by Mark A. Cobb
Those contractors or suppliers who file Claims of Lien against their projects usually understand that filing the materialmen’s lien is the first step to recovering the amount which is owed. Filing the lien is often the easier part but how to proceed after the lien is filed requires an analysis of the law, creative problem-solving, and client-driven goals. This article cannot possible discuss every scenario, however, it does discuss some of the most common scenarios encountered by our clients.
Perfecting the Lien and its Deadline:
Please keep in mind that, regardless of the steps taken, a Georgia lien claimant must timely perfect its lien; otherwise, the lien will expire as an operation of law. The word “perfect” is defined as follows:
to take all required steps to achieve a result, such as obtaining a lien or other security by legal action or completing and filing all documents to present a case to a court.
Under Georgia law, any number of steps may be undertaken to properly perfect a lien including filing suit or making a demand for an arbitration. In addition, after commencing an action, a Notice of Filing of Claim to Enforce a Lien must be filed in the real estate records and cross-reference the lien. A good construction attorney can assist the lien claimant in making this strategic decision when necessary.
The deadline to perfect the lien is either (i) within 365 days from the date of filing for record of your claim of lien (O.C.G.A Section 44-14-361.1) or (ii) sixty (60) days from the receipt of a Notice of Contest of Lien. (O.C.G.A. Section 44-14-368). If a Notice of Contest of Lien is received, then a lien claimant may want to schedule an appointment with its construction attorney as the Notice of Contest of Lien can reduce the options significantly. Similarly, when calculating any deadline, please keep in mind holidays, weekends, and leap years. Experience has taught us to always use the earliest possible date to avoid potential problems and costs.
Options Prior to Perfecting the Lien:
Since the typical lien claimant may have up to a year before it needs to perfect its lien, it is useful to think about some of the options which may be available:
1. Evaluate the Reason(s) for Non-Payment. Occasionally, the lien deadline forces a claimant to file the lien first, and then ask questions later. Now, is a good time to look into the reasons in-depth as it may help determine the next steps. For example, higher tier cash-flow issues may dictate a different tactic than a defect claim or termination claim against entity claiming the mateiralmen’s lien.
2. Review the Contract. There are many reasons to perform a thorough contract review including a review of the rights (and obligations) under the contract agreement. For example, many construction contracts require pre-litigation mediation or arbitration, and these provisions may impact your timetable as well as lower the costs of recovery. In addition, reviewing the contract can help you understand which state’s laws apply, the location where litigation is to take place (in Georgia/outside of Georgia), and the court where litigation is to occur (Federal or state courts).
3. Invite a Mediation Opportunity. Even if the lien claimant’s construction contract does not mandate mediation as an option, there may reason to contact the other parties to see if they will consent to mediation to resolve the dispute instead of, for example, forcing the filing of a lawsuit. This can be particularly useful as the mediation might be better suited to address non-economic activities such as completion of punch list work, establish milestones for payment, or ratification of a contract.
4. Negotiate a Settlement. Until the deadline to perfect the lien nears, the lien claimant can attempt to engage the other party into settlement discussions (without the heavy-hand of filing a lawsuit). This can be an effective dispute resolution method as it can include a payout over time.
5. Send a Demand Letter. Although the property owner and any higher-tier contractors should have been sent a copy of the recorded materialmen’s lien, a demand letter may be useful as it actually threatens suit. n addition, it may be a prerequisite to filing suit or commencing an action. Sometimes, clients ask that we send a draft of the complaint along with the demand letter to underscore their seriousness and, hopefully, bring the other party to the discussion table.
6. Be more aggressive and commence an action. In some cases, negotiation or settlement conferences waste time and money. Thus, other clients direct us to go ahead and file suit to perfect the lien. This may be done to get ahead of other creditors or to avoid missing the deadline. If the claim of lien is less than $15,000.00, then the lien claimant may be able to handle this matter itself by filing suit in Georgia’s Magistrate Court (a/k/a small claims court); otherwise, an attorney may be required. Regardless, a Notice of Filing of Action of Claim to Enforce a Lien must also be timely filed and all other requirements met.
7. Do nothing. Some clients prefer to adopt a wait-and-see approach to their lien; then, as the deadline to perfect the lien approaches, they will decide whether it is economically feasible to file a suit or arbitration claim.
These are just some of the most common options which our clients find useful to consider while they wait for a response from the filing of the lien. And, although we hope that our readers find this helpful, we acknowledge that each matter is different, and creative problem-solving thought must be engaged in every situation. If you are a Georgia lien claimant, and you need to perfect your lien, please remember do not wait until the deadline is too close as commencing an action to perfect a lien takes time to get it right. Our construction attorneys welcome your questions or an opportunity to set up an appointment to discuss your lien rights fully. Please click here to contact us.