When a building material supplier has not been paid for labor or materials used on a Georgia construction project, that supplier may place a materialman’s lien against the owner of the improved real property; this is true even if the owner has no contractual relationship with that supplier. Such a lien essentially transfers liability from the party contracting with the supplier (such as the general contractor) to the owner since the supplier’s goods and services improved the value of the owner’s property.
In Hill v. VNS Corporation d/b/a Choo Choo Lake Oconoee, et al, a case decided earlier this month by the Fourth Division Court of Appeals of Georgia, the plaintiff, a building supply company, sued the property owner to enforce a materialman’s lien against that property, but the court of appeals did not agree with the activities of the trial court and reversed the trial’s court’s decision.
Background & Facts: The owner had contracted with a custom home-builder general contractor, who in turn purchased materials from the plaintiff for use in constructing a house on the owner’s property. The general contractor failed to pay the supplier for all the materials, which led to several legal claims. The supplier filed a materialman’s lien under the Georgia’s Mechanics and Materialmen’s Lien Law against the real property where the project was located, sued the general contractor and loan guarantor for breach of contract, and sued the property owner on the basis of a materialman’s lien against the property.
Supplier Prevails Against GC and Guarantor: The plaintiff won a summary judgment against the general contractor and guarantor for payment which included prejudgment interest, and attorney fees pursuant to the building supply company’s credit application’s terms and conditions.
Supplier Prevails Against Project Owner: The trial court also ruled in favor of the plaintiff in the claim against the owner, granting summary judgment for the materialman’s lien and also making an award for the supplier’s prejudgment interest.
Project Owner’s Appeal: The owner appealed the lower court’s decision, contending that factual questions remained regarding the amount of the materialman’s lien sought. If there is a genuine issue of material fact, such as the actual amount owed on a lien, summary judgment is improper. The appeals court agreed with the owner that there was an unanswered question of fact, finding that the plaintiff has the burden of proving the lien amount due at the trial court level. The court also noted that a materialman’s lien against the property owner will fail if the owner can show that payments were properly made and applied to the payment of the plaintiff for the labor and materials at issue. The appeals court also reversed the lower court’s award of prejudgment interest, which may not be claimed if the lien amount is not fixed and agreed upon, and attorney fees, which are not lienable items under Georgia law.
Practical Tips For Suppliers and Other Georgia Lien Claimants:
1. File a Timely Lien: If you as a supplier have not been paid by the party with whom you have a contract, you may place a materialman’s lien against the real property owner if your labor and materials improved that property. This does not require you to have a contractual or any other relationship with the property owner, who has benefited from your materials and work. Remember that all Georgia construction liens must be filed within 90 days of the last day in which the lien claimant actually worked on or supplied to the project or within 60 days of the date of the lien waiver–whichever deadline is shorter!
2. Document and Prove the Amount Claimed in the Materialmen’s Lien: If you as a supplier have a valid materialman’s lien against improved property, the amount of the lien must be fixed by agreement or proven in court.
3. Property Owners Should Track Their Payments: If you are a property owner being sued to enforce a materialman’s lien against your improved property, try to show that you made payments properly to the contractor for the payment of third party supplier’s labor and materials.
4. Interest and Attorneys Fees are Not Includable in Lien Amount: If you are a defendant in a materialman’s lien suit, note that attorney fees and prejudgment interest are not lienable items under the Georgia lien statutes.
by Mark Cobb
It would be wonderful to live in a world where a handshake or a person’s word meant something. The Georgia Court of Appeals just handed down a verdict in First Bank of Georgia v. Robertson Grading which will make you question whether or not you can trust any body when it comes to being paid on a construction project.
The background is a little longer than we normally put on our blog; however, we believe that it is very important for our readers to understand that the subcontractor lost all his right to payment even though he made regular visits with the construction lender and was (allegedly) repeatedly told that payment would be forthcoming.
