PRIORITY AND ENFORCEMENT OF A MECHANICS’ AND MATERIALMEN’S LIEN

            To understand the value of obtaining a mechanics’ and materialmen’s lien, a service provider needs to understand both the priority of its lien and its ability to recover the debt.            Priority. If a mineral property owner has a previously recorded deed of trust that encumbers its  property, a service provider may feel like a subsequently recorded mechanics’ and materialmen’s lien (“M&M Lien”) may not be of much benefit.  The Texas M&M Lien statute, however, may give the service provider some surprising relief.            The key to the priority of a M&M Lien is the date of inception of the debt. So long as a service provider follows the formalities for attaching a lien, its M&M Lien will relate back to the date the debt first arose. The M&M Lien would, therefore, have priority over a deed of trust that is recorded prior to the filing of the M&M Lien affidavit but after the date of inception of the debt secured by the M&M Lien. It follows that an M&M Lien is inferiorto any lien on the mineral interests that is perfected before the inception of the work or furnishing of materials that gave rise to the M&M Lien. If a mineral interest that is subject to an M&M Lien is sold, the M&M Lien will have priority over the interests of the purchaser so long as the M&M Lien relates to debt with an inception date before the sale of the mineral interest. That is the case even if the purchaser did not have actual or constructive notice of the M&M Lien at the time of the purchase.            If there are multiple properly attached M&M Liens on materials, land or leasehold, the M&M Liens are of equal priority. Neither the date of inception of an M&M Lien or the date on which a claimant’s affidavit was filed of record will give priority to a holder of an M&M Lien over any other M&M Lien claimant. M&M Lien claimants must share the proceeds from the affected property on a pro rata basis.            Benefits Without Foreclosure.  An M&M Lien may  provide some advantages to a service provider even absent judicial action. If a mineral property owner wants to sell  property that is subject to the M&M Lien, the purchaser will likely raise the M&M Lien as a title defect and require the seller to pay the debt.  A properly attached M&M Lien will elevate a claimant’s status to that of a secured creditor if the mineral property owner either files bankruptcy or has an involuntary proceeding filed against it. Credit facilities often prohibit a debtor from having M&M Liens on its property. A debtor, therefore, may be forced to pay the debt secured by an M&M Lien to prevent a default under its credit facility.            Foreclosure. If a service provider wants to enforce an M&M Lien, it must do so through a judicial foreclosure. The enforcement of an M&M Lien is governed by Chapter 53 of the Texas Property Code. A suit must be brought within two years from the date the M&M Lien affidavit was filed or one year from the date the materials or services were last furnished by the service provider under the same contract, whichever date is later.            There is no “self-help” remedy available for M&M Liens. An M&M Lien can be foreclosed only by a court judgment foreclosing the lien and ordering a sale of the property. A suit to foreclose on a fee or leasehold interest in minerals must be brought in the district court in the county where the property is located. A suit to foreclose on only personal property may be brought in a county court so long as the value of the property on which the lien is fixed is within the jurisdictional limit of the court.            The owner of the property on which foreclosure of an M&M Lien is sought and each other person that has an interest in the property that will be affected by the foreclosure must be made parties to the suit. A prior lienholder does not have to be named as a party in the suit.            The petition for foreclosure should:describe the property on which the M&M Liens is sought to be foreclosed,state the name of the owner of the property being foreclosed upon,disclose the names of the contracting parties,describe the labor or materials furnished, andallege the taking of the necessary steps to attach the M&M Lien.If foreclosure is sought only on personal property, the pleading must also set forth the value of the property.            Conclusion. In a perfect world, everyone would pay their debts when due. In the real world, however, there will always be those who are unable or unwilling to pay. The Texas oil and gas mechanics’ and materialmen’s lien statute provides a valuable tool for service providers. The keys are for a service provider (i) to timely file an affidavit in a form that satisfies the statutory requirements and (ii) if payment is not received, to timely take action to exercise the remedies afforded by the M&M Lien. Debra J. VillarrealThompson & Knight LLP