Quit Getting Stiffed: A Texas Contractor's Guide to Collections and Lien Rights

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Copyright © 2021 Karalynn Cromeens

All rights reserved.

ISBN: 978-1-5445-2180-0

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Lily, Holly, and Jessy: you are my joy. I hope I have taught you that absolutely anything is possible with prayer and a whole lot of hustle. I love you all so much.

Xoxoxox

Mom

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Contents

Introduction

1. Credit in the Construction Industry

2. The First Step to Having a Valid Lien

3. Notices, Notices, Notices

4. How to File a Valid Lien: Homesteads and Residential Projects

5. How to File a Valid Lien: Commercial Projects

6. The Lien Form

7. How to File a Valid Bond Claim

8. What Claims Do I Have on a Federal Project?

9. I Did Not Get Paid; Can I Take My Stuff Back?

10. Specially Fabricated Materials

11. How to Collect Retainage Every Time

12. How to Enforce Your Lien

13. Common Defenses to Liens

14. Bonds on Private Projects

15. Lien Waivers and Lien Releases

16. How to Create a Consistent Collection Strategy

Conclusion

Glossary of Key Terms

About the Author

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Introduction

How long could you stay in business without getting paid?

I don’t know about you, but I really do not want to find out. The whole point of this book is so you will never have to answer that question.

Maybe this sounds familiar: it’s Wednesday, you have butterflies in your stomach, and you are feeling very anxious due to the fact that payment on your big project is over sixty days late. If it does not come in by noon tomorrow, you have no idea how you are going to make payroll. Your mind starts racing, searching for any other options; your hands are sweaty, and all your muscles are tense as you realize there is no other way to make payroll this week if that check does not come. You ask your assistant for the tenth time today if the mail has come or if she has heard anything from the general contractor who owes you for the big project. She says no to both for the tenth time. Maybe you should call the general contractor’s office and demand to know where the payment is, but you don’t want to be labeled as one of those difficult to work with contractors who has less of a chance of getting hired on the next project. What do you do? Follow the collection strategies in this book and know your rights, and you won’t get stuck in a situation like this one.

For the readers of this book, this familiar situation will now be just a horror story they tell around the campfire and no longer their reality. The contractors who read this book know their rights and take the actions required to protect those rights; because of this, they are paid on time. The only butterflies they get are when they imagine how big their futures can be because they are getting paid.

What You’ll Learn

With helpful timelines and anecdotes, you will learn how to protect your rights to be paid the money you are owed. Applied knowledge is power—the rules this book gives offer clear instructions on the actions you must take to protect your rights. This book is written for the Texas contractor; each state has its own specific rules for liens and collections. Specifically, I will break down into bite-sized understandable terms the following topics:

Credit in the Construction Industry

The First Step to Having a Valid Lien

Notices, Notices, Notices

How to File a Valid Lien: Homesteads and Residential Projects

How to File a Valid Lien: Commercial Projects

The Lien Form

How to File a Valid Bond Claim: Work Done for a Texas Governmental Entity

What Claims Do I Have on a Federal Project?

I Did Not Get Paid; Can I Take My Stuff Back?

Specially Fabricated Materials

How to Collect Retainage Every Time

How to Enforce Your Lien

Common Defenses to Liens

Bonds on Private Projects

Lien Waivers and Lien Releases

How to Create a Consistent Collection Strategy

I can teach you about this because I have lived it. I have lived as an attorney for my clients, but I have also lived as the one trying to make payroll—the one who knows the success or failure of their business was in someone else’s hands completely. I hated that feeling. I hated the butterflies, and I hated the worry about things that I could not control. So, through trial and error, I learned the rules and how to use them. When my husband and I started a material supply company, it became a necessity to learn these rules to protect our money. So that is what I did, and now I share that knowledge with you. I have been a licensed attorney in the state of Texas since 2004, but before that, I grew up in a family of contractors. I felt the stress and anxiety they had to deal with because they did not know the things you are about to learn. You learn and view things more personally when you have felt the pain you are fighting so hard to prevent. I have felt your pain, and this book is my personal story of how I learned to fix it.

What are you waiting for? Let’s dive in. The first thing to understand for your successful collection strategy is how credit works in the construction industry, which is what will be broken down in Chapter 1.

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Chapter 1

1. Credit in the Construction Industry

What a Mechanic’s and Materialman’s Lien Is and Why It Matters

Although I had been filing mechanic’s and materialman’s liens (liens) for clients for a few years, I never took the time to understand what a lien was and why they are so very important. That was until I had my very first jury trial, and I had to explain a lien to the jury—to six people who did not know anything about construction, let alone liens.

The idea for liens in the United States came from Thomas Jefferson. Jefferson wanted to encourage tradesmen to come work in the new capital of Washington. A lien is a way for a contractor and a material supplier to secure their right to payment for the labor and materials provided to the property. Said another way, contractors and material suppliers are granted an ownership interest in the property they are improving with their labor and materials. The lien is filed against the property and says that the person who filed the lien has an interest in the property to the extent that they are unpaid for labor and/or materials supplied to the property.

The entire construction industry runs on credit. Knowing the definition of a lien is essential to running a profitable business.

The Construction Industry Runs on Credit

You work, you put out money to pay your guys and to pay for equipment and materials, and then you have to wait to get paid. You are extending the general contractor and the owner credit when you work first and get paid later. The general contractor and owner are in debt to you for the value of your work and/or materials.

There are two types of credit/debt: secured and unsecured. Which do you think you would rather have? Secured, correct. You want the money you are owed to be secured by an asset. For example, when the bank gives you a loan to buy your house, the money you owe the bank is secured by a lien on