# Texas Property Lien Analysis

## Table of Contents
1. [Overview](#overview)
2. [Constitutional Liens](#constitutional-liens)
3. [Statutory Liens](#statutory-liens)
4. [Consensual Liens](#consensual-liens)
5. [Lien Priority Rules](#lien-priority-rules)
6. [Lien Release and Expiration](#lien-release-and-expiration)
7. [Title Commitment Lien Analysis](#title-commitment-lien-analysis)
8. [Red Flags Checklist](#red-flags-checklist)

## Overview

Texas recognizes three categories of liens: constitutional (arising from the Texas Constitution), statutory (created by statute), and consensual (created by agreement). Lien priority and analysis are critical in every title examination.

**Key Principle**: Texas is a NOTICE recording jurisdiction (Tex. Prop. Code § 13.001). A subsequent good-faith purchaser for value without notice prevails over a prior unrecorded instrument.

## Constitutional Liens

### Mechanic's and Materialman's Liens (TEX. CONST. art. XVI, § 37)

**Constitutional basis**: Self-executing lien on real property for labor, materials, or machinery furnished for construction or repair.

**Key characteristics**:
- Attaches to land regardless of recording
- Inception date: When labor/materials first furnished to the project
- May relate back BEFORE deed of trust recording date
- Constitutional lien is self-executing—no filing required to create it

**Perfection requirements** (Tex. Prop. Code Ch. 53):

| Claimant Type | Notice Required | Deadline |
|---------------|----------------|----------|
| **Original contractor** | No preliminary notice | Lien affidavit within 4 months of last work |
| **Subcontractor** | Preliminary notice to owner by 15th day of 2nd month after work begins | Lien affidavit within 4 months of last work |
| **Materialman** | Preliminary notice to owner by 15th day of 2nd month after delivery | Lien affidavit within 4 months of last delivery |

**Residential homestead special rules** (Tex. Prop. Code § 53.254):
- Written contract required BEFORE work begins
- Contract must be signed by both spouses if homestead
- Must comply with constitutional requirements for homestead liens
- Failure to obtain proper contract = NO lien on homestead

**Commercial property mechanic's lien considerations**:
- No homestead contract requirement for commercial
- Retainage requirements: Owner must retain 10% of contract price for 30 days after completion
- Trapped funds doctrine: Subcontractor lien limited to funds owed to original contractor
- Multi-phase projects: Each phase may have separate inception date

**Title analysis steps**:
1. Check for recent construction/improvements (90-day window in Schedule B)
2. Review T-47 affidavit for owner's representation of no recent work
3. If construction within past 4 months, require indemnity or holdback
4. Check for filed lien affidavits in real property records
5. Verify retainage compliance on commercial projects
6. For commercial: obtain sworn statements from general contractor

### Property Tax Liens (TEX. CONST. art. VIII, §§ 1, 15)

**Constitutional basis**: Ad valorem taxes create an automatic lien on January 1 of the tax year.

**Priority**: ALWAYS first priority—superior to all other liens regardless of recording date.

**Characteristics**:
- Lien attaches January 1 for that year's taxes
- Taxes due by January 31 of following year
- Delinquent February 1 with penalties and interest
- Lien follows the land (not personal to owner)
- Penalty: 6% if paid Feb-June; 12% after July 1
- Additional 15-20% attorney fee if referred for collection

**Transferred tax liens** (Tex. Tax Code §§ 32.06, 32.065):
- Third party pays delinquent taxes and receives transfer of lien
- Steps into shoes of taxing authority for priority
- Superior to all liens except other tax liens
- Must be accounted for in payoff calculations
- Interest rate capped by statute (varies, typically 12-18%)

**Title analysis steps**:
1. Obtain tax certificates from ALL taxing authorities (county, city, school district, MUD, etc.)
2. Verify no delinquent taxes
3. Check for transferred tax liens in real property records
4. Calculate prorations for closing
5. Verify tax exemptions (homestead, over-65, disabled veteran)
6. For commercial: check for special assessment districts

## Statutory Liens

### HOA Assessment Liens (Tex. Prop. Code §§ 209.009, 209.0091)

**6-month super-priority**: HOA assessments for the 6 months immediately preceding foreclosure have priority over a first lien deed of trust (Tex. Prop. Code § 209.0091).

