In today’s mobile society, it is easy to forget that each state regulates contractors differently. Here in Georgia, for example, out-of-state contractors (and sub-contractors) who work on Georgia construction projects with a contract price greater than $10,000.00 must register with the Commissioner of Revenue. (See, O.C.G.A. § 48-13-30 through O.C.G.A. 48-13-38). What do these “nonresident” contractors need to register for? A Sales and Use Tax Certificate of Registration.
In addition to the act of registering, each nonresident contractor shall report to the department of revenue’s commission any tax liability which the contractor may have. Furthermore, this code section may require the foreign contractor to file a bond with sufficient sureties that all taxes which may accrue to the State of Georgia (and its political subdivisions) will be paid on demand. Also, the Georgia Code requires that the registration and bond be in place before beginning performance of any contract with a value greater than $10,000.00. It also requires that the nonresident contractor appoint the Georgia Secretary of State as their representative in the State of Georgia to accept service of process.
If a foreign contractor begins to perform work in Georgia in and fails to register with the commission, then they may be subjected to several penalties including the following: (i) an injunction may issue preventing the work until the nonresident contractor or subcontractor complies with the Georgia statutes, (ii) a nonresident contractor may be prohibited from filing an action to recover payment for performance on the contract in Georgia courts, and (iii) they may be charged with a criminal misdemeanor.
Each year, we get several questions from out-of-state contractors who failed to register with the commissioner prior to performing the work regarding whether or not they can file a mechanics lien. While the Act does not specifically state the unregistered contractor cannot file a mechanics lien, it may leave room for a challenge. Fortunately, there has been some case law that allows a construction lien to be enforced in Georgia so long as the unregistered contractor registers with the commission before filing suit (better late than never), but we do not recommend taking this risk. If you are coming into Georgia from another state to work on a Georgia construction project, and your contract is valued more than $10,000, please register with the state.
Since writing the recent blog article about the holding in the Handy Andy of Eastman, Inc. v. Evans, et al. matter, we have received requests for more information about “Strict Compliance” and what this phrase means to Georgia lien claimants.
Background: First, it’s important to the remember that all construction liens are created by statue (they are not a product of common law); they are unique to the United States and a few other counties who have been or are under the influence of our legal system (such as the Philippines). Mechanics and materialmen’s lien were first authorized by the United State’s Congress to encourage laborers, suppliers, and contractors to work to build Washington, DC out of the swamp and rural lands of Maryland and Virginia. Those working to the build new capital were promised that, if they were not paid, they would have a “lien” on the real estate and it’s improvements.
Lien Laws are Construed in Favor of Property Owners: Since materialmen’s liens more-or-less make property owners (in addition to the contracting parties) liable for a debt which they otherwise might not be liable (except for liens from general contractors), the materialmen’s lien statutes are construed in favor of the property owner and against the materialmen claiming the lien. Furthermore, since liens are statutory, lien claims must follow the statutes regarding liens very carefully, and the materialmen’s lien statute requires strict compliance; in other words, before a materialmen’s lien can be allowed, the lien claimant must show compliance with all conditions of the statute.
Why are Lien Laws Construed that Way: Strict compliance with the materialmen’s lien statutes is required because a materialmen’s lien effectively permits the transfer of liability from the person who actually contracted with the materialmen for labor, services or materials to be used in improving real estate to the owner of the improved property, even though that property owner usually will have no relationship with the materialmen, contractually or otherwise.
What does that Mean for Subcontractors & Suppliers Today: Materialmen’s Liens (and pretty much all of Georgia’s construction law statutes) are held to a very high standard. Many people think that in order to file a lien, they can find a “lien form”, fill it out, and file it with the clerk of court, but this is not true. The harsh reality of “strict compliance” is that every lien claimant needs to correctly include all of the language required by Georgia’s lien law, and they need to meet every aspect of filing a lien (real property identification, notices, deadlines, etc.) in precise accordance (i.e., strict compliance) with the requirements of the Georgia’s statutes. Unfortunately, no blog article or “short-cut” will adequately provide potential lien claimants will all of the necessary information to file a lien (we haven’t begun to discuss the exceptions!!); consequently, just using a form (even an allegedly current form) is not sufficient.
