Form 20-1

Mechanic’s Lien Contract

Notice of confidentiality rights:      If you are a natural person, you may remove or strike any or all of the following information from any instrument that transfers an interest in real property before it is filed for record in the public records: your Social Security number or your driver’s license number.

Basic Information

Date:

Owner:

Owner’s Mailing Address:

Contractor:

Contractor’s Mailing Address:

Trustee:

Trustee’s Mailing Address:

Property

Address:

Legal description:

Exceptions to Conveyance and Warranty:

Construction: [see clause 20-5-1 in this chapter]

Completion Date:

Consideration

Cash:

Note

Date:

Amount:

Maker:

Payee:

Maturity date:

[Terms of payment:]

For the Consideration, Contractor agrees to furnish the materials and labor and to com­plete the Construction on the Property on or before the Completion Date in a good and work­manlike manner according to the [residential construction contract between/plans and specifications agreed on by] Owner and Contractor, incorporated herein by reference.

To secure payment of the Note, Owner grants to Contractor a mechanic’s, artisan’s, and materialman’s lien on the Property and on all improvements and fixtures on the Property at any time.

To enforce the lien and to further secure payment of the Note, Owner conveys the Prop­erty to Trustee in trust. Owner warrants and agrees to defend the title to the Property subject to the Other Exceptions to Conveyance and Warranty. If Owner performs all the covenants and pays the Note according to its terms, this conveyance will have no further effect, and at Owner’s expense Contractor will execute a release of the liens created by this contract.

A.Owner’s Representations and Rights

Owner makes the following representations and has the following rights:

A.1.Owner owns the Property in fee simple, subject only to the Exceptions to Con­veyance and Warranty.

A.2.If Owner and Contractor agree in writing to alter plans for the Construction, on completion of the Construction Owner will pay for all extra work done and material furnished as a result of the alterations, and that amount will be a part of the Consideration and the debt secured by this contract.

A.3.If Owner receives notice of or may become liable for a lien or claim for labor or materials furnished to Contractor and primarily chargeable to Contractor, Owner may retain from payments on the Note an amount sufficient to completely indemnify Owner against the lien or claim.

A.4.Notwithstanding anything to the contrary in this contract, during the progress of the Construction, Owner shall reserve the amounts required by sections 53.101 and 53.081 of the Texas Property Code. Unless the claim is otherwise settled, discharged, indemnified against, or determined to be invalid by a final judgment of a court, reserved funds under sec­tion 53.081 will be withheld until the time for filing the affidavit of mechanic’s lien has passed or, if a lien affidavit is filed, the lien claim has been satisfied or released. Reserved funds under section 53.101 will be withheld during the progress of the work under an original contract for which a mechanic’s lien may be claimed and for thirty days after the work under the contract is completed.

A.5.If a loss occurs before the Construction is completed and delivered to Owner, Owner may use any insurance proceeds to restore the destroyed or damaged property without affecting the lien created in this contract.

A.6.Owner may furnish the insurance required of Owner by this con­tract either through existing policies owned or controlled by Owner or through equivalent coverage from any insurance company authorized to trans­act business in Texas.

B.Owner’s Obligations

[Include if applicable: In addition to the obligations of Owner in the residential con­struction contract,] Owner agrees to—

B.1.pay all taxes and assessments on the Property when due, not authorize a taxing entity to transfer its tax lien on the Property to anyone other than Contractor, and not request a deferral of the collection of taxes pursuant to section 33.06 of the Texas Tax Code;

B.2.preserve the lien’s priority as it is established in this contract;

B.3.if this is not a first lien, pay all prior lien notes that Owner is liable to pay and abide by all prior lien instruments;

B.4.if this contract is for improvements to the Property, keep the Property other than those improvements in good repair and condition during the Construction and keep all of the Property in good repair and condition after the Construction is completed;

B.5.if this contract is for new construction, keep the Property in good repair and condition after the Construction is completed;

B.6.except to the extent that Contractor is required to insure the Construction during its progress, maintain at Owner’s sole cost and expense, and in a form acceptable to Contrac­tor or its transferees, insurance policies containing the following coverages issued by an insur­ance company or companies authorized to engage in the insurance business in Texas with a financial rating acceptable to Contractor or its transferees:

a.property insurance covering all improvements located on the Property in an amount equal to their full replacement cost or such lesser amount as Lender may agree, containing a standard mortgagee clause, provided that the amounts of coverage comply with all coinsurance requirements of the policy;

b.flood insurance, if the Property is located in a flood hazard area; and

c.any other insurance coverages that may be reasonably required by Contrac­tor or its transferees;

B.7.comply at all times with the requirements of the 80 percent coinsurance clause;

B.8.deliver the insurance policy to Contractor within ten days of the date of the con­tract and deliver renewals to Contractor at least fifteen days before expiration;

B.9.obey all laws, ordinances, and restrictive covenants applicable to the Property; and

B.10.keep any buildings occupied as required by the insurance policy.

