may also use the mechanic's lien laws.

The general contractor may file a lien at any time after the work is commenced or materials furnished, but not later than 90 days from the last day of the month in which the contractor last performs labor or furnished materials, but in no event later than 90 days from the time the building is completed.

No memorandum may include sums due for labor or materials furnished more than 150 days prior to the last day on which labor was performed or material furnished. A memorandum, however, may include sums withheld as retainage with respect to labor performed or material furnished at any time before the memorandum is filed. That sum may not exceed 10 percent of the total contract price. Claimants should file liens at least every 150 days. However, if the work is performed or the materials are furnished pursuant to individual purchase orders, mechanic's liens should be filed every 90 days.

The main elements of a lien memorandum are as follows: name of owner, address of owner, name of claimant, address of claimant, type of materials or services furnished, amount claimed, type of structure on which work done or materials furnished, brief description and location of real property, date from which interest on the above amount is claimed and signature of claimant or its authorized agent. In addition, the memorandum must contain an affidavit by the claimant or its agent that the owner is justly indebted to the claimant in the amount claimed by the lien. An improper property description or location is the most frequent fatal error committed by contractors attempting to file mechanic's liens.

The memorandum of mechanic's lien is recorded in the clerk's office of the circuit court of the county where the property, or a part thereof, is located.

A subcontractor, in order to perfect a lien, must file a memorandum of mechanic's lien claimed by subcontractor. The information required of the subcontractor is similar to that required of the general contractor except that the subcontractor must state the name of the general contractor in its lien. In addition, unlike the general contractor, the subcontractor must give notice in writing to the owner of the property of the amount and character of the subcontractor's lien. The subcontractor's memorandum of lien must be filed within the same time constraints as those for a general contractor.

A sub-subcontractor must file a memorandum of mechanic's lien claimed by a sub-subcontractor and must give notice in writing to the owner (or his agent) and to the general contractor (or his agent) of the amount and character of the sub-subcontractor's claim. The form of memorandum required of the sub-subcontractor is substantially the same as that required of the general contractor and subcontractor, except that the sub-subcontractor must identify the general contractor and the subcontractor involved. The sub-subcontractor's lien also must be filed within the same time constraints as those for a general contractor and should otherwise comply with the rules regarding perfection of liens filed by general contractors.

The general contractor may perfect a lien for the entire amount due him as of the date the lien is filed, including sums withheld as retainages for labor and material provided before the lien is filed. The amount of retainage claimed in the lien may not exceed 10 percent of the total contract price.

A subcontractor may perfect a lien for the amount due him, but his lien cannot exceed the amount which the owner is indebted to the general contractor on behalf of the subcontractor at the time the contractor gives notice to the owner, or the amount that the owner thereafter becomes indebted to the general contractor.

A sub-subcontractor may perfect a lien for the amount due him, but his lien cannot exceed the amount for which the subcontractor could himself claim a lien by virtue of the general contractor's indebtedness to him.

Often the person who files a memorandum of mechanic's lien has no intention of enforcing the lien. Instead, the lien is filed for the purpose of obtaining leverage over an owner or contractor in a payment dispute. Owners often are under a duty to construction lenders not to permit liens to be placed on the property. Similar duties are often placed on general contractors to owners and on subcontractors to general contractors. Consequently, if a lien is filed -- or even threatened -- this may force the owner, general contractor or subcontractor into reaching some satisfactory agreement regarding payment of the claim. Hence, the mere threat of filing a lien may be effective. However, in other cases, filing the lien may not produce the desired effect and suit must be brought to enforce the lien. It is absolutely essential that suit to enforce the lien be filed within the time period required by law. No suit to enforce a lien shall be brought after six months from the time when the lien was recorded or after 60 days from the time the structure was completed, whichever time shall occur last.