Broker's Lien is a Powerful Tool to Collect Unpaid Real Estate Commissions

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

Historically, real estate Brokers in Texas had limited mechanisms by which to collect unpaid commissions. Quite simply, their best recourse was to sue the party from whom the commission was due (usually the Seller or former property owner) for breach of contract (the listing agreement). However, suits are slow and costly to develop, and contain no guarantee of recovery.  

Recognizing that under then-current law, a real estate broker had no security for the payment of the broker's commission from a transaction, the Texas legislature, in 1999, adopted HB 1052.  

H.B. 1052 added chapter (62) to Subtitle B (Liens), Property Code, to permit a real estate broker to secure the payment of the broker's commission arising from a commercial real- estate transaction by obtaining  a lien on the property involved.  The legislation also set out procedures to entitle a broker to a lien under certain conditions, and a specified  statute of limitations.  

As identified above, this lien right applies only to "Commercial Real Estate," which has the following definition under the statute:

 "Commercial real estate" means all real estate except:

(A) real estate improved with one to four residential units;

(B) a single-family residential unit, including a condominium, townhouse, or home in a subdivision, if the unit is sold, leased, or otherwise conveyed on a unit-by-unit basis and regardless of whether the unit is part of a larger building or located on real estate containing more than four residential units;

(C) real estate that is or includes on the real estate a person's homestead;

(D) real estate that is not improved with a structure and is:

(i) zoned for single-family residential use; or

(ii) restricted for single-family use under restrictive covenants that will remain in effect for at least the next two years; or

(E) real estate that:

(i) is primarily used for farming and ranching purposes;

(ii) will continue to be used primarily for farming and ranching purposes; and

(iii) is located more than three miles from the corporate boundaries of any municipality.

See Texas Property Code Section 62.003(3).

***Notably (and unfortunately), there is no statutory lien right that attaches to residential property for the purpose of securing an unpaid broker's commission.***

The lien right created by Chapter 62 can attach to the commercial real estate either before or after the property is sold or leased, if certain conditions (primarily relating to advance notice of the commission agreement) are satisfied. 

In that regard, the Clerk of the County  in which the lien is recorded must index and cross-index the notice of lien in the names of the broker, each person obligated to pay the commission under the commission agreement, and each person who owns an interest in the commercial real estate. See Texas Property Code Section 62.024(c).  However, in order to be enforceable against a purchaser, lessee, grantee or transferee of the property, the lien must be recorded PRIOR TO the recording of the deed, lease, or instrument transferring the interest of the party responsible for paying the commission. See Texas Property Code Section 62.028(b).

Once a lien is timely and properly recorded against commercial real estate, the broker may file suit (within 2 years after lien filing) to foreclose the lien. The prevailing party in any such foreclosure suit is entitled to the recovery of attorneys' fees and costs incurred in the foreclosure suit.

Filing a Broker's Lien under Chapter 62 is a highly technical and time-sensitive process. Liens that are filed too early or too late are not enforceable, and the window of time for filing is rather short.

Further, it is of paramount importance that the commission upon which the lien is based be "earned" at the time that the lien is recorded.  

For these reasons, brokers contemplating filing a lien to recover unpaid commissions would be wise to seek advice from an experienced real estate lawyer prior to recording any document that threatens to slander the title to real property.