**Requirements for enforcement**:
- Assessment lien must be provided for in declaration/restrictive covenants
- HOA must follow statutory notice and opportunity to cure procedures
- Lien secures unpaid assessments, interest, late fees, attorney's fees, costs

**Title analysis**:
1. Obtain HOA estoppel/status letter showing current account balance
2. Verify assessment lien authority in recorded declaration
3. Check for filed HOA lien notices in real property records
4. Calculate 6-month super-priority amount for lender's benefit
5. Confirm HOA management company and contact information

### Judgment Liens (Tex. Prop. Code § 52.001)

**Creation**: Abstract of judgment recorded in county real property records creates lien on all non-exempt real property owned by debtor in that county.

**Duration**: 10 years from date of recording; may be renewed by re-recording before expiration

**Priority**: From date of recording abstract (race-notice)

**Key considerations**:
- Judgment lien does NOT attach to homestead
- Judgment against one spouse does NOT automatically lien community property (but may lien debtor spouse's separate property)
- Federal judgment liens follow same rules
- Must check all counties where debtor owns property
- Dormant judgment: 10 years from date of judgment

**Title analysis**:
1. Run judgment search against all parties in chain of title
2. Check for abstract of judgment recordings
3. Verify identity (distinguish common names—use DOB, SSN last 4, address)
4. Obtain releases or subordinations as needed
5. Consider homestead exemption applicability
6. For entities: search under all known names and variations

### Federal Tax Liens (26 U.S.C. §§ 6321-6323)

**Creation**: Assessment by IRS + notice and demand for payment + failure to pay

**Filing**: Must file Notice of Federal Tax Lien (NFTL) in county where property located

**Priority**: From date of filing NFTL; certain superpriority claims exist

**120-day right of redemption**: After foreclosure by senior lienholder, IRS has 120 days to redeem property by paying full sale price plus expenses.

**Superpriority claims** (beat even filed NFTL):
- Property tax liens (always superior)
- Mechanic's liens (if inception before NFTL filing)
- Purchase money security interests (45-day grace period)
- Real property construction/improvement financing agreements

**Title analysis**:
1. Search for federal tax lien notices in real property records
2. Check IRS lien database if available
3. Obtain payoff or subordination from IRS if needed
4. Account for 120-day redemption period in foreclosure scenarios
5. Verify lien release after satisfaction (IRS has 30 days to release)
6. Check for partial discharges if only portion of property being conveyed

### State Tax / Franchise Tax Liens

**Comptroller's lien**: Texas Comptroller may file lien for unpaid state taxes (sales tax, franchise tax, etc.)

**Entity franchise tax**: Entity must be in good standing; franchise tax forfeiture terminates entity's right to transact business and may affect authority to convey

**Title analysis**:
1. Verify entity good standing with Texas Secretary of State
2. Check for Comptroller liens in real property records
3. Obtain tax clearance letter if entity dissolution or merger
4. If forfeited: entity must reinstate before conveyance

### Child Support Liens (Tex. Fam. Code § 157.317)

**Creation**: Filed with county clerk; attaches to real and personal property

**Title analysis**: Search for child support liens against all parties; must be released or satisfied at closing

### Lis Pendens (Tex. Prop. Code § 12.007)

**Nature**: Not a true lien but constructive notice of pending litigation affecting title

**Effect**: Purchaser during pendency of suit takes subject to outcome

**Title analysis**:
1. Search for lis pendens filings
2. If found: determine nature of underlying suit
3. May require dismissal, settlement, or title insurance exception
4. Lender will typically not close until resolved

## Consensual Liens

### Deeds of Trust (Tex. Prop. Code Ch. 51)

**Structure**: Three-party instrument—grantor (borrower), beneficiary (lender), trustee (holds legal title for security)

**Priority**: From date and time of recording

**Key provisions for title analysis**:
- Power of sale clause (enables non-judicial foreclosure)
- Legal description (must match deed)
- Due-on-sale clause
- Future advance clause (obligatory vs. optional)
- Assignment provisions
- Subordination provisions

**Modification/extension**: Recorded modification preserves original priority for original loan amount; additional advances may have different priority

### Home Equity Liens (TEX. CONST. art. XVI, § 50)

**Constitutional requirements** (strict compliance—17+ requirements):
- Only on homestead
- Both spouses must sign (even if separate property homestead)
- 12-day cooling-off period after application
- 80% combined LTV cap
- Cannot be open-end (except HELOC under § 50(t))
- Closing at title company, attorney's office, or lender's office only
- Judicial foreclosure required for single-family homestead
- One home equity loan at a time (must be paid off before new one)
- 3% fee cap on loan amount

**Title analysis for home equity**:
1. Verify all constitutional requirements met
2. Check 12-day waiting period compliance
3. Confirm 80% LTV with current appraisal
4. Verify closing location compliance
5. Check for prior home equity liens (one at a time rule)
6. Confirm proper acknowledgment by both spouses