In other words, in order to claim a lien, you must precisely follows each and every requirement of Georgia’s lien laws. Even a simple omission or mistake can invalidate an otherwise valid lien! This is so important that it bears repeating: a lien claimant must precisely follow each and every requirement of Georgia’s lien laws.
Keeping up to date on all of the legal requirements for filing contractor and subcontractor liens in Georgia can be very daunting. If you provided work or supplied materials on a construction site in Georgia for which you have not received payment, please feel free to contact us to see if we can help ensure that your liens meets all of Georgia’s requirements.
In our last blog we told you about some bad news to Georgia’s Lien Claimants, but we promised to share some better news in this installment. In addition to the case discussed in our last article, a second Georgia Court of Appeals case styled, Georgia Primary Bank v. Atlanta Paving, Inc., offers some hope for those subcontracting or suppling on Georgia construction projects.
In this case, Atlanta Paving, Inc. performed work on a construction project, but it did not get paid; so, on June 5, 2008, Atlanta Paving filed its materialmen’s lien against real property located in Dawson County, Georgia. Five days prior to the lien’s filing, Georgia Primary Bank, as the construction lender for the project, closed on its loan with the project owner, and took a security interest in the project. The bank, however, did not file its Deed to Secure Debt in the real estate records until June 10, 2008. Thus, the materialmen’s lien was filed in the interim period between a loan closing and the recordation of the loan closing documents.
So, what’s a construction lender to do?! The bank sought to defeat the materialmen’s lien on two points: (i) that the bank’s deed to secure debt was superior to the materialmen’s lien, and (ii) that an affidavit the bank received as a part of its loan closing promised that “CONTRACTOR represents and certifies that it has been (or will be, upon receipt of the amount described in paragraph 2) paid in full all amounts and bills due for all labor, materials, fixtures and supplies …”
Thankfully for Georgia’s sub-contractors and suppliers, the Court Appeals upheld the trial court’s findings and agreed that Atlanta Paving’s lien was a valid lien subject to foreclosure!
Specifically, the Court of Appeals found that mechanic’s liens are “special liens” in Georgia, and as such, it is superior to all other liens not excepted by Georgia’s Lien Law (which construction mortgages as not). Thus, although the loan closing may have occurred on May 30, a materialmen’s lien filed on June 5 is superior to the loan closing documents filed on June 10. To quote the court, “It is well settled that ‘the filing and recordation of an instrument provides constructive notice to subsequent purchasers of the existence of a prior interest in the property’.”
PRACTICAL TIP NUMBER 1: File your Georgia Claim of Lien as quickly as you can.
The Appellate Court also found that the general contractor’s affidavit did not comply with the legal requirements of the Contractor’s Affidavit statutes. OCGA § 44–14–361.2(a) allows for the dissolution of a materialman’s lien only when the lien has been waived by the claimant or the contractor gives a sworn statement that “the agreed price or reasonable value of the labor, services, or materials has been paid or waived in writing by the lien claimant.” Here, the contractor swore that “all contractors, subcontractors, suppliers[,] and laborers have been ( or will be, upon receipt of the amount described in paragraph 2) paid in full. …” Thus, on its face, the release signed by the contractor was insufficient to satisfy the plain language of the statute, and the affidavit failed to extinguish Atlanta Paving’s lien.
PRACTICAL TIP NUMBER 2: Contractor Affidavits are tricky business so, if you are a contractor, make sure your affidavit conforms to Georgia’s requirements; if you are a subcontractor, don’t immediately assume that your lien has been voided just because you are presented with a Contractor’s Affidavit.
Please let us know about your thoughts and experiences!
Watch out for topographical errors in your Georgia liens!
There’s no way to say it, but we have some good news and some bad news for general contractors, suppliers, subcontractors and materialmen in Georgia. In the past month, two cases have been handed down by the Georgia Court of Appeals, and one of the cases has some bad news and the other case has some good news for Georgia’s lien claimants.
Typically, I think it’s a good idea to start with the bad news:
Every reader of this blog should know that anyone who files a materialmen or mechanic’s lien in Georgia must “strictly comply” with the Georgia lien statues. And, these statutes are precise and detailed, and we know that those who file liens are held to a very high standard. Recently, however, the case Handy Andy of Eastman, Inc. v. Evan, et. al. held “strict compliance” to an unbelievably high standard!