R & B Construction (“GC”) was the general contractor / developer of a subdivision in the Richmond County / Augusta, Georgia area. The GC contracted with Robertson Grading (the “Subcontractor”) to pave the new streets. Because the Subcontractor had never worked with the GC before, the Subcontractor requested a list of the GC’s creditors in order to determine the GC’s credit worthiness. After signing the paving subcontractor, the Subcontractor visited one of the credit references and the construction lender First Bank of Georgia (the “Bank”) in order, ostensibly, to make sure there was money available to pay the $400,000 paving contract. Although the bank disputes some of the statement, the Subcontractor’s evidence suggested that the bank representative allegedly advised the Subcontractor two things:
1. The Subcontractor “WOULD GET PAID FOR THE PAVING”; and
2. The bank would notify the Subcontractor if any problems arose with the GC’s account.
The Subcontractor began the paving project and submitted it’s first invoice which exceeded $100,000; when the first invoice wasn’t paid, the Subcontractor returned to the bank and learned two more things:
3. The parties wanted to wait until the paving was complete to issue one check; and
4. The bank representative allegedly said that, ”[w]hen you put the last ton of asphalt down . . . I promise you [,] you will get paid.”
Apparently relying upon the bank’s representative’s statement, the Subcontractor continued its work on the subdivision. Due to some delays, some additional work requested by the GC, and an increase in material cost, the project was completed later than the Subcontractor had advised the bank and a second invoice was sent which exceeded $300,000. With the two outstanding invoices totalling $448,600.65, the Subcontractor contacted the bank when payment wasn’t made immediately. At this point, the Bank informed the Subcontractor:
5. The GC missed it’s most recent interest payment due on the construction loan and that the Bank was not disbursing any further funds on the account.
The grading Subcontractor immediately filed a Mechanics and Materialmen’s Lien pursuant to Georgia’s lien statutes; when the GC subsequently filed bankrptucy, however, it was determined that the Subcontractor’s lien was invalid as it had not been properly “perfected”. Thus, the Subcontractor was limited to pursuing collection of its payment as an unsecured creditor.
PRACTICAL TIP–FILE YOUR LIEN BUT DON’T FORGET TO PERFECT IT: If you are owed money on a Georgia construction project and you file a materialman’s lien, your lien will expire 395 days from the date the lien was filed UNLESS you properly perfect the lien. There are several ways to perfect your lien depending upon the circumstances of the claim; if the lien is not properly perfected, then you will lose your lien rights.
Despite the GC’s bankruptcy, the Bank was allowed to foreclosure upon it’s security interest in the project; eventually, the Bank was able to sell all of the lots and, even, admitted the following:
6. It would not have been possible to sell the subdivision lots without paved streets.
THE TRIAL COURT’S DECISION:
Without a valid construction lien, the Subcontractor had limited recourse in the GC’s bankruptcy and/or the Bank; nonetheless, the Subcontractor attempted to recover from the Bank by bringing a lawsuit for claims based upon (i) promissory estoppel, unjust enrichment, (iii) negligent misrepresentation, and (iv) fraud. The trial court awarded the Subcontractor $448,600.65 in damages plus and additional $149,500 in attorneys fees. The Bank appealed to the Georgia Court of Appeals which reversed the trial court’s decision!
Technically, the Bank appealed the trial court’s denial of the Bank’s motion for a directed verdict. Simply stated, a judge may “direct” the jury to give a certain “verdict” is he or she finds that no reasonable jury could reach a decision to the contrary. Since the trial court judge did not grant the Bank’s motion for a directed verdict, the Bank appealed and won.
Let’s look at the Subcontractor’s claims which the Court of Appeals effectively denied:
Claim # 1: Promissory Estoppel:
What is Promissory Estoppel? In the law of contracts, the doctrine of promissory estoppel states that a promise is enforceable by law when the person making the promise makes a promise another who, in turn, relies on the promise to his or her detriment.
Since the Subcontractor was seeking payment from the Bank, it was, for all practical purposes, relying upon the Bank to be a guarantor of the GC’s debt to the Subcontractor. The Statute of Frauds, however, requires that an agreement by one person (or entity) to take on the debt for another must be in writing. The doctrine of promissory estoppel is an equitable doctrine which can be an exception to the written requirement of the Georgia’s Statute of Fraud. Thus, the Subcontractor agued that it relied upon the Bank’s representative’s statements that the Bank would make sure that Subcontractor was paid for its grading and paving services.
