Filing a Lien? Make Sure You Have Documentation to Backup Your Furnishing Dates.
As One Creditor Learned, Making Up a Fake Invoice Date Could Lead to Invalid Mechanic’s Lien
Thinking of changing an invoice date to extend a lien deadline? While it may be tempting to alter an invoice, don’t do it! As one contractor discovered, a fabricated invoice date may lead to an invalid mechanic’s lien.
Altered Invoices = Invalid Mechanic’s Lien
The State: Texas
The Case: Consolidated Reinforcement, LP v. Cheraif
The Parties:
- Owner: Two Investors (Owner)
- General Contractor: Cheraif
This relationship is a bit different than a typical owner/GC relationship. In this case, Cheraif and the investors contracted together under an investment contract. Ultimately, under the investment contract, Cheraif would live in the home being constructed. Cheraif was to be paid $50,000 as general contractor, provided he could “…present clear property title” to the house free of any liens within ten months after the date construction on the house began.”
- Subcontractor: Russell Bankston (Bankston)
- Material Supplier: Consolidated Reinforcement, LP (CRI)
The Payment Problem
Bankston was hired by Cheraif to pour foundation for the home. Bankston hired CRI to supply materials. Once the foundation was finished, Bankston was paid in full; however, Bankston didn’t pay its material supplier, CRI. Subsequently, CRI filed a mechanic’s lien.
The Key Dates
- Bankston’s work was complete in June 2014.
- CRI had an invoice with a ship date of July 2014.
- CRI filed its mechanic’s lien October 2014.
The Problem with the Key Dates
The trial court determined this was a residential project. With the completion of Bankston’s work in June 2014, CRI should have provided notice of its unpaid claim by August 2014 and filed its mechanic’s lien by September 2014. However, CRI didn’t serve its notice until September 2014 and file its lien until October. CRI calculated its deadlines from the July invoice.
Now, I should note, there were many issues with this case. In fact, there were additional issues with this July invoice, aside from the obvious “it was issued after work was completed.” For example, there were discrepancies on what was furnished vs. what was invoiced, such as CRI invoiced for tensioning, but it wasn’t a tension slab/foundation.
The Court Ruled
The trial court ultimately determined CRI filed an invalid mechanic’s lien and caused additional financial loss to Cheraif (i.e. the $50,000 Cheraif was to be paid if the home maintained clear title).
“… intentionally and knowingly used the altered invoices in an attempt to send the above-referenced notices and file the Lien Affidavit within their respective statutorily prescribed deadlines. This was done in order to cause financial injury to Cheraif in an attempt to have him pay for material for which he would not be required to pay had those deadlines not been met, and furthermore to have him pay for material that was not provided on his project.”
As the saga continued, other issues were uncovered, such as the “lack of diligence” by CRI’s attorney to serve Cheraif with a copy of the notices.
Alas, the trial court deemed CRI’s lien invalid, wouldn’t permit a foreclosure of the lien, and awarded fees to Cheraif.
As you’d imagine, CRI was miffed that the trial court wouldn’t allow it to foreclose on the mechanic’s lien. But, as we know, it was an invalid mechanic’s lien — which means, foreclosing is obviously not an option. And, an award in fees can be expensive, so it’s not surprising that CRI argued the trial court erred in awarding fees. Much to CRI’s dismay, the appeals court agreed with the trial court on all counts.
- The lien is invalid.
- Foreclosure is not permitted.
- Attorney’s fees awarded to Cheraif.
And all this craziness because CRI altered an invoice date so it would appear it timely served its notice and filed the lien. Gosh, that got expensive!
The Moral
Tracking lien deadlines can be a challenge. Missing deadlines stinks. But fudging an invoice date so you can “extend” your lien deadline is just not worth the cost of the consequences.