### UCC Fixture Filings

**Relevance**: UCC-1 financing statements perfected as fixture filings attach to real property

**Common in commercial transactions**: Equipment, HVAC systems, elevators, fixtures, solar panels

**Title analysis**:
1. Search UCC records for fixture filings against property and owner
2. Determine if item is fixture (annexed to real property with intent to make permanent)
3. Obtain UCC-3 termination or release if needed
4. **Critical for commercial**: always search UCC records

## Lien Priority Rules

### General Priority Framework

| Priority Level | Lien Type | Basis |
|---------------|-----------|-------|
| 1 (Highest) | Property tax liens | Constitutional/statutory—always first |
| 2 | Mechanic's liens | Constitutional—relate back to inception of work |
| 3 | HOA assessment liens | 6-month super-priority (residential) |
| 4 | Federal tax liens | From date of NFTL filing |
| 5 | Purchase money DOT | From recording date (superpriority over judgments) |
| 6 | Other recorded DOTs | From recording date |
| 7 | Judgment liens | From recording of abstract |
| 8 | Other statutory liens | Varies by statute |

### Special Priority Rules

**Purchase money exception**: DOT securing purchase price has priority over prior judgment liens against buyer

**Equitable subrogation**: Refinance lender that pays off senior lien may claim subrogation to senior lien priority over intervening liens

**Subordination agreements**: Recorded agreements can alter natural priority; verify proper execution and recording

**Future advances**: Priority depends on whether mandatory (relates back) or optional (may lose priority to intervening liens with notice)

**After-acquired property clauses**: In commercial DOTs, may attach to property acquired after recording; priority from attachment date

## Lien Release and Expiration

### Statutory Release Provisions (Tex. Prop. Code § 12.017)

**4-year rule**: Lien with stated maturity date—presumed released if:
- More than 4 years since maturity
- No extension agreement recorded
- No suit pending on the lien

**10-year rule**: Lien without stated maturity—presumed released if:
- More than 10 years since recording
- No extension recorded
- No suit pending

### Release Requirements

**DOT release**: Lender must release within 60 days of payoff (Tex. Prop. Code § 12.104)
- Penalty for failure: Actual damages + $100/day (max $10,000)
- Title company may prepare and record release if servicer fails

**Mechanic's lien release**: Claimant should release upon payment; owner may bond off lien (Tex. Prop. Code § 53.171)

**Judgment lien release**: Must record release of abstract of judgment

## Title Commitment Lien Analysis

### Schedule B Lien Exceptions

When analyzing liens shown as Schedule B exceptions:

1. **Identify lien type**: Constitutional, statutory, or consensual
2. **Determine current status**: Active, satisfied, expired, or disputed
3. **Calculate priority**: Where does this lien fall in priority hierarchy?
4. **Determine payoff amount**: Contact lienholder for current balance
5. **Plan for satisfaction**: Will lien be paid at closing? Release timing?
6. **Assess impact on insurability**: Can title company insure around it?

### Requirements for Lien Clearance

| Lien Type | Clearance Method |
|-----------|-----------------|
| Deed of trust | Payoff + release/reconveyance |
| Judgment lien | Payoff + release of abstract |
| Federal tax lien | Payoff + IRS release (allow 30 days) |
| State tax lien | Payoff + Comptroller release |
| Mechanic's lien | Payment + release OR bonding off |
| HOA assessment | Payoff per estoppel letter |
| Child support | Payoff + release from AG/court |
| Lis pendens | Dismissal of suit + release filing |
| UCC fixture filing | UCC-3 termination statement |

## Red Flags Checklist

1. **Recent construction**: Potential mechanic's lien exposure—check T-47 affidavit
2. **Multiple DOTs without releases**: May indicate unreleased prior loans
3. **Judgment liens against common names**: Require identity verification
4. **Federal tax liens within 120 days of foreclosure**: IRS redemption risk
5. **HOA delinquency**: 6-month super-priority may affect lender position
6. **Transferred tax liens**: Third-party holder may have different payoff requirements
7. **Home equity lien on homestead**: 17+ constitutional requirements—strict compliance
8. **Expired liens not released**: Use statutory release provisions (§ 12.017)
9. **UCC fixture filings on commercial property**: May cloud real property title
10. **Child support liens**: Often overlooked in title searches
11. **Lis pendens**: Indicates active litigation—must investigate
12. **Entity franchise tax forfeiture**: May void authority to convey
13. **Multiple taxing authorities**: MUDs, PIDs, special districts may have separate liens
14. **Commercial retainage**: Verify compliance with trapped funds doctrine