C.Contractor’s Obligations

In addition to Contractor’s obligations in the residential construction contract, Contrac­tor agrees that—

C.1.Until the Construction is completed and delivered to Owner, Contractor will insure the Construction and all related materials against loss or damage from all perils included in “causes of loss—special” forms in an amount equal to the Consideration. The pol­icy will be payable to the parties to this contract according to their respective interests. If Con­tractor does not provide this insurance, Contractor will bear any loss to the Construction and materials.

C.2.Contractor will neither make nor charge for any alterations in the Construction described in the plans and specifications unless Contractor and Owner agree otherwise in writing. Any alterations made without a written agreement will be considered performed under the original contract at no additional charge.

C.3.Contractor will pay all costs of the Construction, including labor, materials, and subcontractors, and will furnish Owner with receipts for and releases from these costs.

C.4.If any other lien claims are filed, Contractor will pay for their removal or else provide a statutory bond.

D.Contractor’s Rights

In addition to Contractor’s rights in the residential construction contract, Contractor has the following rights:

D.1.Contractor may appoint in writing a substitute trustee, succeeding to all rights and responsibilities of Trustee.

D.2.After completion of the Construction, Contractor may apply any proceeds received under the insurance policy either to reduce the Note or to repair or replace damaged or destroyed improvements covered by the policy.

D.3.If Owner fails to perform any of Owner’s obligations other than providing insurance, Contractor may perform those obligations and be reimbursed by Owner on demand for any amounts so paid, including attorney’s fees, plus interest on those amounts from the dates of payment at the rate stated in the Note for matured, unpaid amounts. Any amounts to be reimbursed will be secured by this contract.

D.4.If Owner is required to furnish insurance and fails to do so, Contractor may pro­cure it and add the premium advanced by Contractor to the amount due under the Note and may charge interest on the amount added from the time of its addition until it is paid, at a rate not exceeding the rate that the Note would produce over its full term if each scheduled pay­ment were paid on the date due.

D.5.If Owner defaults in any payment on the Note or if this lien is foreclosed, Owner will reimburse Contractor for reasonable fees paid to an attorney who is not an employee of Contractor and court and other costs for collection of payments or foreclosure of the lien. The amount to be reimbursed will be secured by this contract.

D.6.If a default exists or Owner fails to perform any of Owner’s obligations and the default continues after Contractor gives Owner written notice of the default and a twenty-day period in which to cure the default (or longer if required by law or by written agreement), Contractor may—

a.declare the unpaid principal balance and earned interest on the Note imme­diately due;

b.request Trustee to foreclose this lien, in which case Contractor or Contrac­tor’s agent will give notice of the foreclosure sale as provided by the Texas Property Code as then in effect; and

c.purchase the Property at any foreclosure sale by offering the highest bid and then have the bid credited on the Note.

Notice of default is deemed given when deposited with the United States Postal Service (certified mail, return receipt requested), addressed to Owner at Owner’s Mailing Address or to Owner’s last address as shown in the records of the holder of the debt.

E.Trustee’s Duties

If requested by Contractor to foreclose this lien, Trustee will—

E.1.either personally or by agent give notice of the foreclosure sale as required by the Texas Property Code as then in effect;

E.2.sell and convey all or part of the Property “AS IS” to the highest bidder for cash with a general warranty binding Owner, subject to the Prior Lien and the Other Exceptions to Conveyance and Warranty and without representation or warranty, express or implied, by Trustee;

E.3.from proceeds of the sale, pay, in this order:

a.expenses of foreclosure, including a reasonable commission to Trustee;

b.to Contractor, the full amount of principal, interest, attorney’s fees, and other charges due and unpaid;

c.any amounts required by law to be paid before payment to Owner; and

d.to Owner, any balance; and

E.4.be indemnified by Contractor against all costs, expenses, and liabilities incurred by Trustee for acting in the execution or enforcement of the trust created by this contract, which includes all court and other costs, including attorney’s fees, incurred by Trustee in defense of any action or proceeding taken against Trustee in that capacity.

F.General Provisions

F.1.[If Contractor is terminated according to the residential construction contract due to Contractor’s default/If the Construction is not completed as agreed between Owner and Contractor], the amount of the Consideration subject to Contractor’s lien will be reduced by the amount reasonably necessary to complete the Construction as agreed. If Contractor is not the holder of the Note, the holder may complete the Construction, and the lien created in this contract will inure to the benefit of the holder.

F.2.This contract is executed, acknowledged, and delivered before any labor has been performed or any material has been delivered to the Property for the Construction. This contract is entered into by all Owners with the consent of each Owner’s spouse, as evidenced by the signatures below.

F.3.If any of the Property is sold under this contract, Owner will immediately sur­render possession to the purchaser. If Owner does not, Owner will be a tenant at sufferance of the purchaser, subject to an action for forcible detainer.

F.4.Recitals in any trustee’s deed conveying the Property will be presumed to be true.

F.5.The lien created in this contract will remain superior to liens later created even if the time of payment of all or part of the Note is extended or part of the Property is released.

