Serving a pre-lien notice letter is a pre-requisite to filing a lien for anyone who was not hired directly by the property owner. However, it can also be an excellent tool to enforce payment all on its own.
The primary purpose of the pre-lien notice letter is to put the owner and upstream contractors on notice that a debt is owed. Another statutory purpose of the pre-lien notice letter is to force the owner to set aside project funds to pay the debt in the event the debtor does not. Under Texas Property Code Section 53.081, this is known as “Fund Trapping.” This gives you another source of funds to look to for payment in the event the debtor cannot pay or if there are other liens ahead of you. Additionally, if the owner fails to set aside project funds to cover the debt, then the owner may become personally liable for the debt at a later date if the debt remains unpaid.
If done correctly, there is a third benefit to the pre-lien notice letter that can actually result in forcing the owner to pay the debt now! Pursuant to Texas Property Code Section 53.083, if the general contractor fails to inform the owner in writing within 30 days after receiving the pre-lien notice letter that it intends to dispute the claim, then the general contractor is deemed to have assented to the demand and the owner must pay the debt from the project funds.
The deadlines for serving pre-lien notice letters are strictly enforced by the courts. A failure to comply with the deadlines will likely result in a waiver of your right to lien the property. To gain a more thorough understanding of the statutory pre-lien and lien filing deadlines and to determine whether you are still within the deadlines, click here “Understand Pre-Lien and Lien Filing Deadlines.”
In addition to the above statutory benefits, a pre-lien notice letter is a fantastic opportunity to once again demand payment and inform the debtor what will happen if they do not pay. The pre-lien notice letter should include: (1) a demand for immediate payment; (2) a representation that a lien will be filed against the property if payment is not immediately made; (3) a representation that a lawsuit will be filed to foreclose on the lien; (4) a brief description and notice of any potential statutory violations as a result of the failure to pay, such as Property Code Chapter 28 (the “Prompt Payment Act”) which imposes an annual 18% interest penalty on unpaid construction debts, Property Code Chapter 162 (the ”Trust Fund Statute”) which imposes both civil and criminal penalties for diverting construction funds from a project, and Civil Practice and Remedies Code Section 38.001 (statutory right to attorneys’ fees); and (5) a representation that the principal amount owed, interest on that amount, attorneys’ fees, statutory penalties, and cost of court will be sought if payment is not immediately made and a lawsuit is filed. Send a pre-lien notice letter.