Mechanic’s Lien > Seller’s Security Interest

The buyer of a used Inifiniti M45 brought the car to Crest Infiniti and approved nearly $6,000 in maintenance and repair work. But after the repairs were completed, the owner failed to pay for the work or pick up the car. Unsurprisingly, he had also failed to keep up on his payments to the used vehicle company that had financed his purchase, and the seller sent a repo company over to Crest’s lot to recover the car. Crest sued for tortious interference and conversion but lost a bench trial. The Court of Appeals reversed, holding that the undisputed evidence established Crest had a possessory mechanic’s lien on the vehicle, that the mechanic’s lien took priority over the seller’s security interest as a matter of law, and that the seller had converted the car when the repo driver removed it from Crest’s lot without permission. The Court therefore remanded the case to the trial court to enter judgment in favor of Crest and to consider an award of attorney fees to it as the prevailing party under section 70.008 of the Property Code.

Crest Infiniti II, LP v. Texas RV Outlet, No. 05-13-01285-CV

Foreclosure of Mechanic’s Lien is Mandatory

In a case of first impression, the Court of Appeals ruled that if a court determines that a mechanic’s lienholder has a perfected statutory mechanic’s lien and is entitled to recover damages for unpaid labor and materials, the court must issue a judgment of foreclosure and order the sale of the property.

In the specific case in front of the Court, the lienholder sought to foreclose on its lien, but the trial court refused to order a foreclosure, noting that the language of the statute (Texas Property Code 53.154) provides that mechanic’s liens “may be foreclosed only on judgment of a court of competent jurisdiction.”  The Court of Appeals, reversing the trial court’s decision, noted that the use of the passive voice implied a meaning that mechanic’s liens may be enforced by the lienholder, thus giving the lienholder–not the court–the discretion.

Crawford Servs., Inc. v. Skillman Int’l Firm LLC

Accord and Satisfaction Actually Works

After a dispute arose between the owner of an apartment complex and the contractor hired to renovate it, the owner sent the contractor checks totaling more than $8,000 with a letter stating that it was “full and final payment” for all amounts owed. The contractor cashed the check, but subsequently filed a lien and sought to recover an additional $14,000 in unpaid invoices. The trial court granted judgment for the defendant, and the Court of Appeals affirmed. Although the contractor’s owner testified that he had not “knowingly and affirmatively” agree to an accord and satisfaction, the trial judge was entitled to disregard that evidence as not believable. Luckily, however, the apartment owner conceded that the $14,000 awarded on its own counterclaim was erroneous, and so the Court of Appeals vacated and rendered that portion of the judgment, with a remand for further consideration of the attendant attorney fees.

Contemporary Contractors v. Centerpoint Apt. Ltd., No. 05-13-00614-CV

Lien on Me

Alan Ritchey Materials Co., a construction materials supplier, contracted to supply  materials to make concrete for a subdivision development.  Ritchey provided the general contractor with over $100,000 worth of sand, but was never paid, so it filed a materialman’s lien on the property.  The property owner argued that the lien was not proper because more sand was delivered to the project than was required to complete the job and, as a result, under the statute, Ritchey could not prove that it “furnished goods . . . for a specific job.”  However, the Court found, among other things, that the evidence in this case established that the sand was delivered to the general contractor in connection with project and, given the liberal interpretation courts have given to the lien statute, the fact that some materials may not have been used is irrelevant to the analysis.

Addison Urban Development Partners, LLC v. Alan Ritchey Materials Co.


Constitutional Forfeiture in a Home Equity Loan

One of the legacies of Texas consumer protection laws was Article XVI, Section 50 of the Texas Constitution, which effectively prohibited home equity lending. In 1997, voters approved amendments to that section to permit home equity loans, but only under certain conditions. Among other restrictions, the loan cannot exceed 80% of the value of the equity in the home, and the lender must cure any violation of the constitutional requirements within 60 days of the date the borrower gives notice. If those requirements are not met, the lender forfeits all principal and interest and loses its lien on the property.

Lonzie Leath obtained a $340,000 home equity loan in 2005, and signed an acknowledgment that his home’s fair market value was $425,000. In 2008, the servicer sought to foreclose on the property, and Leath responded by alleging that the loan was illegal because it had actually exceeded 80% of the value of the home at the time it was made. The jury found that the property’s fair market value had been only $421,400, a finding that placed the principal of the loan barely over the 80% limit. The trial court therefore entered judgment forfeiting the principal and interest and invalidating the lender’s lien.

