Filing a mechanics lien is the best tool for subcontractors and suppliers to ensure payment and to recover unpaid sums. So why would a creditor release a lien?
Typically liens are released when a creditor receives payment, when the lien has expired, or when there was a defect in the lien. By releasing a lien, creditors are typically renouncing their right to use the mechanics lien to recover payment.
However, sometimes property owners request that liens be released for other reasons necessitating a clear title to the property – whether or not there is some defect in the lien or the claimant has been paid. In these situations, it is important to protect credit interests before relinquishing a hold on the property.
While re-filing a mechanics lien may be permissible in some states, it is unwise to release a lien prior to receiving payment or being required to release it. In the even a claimant decides to release a lien “early”, however, the claimant needs to know for sure whether the lien may be re-filed, and should attempt to obtain some other protection or security for payment.
This lien law alert from Texas serves as a pretty great example of what NOT to do.
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Facts
In 2007, Robert L. Roberts loaned $30,000 to the Edsel and Heather Dixon for labor and materials on a home improvement project. The property subject to the lien was not owned by the Dixons, but by a family member. Shortly after providing the loan, Roberts placed a lien on the property.
Years later, the Dixons wished to purchase the property on which they made the improvements. When they applied for a loan to purchase the property, the Dixons were unable to secure a loan large enough to both purchase the property and pay back Roberts.
The Dixons then requested that Roberts release his lien on the property so that they could purchase the land, promising to repay Roberts at some future date. Roberts agreed, signing the release in 2009. In a shocking turn of events, the Dixons failed to deliver on this handshake deal.
After receiving only $2,000 of the $30,000 owed him, Roberts filed another lien against the property in 2013.
A year and a half later, the Dixons’ attorney demanded that Roberts release the lien. Because Roberts had previously established then released a lien on the property, the Dixons claimed that the mechanics lien filed in 2013 was fraudulent. Roberts did not release the lien, and the Dixons filed suit.
Discussion
Once a lien is waived or released in Texas, it cannot be revived unless the lienholder has a new credit interest in the property. Unfortunately for Roberts, this means that when he released the lien on the Dixons’ promise, he also relinquished all of his lien rights on the property.
Further, because Roberts had previously filed and released a lien regarding the same debt, the Court found that Roberts’ 2013 mechanics lien was fraudulently filed. Rather than recovering the $28,000 owed him, Roberts ended up having to pay the Dixons over $12,000 due to his fraudulent filing.
Takeaway
Protect your lien rights! Roberts’ failure to do so ended up being costly. Had he read our post on How and When To Release A Texas Mechanics Lien, he could have assessed his options and made an educated decision on the issue.
