Possessory Liens: Enforcement and Collateral Recovery March 1, 2017

The Texas Legislature has enacted possessory lien statutes in the Texas Property Code to protect service providers who perform work on personal property such as motor vehicles, boats, and aircraft. This article is limited to the liens available to service providers who repair, tow and store motor vehicles. The purpose of this article is to illustrate the definition and relevant terminology of possessory liens, how possessory liens work, perfection and foreclosure requirements and steps PMSI creditors can take to recover the collateral.

Definition and Relevant Terminology

In short, a mechanic who repairs a vehicle pursuant to the owner’s authorization or a tow truck driver or impound lot that tows and/or impounds a vehicle can sell the vehicle repaired, towed or stored to recover past due charges due.

A possessory lien is a lien that gives a service provider the right to possess and sell a vehicle to recover a debt due for services provided on the vehicle sold. Although many authorities use the terms “possessory” and “mechanics” liens interchangeably, the Texas Property Code demarks possessory liens as either worker’s liens or garageman’s liens. A worker includes auto repairmen who perform repairs on a vehicle pursuant to a signed work order authorized by the vehicle’s owner. A garageman is a tow operator or vehicle storage facility that tows and/or stores a vehicle left for care with the operator or facility or tows and/or stores a vehicle pursuant to state law or city ordinance.

How Possessory Liens Work

On the surface, possessory liens are fairly straight forward. First and foremost, the worker or garageman must have possession of the vehicle. After notice and a waiting period, if a vehicle owner fails to pay for repairs, parts or services or towing or storage, the worker or garageman may sell the vehicle at a public auction. Garagemen’s’ liens entail a slightly higher degree of nuance than workers’ liens. Specifically, a non-consensual tow, i.e., a tow under a state law or city ordinance, obligates the tow operator to send an additional notice, before the notice of sale, to the owner and lienholder of record no later than five days after the tow operator obtains possession. Workers who provide authorized repairs and garagemen who tow or store vehicles with consent are not required to send the additional five-day notice. It should be carefully noted that all possessory lien holders—workers and garagemen—must send a notice of sale as required by the Texas Property Code before they may sell a vehicle.

Perfection & Foreclosure Requirements

If the possessory lienholder has possession of the vehicle, he has perfected the possessory lien. If he relinquishes possession, he loses the lien, unless the relinquishment is a result of a dishonored payment. In order to foreclose the lien, the Texas Property Code has identified specific requirements that a possessory lienholder must comply with. If the possessory lienholder is a tow operator who did not have the consent of the owner, he must send the additional five-day notice referenced above, which must be sent by certified mail, return receipt requested, and the notice must contain:

  1. a request to remove the motor vehicle, motorboat, vessel, or outboard motor;
  2. a request for payment;
  3. the location of the motor vehicle, motorboat, vessel, or outboard motor; and (4) the amount of accrued charges.

This notice is in addition to the notice of sale. The non-consent tow operator is entitled to towing, impoundment, preservation, and notification fees and reasonable storage fees for up to five days before the day that the initial notice is mailed. After the day that the notice is mailed the tow operator is entitled to reasonable storage, impoundment, and preservation fees until the motor vehicle is removed and accrued charges are paid.

All possessory lien holders must give written notice to the owner and each holder of a lien recorded on the certificate of title before they may sell the vehicle. The notice to the owner should be sent to the address identified on the invoice or work order to the vehicle’s owner. Not later than the 30th day after the date on which the charges accrue, the lien holder must file a copy of the notice and all information required by Texas Property Code section 70.006 with the county tax assessor collector’s office in the county in which the repairs were made with a fee of $25.[1] The notice must be sent by certified mail with return receipt requested and must include the amount of the charges and a request for payment. The notice must also include the following:

  1. the physical address of the real property at which the repairs to the motor vehicle were made;
  2. the legal name of the person that holds the possessory lien for which the notice is required;
  3. the taxpayer identification number or employer identification number, as applicable, of the person that holds the possessory lien for which the notice is required; and
  4. a signed copy of the work order authorizing the repairs on the motor vehicle.

If the sale notice is required on or after September 1, 2015, the owner may obtain possession of the vehicle by paying all charges due before the 31st day after the date the notice was filed with the county tax assessor-collector. If the charges are not paid before the 31st day after the date the notice was filed with the tax assessor-collector, the possessory lienholder may sell the vehicle at a public sale and apply the proceeds to the balance due. This article does not address possessory liens with sales notices required before September 1, 2015. Please feel free to contact our offices with questions regarding possessory liens with notices required before September 1, 2015 at 940-387-3518 or contact us here.

After the sale notice is provided, the possessory lienholder must, on request, allow an owner and each lienholder of record to inspect or arrange an inspection of the vehicle by a qualified professional to verify the repairs. The inspection must be completed before the date of the public sale.

