The Difference in Lien Process for General Contractors vs. Subcontractors in Texas

In Texas, mechanics’ liens provide contractors, subcontractors, and suppliers a legal remedy to secure payment for labor and materials provided on a construction project. However, the process differs significantly between general contractors and subcontractors due to their contractual relationships and statutory requirements. A crucial distinction is that subcontractors face a higher risk of not recovering the full amount they are owed if the general contractor has already been paid.

1. General Overview of Mechanic’s Liens in Texas

A mechanic’s lien is a legal claim against real property that secures payment for labor, materials, or services used to improve the property. In Texas, mechanics’ liens are governed by Chapter 53 of the Texas Property Code and fall into two main categories:

Constitutional Liens – Available only to general contractors who contract directly with the property owner.

Statutory Liens – Available to general contractors, subcontractors, suppliers, and design professionals who meet strict statutory requirements.

Because general contractors have a direct contract with the property owner, they typically have a clearer path to lien enforcement. Subcontractors, however, must comply with additional notice requirements and face the risk of limited recovery if the property owner has already paid the general contractor.

2. Lien Process for General Contractors

A. Constitutional Lien (Tex. Const. Art. XVI, § 37)

Texas grants general contractors an automatic lien on real property if they provide labor or materials.

No filing or notice requirements exist for a constitutional lien.

This lien only applies against the original property owner.

It does not attach to the property if it is sold unless recorded as a statutory lien.

B. Statutory Mechanic’s Lien

To ensure enforceability, general contractors typically file a statutory lien to protect their interests.

Filing Deadline: Must file a lien affidavit by the 15th day of the fourth month (third month for residential projects) after their last work on the project.

Filing Location: The lien affidavit must be filed in the county clerk’s office where the property is located.

Notice to Owner: A copy of the lien affidavit must be sent to the property owner within five days of filing.

Unlike subcontractors, general contractors do not need to send pre-lien notices before filing their lien.

3. Lien Process for Subcontractors

Subcontractors do not have a direct contract with the property owner, meaning they must take additional steps to perfect their lien. Additionally, even if a subcontractor perfects a lien, their ability to recover the full amount depends on whether the property owner has already paid the general contractor.

A. Notice Requirements for Subcontractors

To protect their lien rights, subcontractors must send pre-lien notices by certified mail, return receipt requested:

First-Tier Subcontractors (Contract with General Contractor)

Second-Month Notice to the general contractor by the 15th day of the second month after furnishing labor or materials.

Third-Month Notice to the property owner and the general contractor by the 15th day of the third month after furnishing labor or materials.

Second-Tier Subcontractors (Hired by a First-Tier Subcontractor)

Second-Month Notice to the general contractor by the 15th day of the second month after providing labor or materials.

Third-Month Notice to the property owner and the general contractor by the 15th day of the third month after providing labor or materials.

B. Filing the Lien Affidavit

Deadline: By the 15th day of the fourth month (third month for residential projects) after the last work was performed.

Filing Location: County clerk’s office where the property is located.

Notice to Owner & General Contractor: A copy of the lien affidavit must be sent within five days of filing.

4. Key Differences Between General Contractors and Subcontractors

Aspect General Contractor Subcontractor

Contractual Relationship Direct contract with property owner No direct contract with property owner

Constitutional Lien Available? Yes No

Pre-Lien Notices Required? No Yes (Second- and Third-Month Notices)

Lien Filing Deadline 15th day of the fourth month Same, but only if notice requirements are met

Risk of Non-Payment Lower risk (direct claim against owner) Higher risk (depends on general contractor’s payment status)

Can Recover Full Amount if General Contractor is Paid? Yes Uncertain (limited to unpaid amounts held by owner)

5. The Risk of Limited Recovery for Subcontractors

One of the most critical aspects for subcontractors to understand is the concept of “trapping funds.”

A. Limited Recovery If the Owner Has Paid the General Contractor

Texas limits a subcontractor’s recovery to whatever funds the property owner has not yet paid to the general contractor.

If the general contractor has already been paid in full, the property owner is not liable for additional amounts to subcontractors, even if they are unpaid.

This is why the Third-Month Notice to the property owner is crucial—once the owner receives the notice, they must retain unpaid funds and ensure subcontractors are paid before issuing final payment to the general contractor.

B. Owner’s Duty to Withhold Funds

Once a property owner receives a proper pre-lien notice, they must withhold funds from the general contractor to cover unpaid subcontractors. This is known as “trapping” the funds.

If the property owner fails to withhold funds after receiving proper notice, they can be personally liable for the unpaid amount.

If the property owner has already paid the general contractor in full before receiving notice, the subcontractor may not be able to collect from the owner at all.

C. What Can Subcontractors Do If the General Contractor Was Already Paid?

If a subcontractor’s lien is perfected but the property owner has already paid the general contractor, options may be limited:

Demand Payment from the General Contractor – This may require legal action or contract enforcement.

Sue Under Texas’s Trust Fund Statute – If the general contractor misapplies payments meant for subcontractors, the subcontractor may have a claim for trust fund misappropriation under the Texas Construction Trust Fund Act.

Bond Claims (on Public or Bonded Projects) – If the project has a payment bond, a subcontractor can file a bond claim instead of a lien.

Negotiate with the Property Owner – While not required, some owners may negotiate payment to avoid litigation.

6. Conclusion

The primary difference between general contractors and subcontractors in the Texas lien process is the risk of limited recovery for subcontractors. Because subcontractors must give pre-lien notices and their ability to collect depends on whether the property owner has already paid the general contractor, they face a higher risk of non-payment.

To protect their rights, subcontractors must:

Send timely Second- and Third-Month Notices to “trap” funds before the owner pays the general contractor.

File a lien affidavit within the statutory deadlines.

Act quickly if the general contractor has already been paid, exploring alternative legal remedies.

By understanding these nuances, subcontractors can increase their chances of recovering payment and avoid the pitfalls of Texas lien law.