F.6.If any portion of the Note cannot be lawfully secured by this contract, payments will be applied first to discharge that portion.

F.7.Owner assigns to Contractor all amounts payable to or received by Owner from the condemnation of all or part of the Property, from a private sale in lieu of condemnation, and from damages caused by public works or construction on or near the Property. After deducting any expenses incurred, including attorney’s fees and court and other costs, Contrac­tor will either release any remaining amounts to Owner or apply them to reduce the Note. Owner will immediately give Contractor notice of any actual or threatened proceedings for the condemnation of all or part of the Property.

F.8.Proceeding under this contract, filing suit for foreclosure, or pursuing any other remedy will not constitute an election of remedies.

F.9.Interest on the debt secured by this contract will not exceed the maximum rate or amount of nonusurious interest that may be contracted for, taken, reserved, charged, or received under law. Any interest in excess of that maximum amount will be automatically credited on the principal of the debt or, if that has been paid, refunded. On any acceleration or required or permitted prepayment, any such excess will be canceled automatically as of the acceleration or prepayment or, if already paid, credited on the principal of the debt or, if the principal of the debt has been paid, refunded. This provision overrides any conflicting provi­sions in this and all other instruments concerning the debt.

F.10.When the context requires, singular nouns and pronouns include the plural.

F.11.The term Note includes all amounts secured by this contract.

F.12.Contractor includes Contractor’s assignees or transferees. This contract binds, benefits, and may be enforced by the successors in interest of all parties.

F.13.If Owner and Maker are not the same person, the term Owner includes Maker.

G.Repair or Renovation Construction

If the work of this contract includes repair or renovation of existing improvements, the following provisions apply. Contractor and Owner certify and represent that they are aware of and have complied with the following legal rights and obligations:

G.1.Rescission.      Owner may rescind this contract (and any other proposals, con­tracts, or agreements with Contractor regarding the repair or renovation of existing improve­ments) without penalty or charge within three days after the execution of the contract by all parties. See the “Notice of Cancellation” below.

G.2.Place of Signing Contract.      Owner acknowledges that this contract was signed at one of the following offices and not elsewhere: (a) the office of a third-party lender making an extension of credit for the work and material to be furnished; (b) the office of an attorney at law; or (c) the office of a title company.

G.3.Five-Day Waiting Period.      This mechanic’s lien contract and any other con­tract signed in connection with the repair and renovation work mentioned in this contract have not been executed by Owner or Owner’s spouse before the fifth day after Owner made written application for an extension of credit for the work and material contemplated.

NOTICE

Any holder of this consumer credit contract is subject to all claims and defenses which the debtor could assert against the seller of goods or services obtained pursuant hereto or with the proceeds hereof. Recovery hereunder by the debtor shall not exceed amounts paid by the debtor here­under.

Important notice: You and your contractor are responsible for meet­ing the terms and conditions of this contract. If you sign this contract and you fail to meet the terms and conditions of this contract, you may lose your legal ownership rights in your home. Know your rights and duties under the law.

RESIDENTIAL CONSTRUCTION LIABILITY ACT (RCLA)  NOTICE

This contract is subject to Chapter 27 of the Texas Property Code. The provisions of that chapter may affect your right to recover damages arising from the performance of this contract. If you have a complaint concerning a construction defect arising from the performance of this contract and that defect has not been corrected through normal warranty service, you must provide the notice required by Chapter 27 of the Texas Property Code to the contractor by certified mail, return receipt requested, not later than the 60th day before the date you file suit to recover damages in a court of law or ini­tiate arbitration. The notice must refer to Chapter 27 of the Texas Property Code and must describe the construction defect. If requested by the contractor, you must provide the contractor an opportunity to inspect and cure the defect as provided by Section 27.004 of the Texas Property Code.

   
[Name of owner]

You, the Owner, may cancel this transaction at any time before mid­night of the third business day after the date of this transaction. See the attached Notice of Cancellation form for an explanation of this right.

   
[Name of contractor]

Notice of Cancellation

[Date]

You may cancel this transaction, without any penalty or obligation, within three business days from the above date.

If you cancel, any property traded in, any payments made by you under the contract or sale, and any negotiable instrument executed by you will be returned within ten business days following receipt by the merchant of your cancellation notice, and any security interest arising out of the transac­tion will be canceled.

If you cancel you must make available to the merchant at your resi­dence, in substantially as good condition as when received, any goods deliv­ered to you under this contract or sale; or you may if you wish, comply with the instructions of the merchant regarding the return shipment of the goods at the merchant’s expense and risk.

If you do not agree to return the goods to the merchant or if the mer­chant does not pick them up within twenty days of the date of your notice of cancellation, you may retain or dispose of the goods without any further obligation.

To cancel this transaction, mail or deliver a signed and dated copy of this cancellation notice or any other written notice, or send a telegram, to [name of merchant], at [address of merchant’s place of business] not later than mid­night of [date].

      

I HEREBY CANCEL THIS TRANSACTION.

Dated: ______________________________.

   
[Name of purchaser]