Peculiarities & Diligence in Possessory Liens

The Property Code is peculiar in that it specifically denotes that failure to comply with items (1 – 4) above will result in the creditor of the vehicle who has a lien recorded on the certificate of title taking priority over the possessory lienholder. But, it does not specify that the failure to timely send or file the notice displaces priority. Perhaps the Legislature is emphasizing the importance of the contents of the notice to the owner and creditor over the tax assessor-collector filing and service and amount notice requirements. This displacement does not necessarily preclude the possessory lienholder from foreclosing the lien, but it does provide the creditor with an additional cause of action for conversion if the vehicle is sold and a right to possession and foreclosure, if the creditor is swift enough to place a hold on the title before sale. Possessory liens are generally entitled to priority over PMSI liens as long as the requirements in this article are satisfied or unless that priority is displaced by statute, such as by items (1 – 4) above.

Tow operators may argue that the language in the Texas Property Code does not require them to file the notice of sale with the county tax assessor-collector because it states that “a holder of a possessory lien on a motor vehicle under Section 70.001 [ . . . ] shall file” the notice with the county tax assessor-collector. Tex. Prop. Code § 70.006(a). Garageman’s liens are authorized under section 70.003(c)—not 70.001. Tex. Prop. Code §§ 70.001, 70.003, 70.006(a). Nonetheless, this practitioner has seen that prudent tow operators file the notice regardless of the Legislature’s language. And in turn, creditors with liens on the certificate of title should insist on tow operator compliance with section 70.006(a).

PMSI Creditor Steps and Concerns

Certain creditors have eschewed litigating possessory liens either because repairs are typically verified upon inspection and paid for or because the value of the collateral is not worth the litigation. Unfortunately, efficient collateral recovery can be barred by inflexible possessory lien holders. In such circumstances, creditors should act quickly in order to preclude the possessory lien holder’s sale and preserve their collateral. Upon receipt of the notice of a possessory lien, creditors should immediately request a temporary title hold through the TxDMV, in order to give it time to verify the lien. Instructions for placing the title hold can be found on the TxDMV website at http://www.txdmv.gov/motorists/buying-or-selling-a-vehicle/title-litigation. Before the 10-day expiration of the temporary title hold, the creditor should file suit if the validity of the lien cannot be confirmed, which will extend the title hold until a final order is entered by the court. The creditor should confirm that the lien claimant actually has possession of the vehicle, repaired the vehicle and complied with the notice requirements discussed above, particularly those specified in Texas Property Code section 70.006(b-1).

Regardless of the outcome of the litigation, if the possessory lienholder sold the vehicle, the creditor is entitled to the excess proceeds of the sale. If the sale price was unreasonably low, the repair or storage charges were unreasonably high, the worker or garageman sold the vehicle to him or herself or failed to sell the vehicle at a public auction, creditors should aggressively pursue litigation to undo the sale and/or seek a money judgment against the worker or garageman. Other questionable circumstances that typically lead to aggressive litigation include the possessory lienholder secretly storing the vehicle to allow storage charges to accrue, the creditor tendering and possessory lienholder subsequently refusing to surrender the vehicle, deficient notices, work not authorized by the vehicle owner and refusal to allow inspection.

It should be noted that if the vehicle subject to the possessory lien is registered outside the State of Texas or the identity or address of the registered owner is unknown, the Texas Property Code allows for modified notification procedures and may place additional requirements on possessory lien claimants in order to foreclose the possessory lien.

[1] Accrual occurs when the repairs are complete.

Contact Us

DISCLAIMER:
This email was initiated at www.hbwvlaw.com. The content of this email is provided by and is the responsibility of the person posting the email communication. Your email will not create an attorney-client relationship and will not necessarily be treated as privileged or confidential. You acknowledge that any reliance on material in email communications is at your own risk.

sep-lg

Latest News

sep-lg

Our Offices

Richard D. Hayes

Partner
Denton
940-387-3518

Byron R. Berry

Partner
Denton, Gainesville, Flower Mound, Celina
940-387-3518

Don R. White Jr.

Partner
Denton
940-387-3518

Lance Vanzant

Partner
Denton, Celina
940-387-3518

Brian K. Tackett

Partner
Denton, Flower Mound
940-387-3518

Jeffrey A. Hines

Associate
Denton
940-387-3518

Dorwin “Trey” Sargent

Associate
Denton
940-387-3518

William Scazzero

Associate
Denton
940-387-3518

Thomas E. Little

Associate
Denton
940-387-3518

Colby G. Berry

Associate
Denton, Gainesville, Flower Mound, Celina
940-387-3518

Cody J. Lewis

Associate
Denton
940-387-3518