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Lien In: A Guide to Lien Categories and Priorities

Spell check is a wonderful tool, especially for attorneys. However, there are some words that attorneys frequently deal with and which often sneak past the spell check filters. One such word is “lien,” or rather, it is the phrase “a lien.” Amusingly, I have seen more than one petition filed with a court, complaining of alien on the plaintiff’s property. Also amusing is the variety of ways attorneys pronounce the word “lien.” Some pronounce it like “lean,” others “lynn,” and I have even heard a few pronounce it like “lion.”

All jokes aside, liens are serious business. A lien is basically an interest that a creditor holds in a debtor’s property to secure a debt. If the debt is not properly and completely repaid, then the creditor may be able to repossess or foreclose the property, depending on the type of lien and type of property to which it is attached. This article focuses primarily on liens affecting real property.

A creditor cannot place a lien upon a debtor’s property merely because a debt is owed—generally, the lien must be either agreed to by the debtor or be specifically authorized by law, and usually must be created (the technical term for which is “perfected”) by following a prescribed procedure. Also, certain liens may be limited by homestead laws, but such limitations are beyond the scope of this article. This article will discuss tax liens; judgement liens; and mechanic’s, contractor’s, or materialman’s liens; but there are many other types of liens which may affect real property.

Tax Liens are Given Priority

Tax liens, specifically ad valorem tax liens, are authorized both by the Texas Constitution and the Texas Tax Code. Essentially, a tax lien attaches to all taxable real property on January 1 of each year, and if the owner of the property does not pay the taxes imposed upon the property, the taxing authority may foreclose to recover the delinquent taxes. In some cases, the property owner may have an opportunity to redeem the foreclosed property by paying the delinquent taxes and other related costs and fees. Tax liens are usually given priority over other liens, meaning that if there is more than one lien on the property, the tax lien will be paid from the proceeds of the foreclosure sale first.

Lis Pendens Notice for Real Property

Judgment liens are used to secure a judgment awarded by a court against the owner of the property, and are authorized by the Texas Property Code. A judgment lien is a type of “general lien,” which means that it attaches to all non-exempt real property owned by the defendant, rather than to just a specific property as an ad valorem tax lien would. When a pending lawsuit itself involves an interest in a specific parcel of real property, a notice known as a “lis pendens” can be filed to give potential buyers of the property constructive notice of the pending lawsuit. A lis pendens does not create a security interest in the property for a potential monetary judgment, but instead prevents a buyer from becoming what is referred to in the law as a “good faith purchaser for value,” which could eliminate the plaintiff’s ability to recover an interest in the property as a result of the lawsuit.

M&M Liens

Lastly, mechanic’s, contractor’s, or materialman’s liens, referred to as “M&M liens” for short, are used to secure payment for the labor and materials that a contactor furnishes to improve real property. For example, if a property owner hires a contractor to build a garage on the property, and the owner does not pay the contractor, then the contractor can perfect an M&M lien on the property to ensure payment for the work done and materials provided. The requirements for perfecting an M&M lien are relatively complex, especially if a homestead is involved. Also, subcontractors generally cannot benefit from M&M liens to the same extent a general contractor can because the primary responsibility for paying subcontractors lies with the general contractor who hired them. Imagine, for example, that the owner paid the general contractor the full contract price, but the general contractor did not, in turn, pay a subcontractor. Justice would not be served by allowing the subcontractor to foreclose an M&M lien on the owner’s property, because the owner has already paid the contractor for the completed work. Therefore, subcontractor liens against the owner’s property are somewhat limited, but in some cases the owner must retain a portion of the funds owed to the contractor for the benefit of the subcontractors.

The next time you think of liens, perhaps you will think of aliens, a lean lion name Lynn, or may be just M&Ms. In any case, beware of spell check—it is not prefect, err, perfect.

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