A mechanic’s lien filing creates an immediate cloud on title causing substantial impacts to owners of real property and other parties to a construction contract. Frequently, owners or prime contractors may be required to quickly discharge a mechanic’s lien from real property for a variety of reasons - to allow interim funding from the owner’s lender, to allow the owner to close a real estate transaction or refinance, or to process payments to prime contractors and subcontractors.

Parties seeking to quickly address a mechanic’s lien have several options under Texas law. Section 53.160 of the Texas Property Code permits any party objecting to a mechanic’s lien to file a “summary motion” to remove the lien if the lien fails to meet the strict statutory requirements to perfect a mechanic’s lien. However, this “summary” procedure still requires a formal court filing and court costs, and requires several weeks or months to obtain a hearing regarding the alleged invalid lien. Subchapter I in Sections 53.201 through 53.2011 of the Texas Property Code permits an original contractor with a written contract with the property owner to file a bond for the benefit of claimants. If a valid bond is filed pursuant to this Subchapter, a lien claimant may not file suit against the owner’s real property and must proceed against the bond. However, the costs associated with this bond may be cost prohibitive depending on the original contractor and project.

These options notwithstanding, the most expedient option to address a mechanic’s lien is frequently through the filing of a surety bond to indemnify against the lien, otherwise known as “bonding around the lien.” Subchapter H in Sections 53.171-53.175 of the Texas Property Code addresses this procedure in detail. This option is typically preferred by property owners and contactors because it saves the time and money associated with the “summary motion” procedure and because the bond costs in Subchapter I can be cost prohibitive for original contractors.

Critically, the Texas Property Code expressly provides that a “purchaser, insurer of title, or lender may rely on and is absolutely protected by the record of the bond and the notice to the same extent as if the lien claimant had filed a release of the lien in the real property records.” TEX. PROP. CODE § 53.174 (b).

Bonding around a lien in Texas requires strict compliance with the following procedures:

1. “Any person” may file a bond with the county clerk in which the property is located and upon which the mechanic’s lien was filed. TEX. PROP. CODE § 53.171 (a).
2. The bond must meet the statutory requirements contained in Section 53.172 and be issued in the following amount:
   • If the lien exceeds $40,000.00, the bond must be one and a half times the amount of the lien; or
   • If the lien is less than $40,000.00, the bond must be double the amount of the lien. TEX. PROP. CODE § 53.172 (3).
   • Practice Pointer: Start this process early. The process is not complete until a valid surety bond is filed and obtaining a bond can be a time-consuming process. This is especially true for large liens and many sureties will require a separate application for this type of bond. Proactive parties will complete the surety’s application process as soon as possible to expedite the bond issuance.
3. The county clerk must prepare and issue notice of the bond to all obligees/lien claimants by certified mail once the bond is properly filed. TEX. PROP. CODE § 53.173. This notice must be prepared by the county clerk’s office and not counsel.
   • Practice Pointer: Many large counties have a dedicated clerk to issue this notice. However, most of Texas’ 254 counties are small rural counties with less experience. The party filing the bond should always consult with the clerk’s office immediately after filing the bond to ensure the notice is sent in compliance with Section 53.173.
4. The county clerk must record the bond, the notice sent to the obligee/lien claimant, and a certificate of mailing in the real property records of the county in which the lien was filed. TEX. PROP. CODE § 53.174 (a). The lien is discharged after compliance with these steps and establishes a one-year limitations period for lien claimants to file suit against the bond from the date the bond was recorded. TEX. PROP. CODE §§ 53.171 (c); 53.175 (a).
   • Practice Pointer: Calendar one year from the date the county clerk records the certificate of mailing in the real property records. This establishes the one-year statute of limitations for the claimant to file suit against the bond to prove it is entitled to the amounts sought in the lien.

Bonding around a mechanic’s lien can be an expedient method to address liens but only if claimants strictly comply with these procedures. Starting the process early and monitoring the clerk’s notice preparation are critical. Once completed properly, owners, lenders, and other parties to the project can be assured that they are protected by the bond to the same extend as if a release had been filed.