The facts are very simple, the Plaintiff (Handy Andy of Eastman, Inc.) supplied materials on a Georgia construction project; they were not paid, so they filed a supplier’s lien pursuant to the Georgia Mechanics and Materialmen’s Lien Statute. The lien, however, had to seemingly minor mistakes or typographical errors.
As we know, Georgia’s lien statute requires that any lien (filed after March 31, 2009), must contain the following notice in at least 12 point bold font: “This claim of lien expires and is void 395 days from the date of filing of the claim of lien if no notice of commencement of lien action is filed in that time period.” The failure to include this required language invalidates the lien. The materialmen’s lien filed by the Plaintiff included this phrase, but it differed in two respects:
First the Plaintiff’s lien said that the lien would be “void 365 days from the date . . . “ when it should have read that it would be “void 395 days from the date . . .”
Second, the Plaintiff’s lien omitted the word action so that it read that the lien expired “if no notice of commencement of lien” is filed within 365 days instead of “if no notice of commencement of lien action” is filed . . .
Although the Plaintiff argued that these changes were merely typographical errors and that the language in its liens not only substantially complied with the statute, but actually worked to the Defendant’s’ benefit, the Court of Appeals disagreed and held that the lien was invalid. This standard is extremely high, and if it becomes the precedent, liens may get invalidated to do the most trivial (and inevitable) human mistate. We can hope that the Plaintiff decides to appeal this matter to the Georgia Supreme Court, and trust that their decision will be more reasonable. Until then, you may ask, what are lien claimants supposed to do?
PRACTICAL TIP: Liens must be precise, it is very important that your liens do not contain any typographical errors!
Using the right Georgia lien forms is the first step to ensuring that your are on the right path to filing a claim of lien, but you must read and re-read the lien for accuracy in help improve the enforceability of your lien. Please contact the Cobb Law Group if you have any questions or need to file any materialmen’s liens anywhere in the State of Georgia.
Now the good news: You can almost stop reading as this blog entry has gone on too long. There is another case which includes some good news for lien claimants in Georgia, but I’m going to save that for next week’s blog!
Until then, I would like to hear your thoughts about this ruling!
Instead of our usual blog posting about Georgia’s Mechanics and Materialmen’s Lien Laws, we thought we do something different!
I recently finished a book that I can’t wait to tell you about. Typically, my reading are pretty broad and include the classics, contemporary literature, history (before WWI), and works by friends. I have a tendancy to stay away from current events, recent history, and politics. So imagine my surprise when I read and thoroughly enjoyed The Lemon Tree: An Arab, a Jew, and the Heart of the Middle East by Sandy Tolan. Although it’s non-fiction, the story is very compelling and written in a way that mimics the best story-telling tactics. It’s about a Palestinian family forced to leave behind their village, their house, and a lemon tree planted in their back yard and the subsequent Jewish family who moves into the house, and nurtures the lemon tree under the assumption that the house was abandoned.
Growing up, my Father often watched the evening news on television; frequently, there was reference to Israel, Palestine, Jordan, Syria, Egypt, their various leaders and political factions. Although I may had thought as though I understood a particular incident, I didn’t. As I grew older, I’m ashamed to say, I never grasped anything more than a cursory understanding of the events which occurred/occur in the Middle East. I am delighted to say that The Lemon Tree changed all of that!
It’s written well enough to be a “page-turner”, but it is researched and filled with background, history and current events from the area. The Lemon Tree: An Arab, a Jew, and the Heart of the Middle East explains many of the “whys” and “whos” and “whens” that I encounter whenever there is a reference to a prior event. This book is enjoyable enough to be a “beach-read” but it’s serious enough for any avid historian, sociologist, or political scientist. Check it out and let me know what you think about it!
In this economy, and with the heatwave that has been encompassing the State of Georgia, many of our dear friends are subcontractors who have been working particularly hard despite these challenges, and we hope a three day weekend is exactly the prescription they need. Personally, we’ve been so busy around here, that the chance to relax will not escape. Here, we plan to relax, spend some time with friends and try not to burn the hamburgers!
To all all our loyal readers and fans, the Cobb Law Group hopes that you have a wonderful, safe, fun Fourth of July.