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 materialman’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 Texas Constitution article 16, section 50(a).There is no removal procedure for such liens other than entering into a payment arrangement with the taxing authority.
The Title Commitment
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, adversely affects a property’s marketability. This is so because a title company may 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? Probably not. A fact of life? Yes.
The First Step in Lien Removal
The first step in lien removal 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 then make formal 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 potential liability 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 additional action.
The best way to commence the process is to ask your real estate lawyer to send an explanatory demand letter with an already-prepared release enclosed, ready to be signed by the creditor. This approach has credibility. Note that any old release will not do. The release must be carefully and correctly drafted or (1) the creditor may not sign it, and/or (2) a 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 new construction, whether residential or commercial. The M&M lien is enshrined in Texas Constitution article XVI, section 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 speedy and efficient enforcement of said liens.
This constitutional lien is in addition to the statutory mechanic’s lien available pursuant to Property Code sections 53.001 et seq. All of this legal protection assumes that contractors and subcontractors will act in good faith, timely comply with notice requirements, and file only liens that reflect money legitimately owed them. But this is not always, nor 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. In addition, 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.
General Rule Applicable to M&M Liens
Property Code section 53.157 lists six ways that a mechanic’s lien may be discharged of record. The best method is to file 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 Section 53.157
What if the mechanic’s lien is alleged to be invalid or defective? Property Code section 53.160 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;
Filing Suit to Remove an M&M Lien
(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
(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;
(B) the owner received a notice of the claim as required by this chapter;
(6) when the lien affidavit was filed on homestead property:
(A) no contract was executed or filed as required by section 53.254;
(7) the claimant executed a valid and enforceable waiver or release of the claim or lien claimed in the affidavit.
(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
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 one's 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.
Section 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.
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 relevant documents and at least one sworn affidavit. The hearing is an evidentiary hearing, a "mini-trial," and testimony will be taken for the record. The judge then rules and the effect is immediate. There is no requirement that 30 days elapse before the ruling is final, as is the case with final judgments. A certified copy of the order should 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.
Section 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, one needs to determine if the judgment in question was abstracted before or after Sept. 1, 2007.
Judgment Liens Abstracted after September. 1, 2007 (New Law Applies)
Property Code section 52.0012(c) deals with judgment liens against the homestead which are 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.
A judgment lien does not attach to a judgment debtor’s exempt real property, including the debtor's homestead. It can be difficult, however, to persuade a title company 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 is true with other liens, the first step in the 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, Property Code 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 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;
Judgment Liens Abstracted Prior to September 1, 2007 (Old Law Applies)
2. a 30-day demand letter has been sent by CM/RRR to the creditor and its attorney enclosing a copy of the affidavit that is intended to be filed, with evidence of homestead status 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 is 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); and
7. the proposed purchaser or lender is a bona fide third party, paying money for or lending money against the property.
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, 310 Ark. 179, 833 S.W.2d 366 (1992), applies. Tarrant Bank decided that a judgment creditor may be liable in damages if it fails 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 by 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 section 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, which can be a disappointment to a seller who has diligently followed the provisions of the lien removal statute. 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 a 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 (sometimes there is a notation that it is "HS"); (4) the name and address of each judgment creditor and/or its attorneys; and (5) correspondence between the judgment creditor and the client.
Note item (4). Clients often expect a lawyer to be able to locate their creditors as part of the lien removal process. This may not be a reasonable assumption, since lawyers are not usually also investigators. Demand letters may be returned labeled "no such address" or the like. If an investigator is needed, the client should be prepared to bear that expense.
PART THREE: RELEASE OF CHILD SUPPORT LIENS
Texas Family Code section 157.3171 establishes 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 Property Code section 52.0012 (discussed above). The procedure involves the filing of an affidavit and is identical to that contained in section 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
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 at the clerk level. If a court clerk or county clerk has a "reasonable basis" for believing that a filed document is fraudulent, section 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 likely have to point out the issue or supply the clerk with an appropriate affidavit.
The second avenue of relief is provided by Government Code section 51.902 and is based on action by the person aggrieved by filing of a fraudulent judgment lien:
§ 51.902. Action on Fraudulent Judgment Lien
If the motion is successful, a district judge will rule that the instrument in question not be accorded "lien status."
(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[.]
A third type of action is contained in Gov. Code section 51.903 and again requires the action and initiative of the person who was harmed by the fraudulent instrument:
§ 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 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 instruments "purporting to create an interest in real or personal property" are expressly mentioned, this statute includes fraudulent deeds filed in the county clerk’s real property records.
Section 51.903 supplies a statutory form of "Motion for Judicial Review of Documentation or Instrument Purporting to Create a Lien or Claim." The motion asks the district court to find that the document or 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.
Note that if the court so finds, it nonetheless makes no finding as to the underlying claim, which can still be litigated–only as to the filing of the document or instrument in question.
Penalties for Fraudulent Liens
Chapter 12 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 Tex. Penal Code § 37.01. If applicable, a cause of action under Civil Practice & Remedies Code section 12.002 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. Tex. Bus. & Com. Code §§ 17.44 et seq.
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 website, http://www.LoneStarLandLaw.com.