Underwriting Q & A | Is the statutory process of “bonding around” a filed mechanic’s lien affidavit (MLA) always a potential remedy to closing the transaction without making payment to the contractor claiming the lien or excepting to the claim of lien in the policy?

Q: (Texas Only) Is the statutory process of “bonding around” a filed mechanic’s lien affidavit (MLA) always a potential remedy to closing the transaction without making payment to the contractor claiming the lien or excepting to the claim of lien in the policy?

A: No. The statutory bond process contained in Chapter 53 of the Texas Property Code is intended to provide a remedy for a homeowner adversely affected as a result of a MLA filed by a sub-contractor, with whom the owner has no contractual relationships, and who has allegedly gone unpaid by the General Contractor.  Sec. 53.171 of the Texas Property Code states:   (a) If a lien, other than a lien granted by the owner in a written contract, is fixed or is attempted to be fixed by a recorded instrument under this chapter, any person may file a bond to indemnify against the lien.

It is important to note the highlighted condition contained within the statutory provision “…other than a lien granted by the owner in a written contract….” When evaluating the availability of the statutory bond as a potential remedy, we must closely evaluate the language contained in the MLA. Often, the claimant under the MLA alleges a direct contractual relationship with the homeowner. This may be an obvious relationship by virtue of a signed contract between the claimant and owner, or the relationship may be less obvious, such as the contract being with an entity under the direct control of the owner. In either instance, the statutory bond provision is not an available remedy. Additionally, said relationship may give rise to both contractual liability on the part of the owner and a constitutional lien in favor of the contractor. Also, keep in mind, that the statutory bond provision may not be an available remedy even when the claimant under the MLA qualifies as a true sub-contractor, with no direct relationship with the owner, if the claimant has initiated a suit to reduce the claim of lien to a judgment prior to the statutory bond process being completed. If suit on the MLA precedes the bond, the claimant may, but is not required, to amend the petition to file suit on the bond.  Finally, any reliance on the statutory bond process must be approved by underwriting counsel, as the process of perfecting the bond requires strict compliance with the statutory provision in order for the bond to be an effective remedy.