This article provides basic information about Texas lien law governing the services and materials provided in connection with mineral activities. Like construction liens, mineral liens are frequently referred to as Mechanics & Materialman’s (or M&M) liens. However, Texas mineral liens have different filing, notice and perfection procedures than real estate construction M&M liens. Chapter 56 of the Texas Property Code provides the statutory framework governing mineral liens. Real estate construction M&M liens are governed by Chapter 53 of the Texas Property Code and are beyond the scope of this post.
Special Rights Enjoyed under Mineral Liens
Many types of property are potentially subject to a mineral lien, ranging from the well itself to machinery to pipeline easements to other wells on same property as the well under dispute. Generally, a mineral lien does not take precedence over earlier existing encumbrances on the land; however, a lien on material, machinery, or supplies does take priority over earlier encumbrances on the land where the machinery, material, or supplies is located.
The mineral lien date of preference relates back to the first date the work was performed. This priority date can be very important to oilfield service companies because it pushes them ahead of many other conventional creditors who achieve their priority on “the first in time, first in line” basis. For example, if a company begins to provide services to an oil and gas operator, who later files a deed of trust with a bank, the service company’s invoices would take priority over the bank on the date when work was first performed. Mineral liens can also be filed post-bankruptcy petition without being considered a violation of automatic stay.
Perhaps the biggest benefit of a mineral lien is that it subjects all the wells on the leasehold to the lien, not just the well for which work was performed or machinery was supplied.
All this is very beneficial to service companies, but mineral liens are regulated by very stringent procedural requirements and deadlines. Failure to abide by the requirements and deadlines could result in dismissal of an invalid mineral lien and liability for attorney’s fees.
Procedural Steps for Perfecting a Texas Mineral Lien
Identify the Well. This step should be addressed in the contract or purchase order for provision of services. The service provider should identify the well by referencing its API (American Petroleum Institute) number, which is assigned to each well drilled for oil and gas in the United States. The API number should be recorded before shipping any materials or providing services to the operator.
Identify the lease, the land, and the owners. An attorney must examine the chain of title, identify the working interest owner or owners, and identify the lease and its legal description. A landman is generally used to locate the documents necessary for this examination. The attorney’s work will be used to fill in the appropriate information for the mineral lien affidavit (see File a Lien Affidavit).
Send Notice of the Lien. When an oil and gas services invoice is more than 45 days overdue, it’s good practice to provide notice of intention to file a lien. The notice must be filed no later than the 10 days before the end of six months after the day the indebtedness accrues (the day the lien affidavit is filed). Section 56.005 of the Texas Property Code defines when indebtedness under the mineral lien accrues. If the work is performed by the day or week, then it accrues at the end of the week; otherwise “the indebtedness for material or services accrues on the date the material or services were last furnished.” If all material or services are furnished for the same land, leasehold interest, oil or gas pipeline, or oil or gas pipeline right-of-way, they are considered to be furnished under a single contract, unless more than six months elapse between the dates the material or services are furnished.
A mineral subcontractor must include in a notice to the property owner the amount of the lien, the name of the person indebted to the subcontractor, and a description of the land, leasehold interest, pipeline, or pipeline right-of-way involved. It is advisable to consult an attorney before filing a notice of lien.
File a Lien Affidavit. Under Property Code section 56.021, a lien affidavit must be filed within six months after labor or materials were last furnished. Do not wait until the last few days of that six-month period to file the affidavit because gathering information and filing the affidavit take time. To make matters more complicated, it is possible a county clerk will not record the lien affidavit on the date it is received.
A lien claimant’s affidavit must include the following:
(1) the name of the mineral property owner involved, if known;
(2) the name and mailing address of the claimant;
(3) the dates of performance or furnishing materials/services;
(4) a description of the land, leasehold interest, pipeline, or pipeline right-of-way involved; and
(5) an itemized list of amounts claimed.
Additionally, a mineral subcontractor’s affidavit must include:
(1) the name of the person for whom labor was performed or material was furnished or hauled; and
(2) a statement that the subcontractor timely served written notice that the lien is claimed on the property owner or the owner’s agent, representative, or receiver.
In order to properly and timely file a lien affidavit, seek competent legal advice from a lawyer knowledgeable in Texas mineral lien law.
Send Notice of the Lien Affidavit. Although notice of mineral subcontractor’s lien is required, notice of a lien affidavit is not required. In practice, however, notice of the lien affidavit to the leasehold owner or owners may result in settling the lien before a lawsuit is filed.
File Suit. A suit to enforce the lien must be brought within two years after the last day to file the lien affidavit or within one year after completion (or termination) of the work, whichever is later.
Property Sold or Removed by Mineral Property Owner
If for some reason the mineral property owners or someone working for the owner sells or moves property to which a lien is attached, the lienholder still has a right to possession of the property no matter where it is found. The lienholder may also have the sell the property that was removed or sold to satisfy the lien.
Caveat for Mineral Subcontractors
Once a mineral property owner is served with notice of a mineral subcontractor’s mineral lien, the owner may withhold payment to the general contractor of the amount stated in the lien. Withholding of payment to the contractor because of the subcontractor’s lien may create some difficulties in the relationship between the contractor and the subcontractor, especially if it is an ongoing relationship. It is good practice for the subcontractor to alert the general contractor that a lien is being filed and that the mineral owner may withhold payment.
Before proceeding with filing a lien affidavit, the attorneys at FILIPPOV LAW GROUP, PLLC can offer you competent and knowledgeable advice concerning Texas Mineral Lien Laws. Our experienced attorneys possess a comprehensive understanding of Chapter 56 mineral liens and Chapter 53 M&M liens of the Texas Property Code. Additionally, our attorneys are experienced in filing mineral liens and enforcing collections. If you are looking into filing a lien affidavit or want to consider your legal options, call us at (832) 305-5529 or email our managing member email@example.com.
This blog is intended as an information source for existing and future clients of FILIPPOV LAW GROUP, PLLC and should not be construed as legal advice. Readers should not act upon the information contained in this blog without professional counsel. The materials presented in our blog, “tweets” and legal articles may not reflect the most current legal developments, verdicts, or settlements. These materials may be changed, improved, or updated without notice. FILIPPOV LAW GROUP, PLLC. is not responsible for any errors or omissions in the content of this site or for damages arising from the use or performance of this site under any circumstances. © Copyright 2015 FILIPPOV LAW GROUP, PLLC
© Copyright 2016 FILIPPOV LAW GROUP, PLLCRead More