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Compared to prime (general) contractors, it is much more difficult for subcontractors to perfect lien and bond claims on private projects.  Subcontractors must give timely notice of non-payment to the owner.  If the subcontractor claimant does not have an agreement with the prime contractor, notice must also be given to the prime contractor.  Failure to comply with the pre-lien notice requirements is fatal to a subcontractor’s lien claim

Prime contractors, on the other hand, are not burdened with pre-lien notice requirements.  They can still claim a lien (even if no affidavit is recorded) and the value of their lien claim is not affected by retainage.

The reasons for this disparate treatment stems from the fact that a general contractor’s lien rights derive from the Texas Constitution, common-law, contract and statute.  Subcontractors’ lien rights are derived solely from statute and are totally dependent upon compliance with these statutes. This system creates many obstacles and pitfalls for subcontractors that properly provide labor and materials.
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Licensed image from Thinkstock/Wavebreakmedia, Ltd
Licensed image from Thinkstock/Wavebreakmedia, Ltd

After struggling to cobble together your mechanic’s lien affidavit, you’ve driven 150 miles to reach the county clerk’s office before close of business. Today is the filing deadline.  No worries, you made it!! But now you stand toe-to-toe and face-to-face with a clerk that refuses to record your claim.  WHAT NOW???

More often than you might imagine, this same scene plays out across Texas.  I’ve had to send my fair share of post-filing fight flowers to mend fences with clerks that do not understand the limits of their own discretion.  The fights are not limited to affidavits claiming mechanic’s liens.  I’ve witnessed clerks refuse to accept indemnity bonds, statutory payment bonds and other time critical records.

I will guarantee that posted in the office of every clerk is a sign advising,
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Do you know any criminals? 

If you have worked in the construction industry for very long then the likely answer is, “Yes”!  I’m not talking about folks that you believe are cheats, scoundrels and liars.  Nope.  Instead, I’m talking about contractors, subcontractors and owners that misapply funds for construction projects received for the benefit of those that furnish labor and materials.  It is rare (in fact, I don’t know of a similar statute) to find a serious crime located outside of the Texas Penal Code.  However, Chapter 162 of the Texas Property Code, commonly referred to as the “Texas Trust Fund Statute,” makes the misapplication of $500 or more a Class A misdemeanor.  If a person
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Licensed Image from Bulkimport/Photodisc/Thinkstock
Licensed Image from Bulkimport/Photodisc/Thinkstock

Who bears the risk when an owner refuses to pay the general contractor or experiences financial failure?  More than likely, the subcontractors whose agreements include a contingent payment clause.  Two types of payment clauses exist and both are enforceable.  “Pay-when-Paid” clauses and “Pay-if-Paid.”  Pay-when-paid clauses allow the general contractor to wait a reasonable time for the owner to pay before paying the subcontractor.  Pay-if-paid clauses shift the risk of non-payment completely to the subcontractor.  Stated another way, a pay-if-paid clause makes the general contractor’s duty to pay the subcontractor absolutely conditional upon receiving the owner’s payment. 
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