Although the servicer claimed that Leath had failed to provide notice of the alleged constitutional deficiency, the Court of Appeals agreed with Leath that his pleadings had given notice and started the clock on the lender’s 60-day cure period. The Court also held that the jury’s valuation finding was adequately supported by the evidence, including the admission of the servicer’s appraisal expert that he had not accounted for $3,600 of electrical work that needed to be performed at the time of the loan. The Court of Appeals therefore affirmed the judgment in favor of the borrower, leaving the lender without principal, interest, or the right to foreclose.

Wells Fargo Bank, N.A. v. Leath, No. 05-11-01425

No Mandamus to Deny Lienholder’s Possession of Aircraft

Patrick Curry and PJC Equipment Leasing are the owners of an IAI Westwind II jet. They hired Matthew Webb and MKW Aviation to manage the plane, and MKW maintained possession of it in that capacity. A dispute arose over MKW’s charges, and the trial court granted a writ of sequestration requiring MKW to relinquish the airplane and its records to PJC. MKW then filed a lien against the aircraft for unpaid storage, maintenance, and fuel charges totaling over $35,000. The trial court granted MKW’s application for turnover relief, thereby requiring PJC to hand the plane back over to MKW. In an opinion focused on statutory construction, he court of appeals ended up denying PJC’s mandamus petition challenging that decision. Section 70.302 of the Property Code permits the holder of an aircraft storage and maintenance lien to retain and even retake possession of the subject airplane. The court of appeals rejected PJC’s contention that MKW would have to be a “secured party” to retake possession of the aircraft, ruling instead that being the holder of the aircraft lien was sufficient basis under the statute for reclaiming the property subject to the lien. The trial court therefore did not abuse its discretion in ordering the plane to be returned to MKW.

In re Curry, No. 05-13-00734-CV

Equitable Title Trumps Judgment Lien

Lorrie Smith filed suit for judicial foreclosure of a judgment lien against three lots in a Frisco subdivision. Smith had obtained her judgment against Shaddock Builders & Developers, and she recorded an abstract of the judgment on July 15, 2010. Two years earlier, Shaddock had acquired the three lots and immediately conveyed them to another company, Basin, Ltd. The conveyance from Shaddock to Basin was recorded, but the original sale to Shaddock went unrecorded until the seller corrected its “oversight” exactly one day before Smith recorded her judgment lien. Shortly thereafter, Basin conveyed the lots to Sumeer Homes, which built houses and sold the lots to the current homeowners. Each of those subsequent transactions was recorded. Seeking to foreclose on the lots in order to collect on her judgment against Shaddock, Smith sued the homebuilder, the homeowners, their mortgage lenders, and the title company. The defendants moved for and obtained summary judgment against Smith.

On appeal, Smith argued that the conveyance to Shaddock had been fraudulently backdated, and that it had really been filed the day after she recorded her judgment lien. According to Smith, that meant that legal title to the property had not been transferred to Shaddock until after she filed her lien, therfore making the three lots subject to her claim. The court of appeals rejected that argument. Although “legal title” to property serves as evidence of ownership, it does not constitute full and complete title to the property. What really matters when it comes to a judgment creditor’s lien is equitable title to the property, which passes to the purchaser when it pays the purchase price and fulfills the obligations of the contract of sale. In this case, Shaddock had acquired equitable title to the lots three years before Smith recorded her lien, and Shaddock had immediately transferred that title to Basin. Equitable title is a complete defense against the lien of a judgment creditor. Because Basin had acquired equitable title long before Smith acquired her judgment against Shaddock, that title subsequently passed to Sumeer Homes and the subsequent homebuyers free and clear of Smith’s judgment judgment against Shaddock. Nor did Shaddock hold “legal title” to the three lots on the day Smith recorded her lien. The summary judgment evidence showed that the original seller had recorded the sale the day before, and because Shaddock had conveyed the property to Basin by warranty title two years earlier, legal title to the property passed instantly to Basin when the sale to Shaddock was finally recorded. The court of appeals therefore affirmed the trial court’s grant of summary judgment.

Smith v. Sumeer Homes, Inc., No. 05-11-01632-CV