In order to invoke a claim for promissory estoppel, four elements would have to be met:
1. The Bank would have to have made promises;
2. The Bank would have expected the Subcontractor to rely upon those promises;
3. The Subcontractor did reasonably rely upon the promises; and
4. An injustice could be avoided only by enforcing the promise.
The Court of Appeals found, however, that the Subcontractor “failed to establish exclusive or reasonable reliance upon any statement by the Bank.” Although there were several points made to substantiate the Court’s holding, the Court specifically pointed out that the Subcontractor had entered into its subcontract with the GC prior to contacting the bank. Thus, it seems evident that the Subcontractor did not rely upon the Bank’s statement to enter the original contract.
PRACTICAL TIP: It doesn’t matter whether you are a prime contractor, a specialty subcontractor, or a material supplier, you should thoroughly investigate the other party’s credit worthiness BEFORE you sign the contract.
Although this is compelling, it does not address the Subcontractor’s alleged reliance upon the Bank’s statements that they wanted to write one check after the project was completed. The Georgia Court of Appeals wrote:
In addressing this aspect of [the Subcontractor]’s argument, we begin by noting that it was undisputed between the parties that at the time this second conversation between [the Subcontractor] and the Bank occurred in early September 2007, Robertson Grading believed that the paving work would be completed in two to three weeks’ time, putting the completion date somewhere toward the middle or end of September, and [the Subcontractor] made that representation to the Bank. Nevertheless, [the Subcontractor] testified at trial that the project’s completion was delayed by extra work the company took on to complete the public right-of-way/deceleration lane, all at [the Subcontractor]’s request, pushing the ultimate completion date to one or two days before November 7, 2007. To sum up, then, [the Subcontractor] made two representations to the Bank in seeking the Bank’s assurance that it would be paid for its work on the project: (1) that, “if everything went according to schedule,” the work would be completed within to two to three weeks …….. and (2) that it would be performing paving work. But as it turns out, neither of these representations by [the Subcontractor] ended up being accurate, and [the Subcontractor] admitted at trial that he did not have any additional meetings with the Bank or otherwise advise it about the work delay or agreement between [the Subcontractor] and [the GC] to expand the scope and expense of the work to include grading-and-shoulder work. Suffice it to say, [the Subcontractor] cannot claim that it reasonably relied upon an assurance of payment by the Bank when it unilaterally changed the very terms upon which that assurance was based. [footnotes omitted, emphasis added].
PRACTICAL TIP: Although this is not addressed in the Court’s decision, the Subcontractor should have considered taking different steps when its first invoice was not paid. Option open to the Subcontractor may have including filing a materialman’s lien in Richmond County, Georgia, stopping work for the GC’s breach (failing to pay), or enter into a side-agreement with the bank.
Claim # 2: Negligent Misrepresentation:
The Subcontractor’s claim that the Bank negligently misrepresented information also failed according to the Court of Appeals. The Court enumerated three elements which the Subcontractor would have to have proven. The three elements of negligent misrepresentation are as follows:
1. The Bank would have to negligently supply false information;
2. The Subcontractor would have to had reasonably relied upon that false information; and
3. The Subcontractor would have to prove economic injury proximately resulting from the Subcontractor’s reliance.
Using the logic developed by the court in denying the Subcontractor’s promissory estoppel claim, the court used similar facts to conclude that the Subcontractor did prove these three elements.
Claim # 3: Unjust Enrichment:
Unjust enrichment is another equitable claim that says that an owner who is “enriched” by another may have to pay “just” compensation. In this case, the Court makes the distinction that the Bank was not the owner who hired the Subcontractor for the paving project; instead, the Bank took title to the real estate pursuant to its loan documents, and, a normal part of the foreclosure process included the improvements which had been made to the real estate (including the paving).
WARNING TO SUBCONTRACTORS: The Subcontractor’s proper remedy, the Court pointed out, was via the “Georgia’s materialman’s statute (which it did, although unsuccessfully due to its failure to perfect that lien).” [emphasis in original].
Consequently, the Court of Appeals agreed with the Bank that the Subcontractor did not have a claim under a theory of the Bank’s unjust enrichment.
This lawsuit is another pertinent reminding for every construction professional who work on or supplies materials to Georgia construction projects. In some ways, this decision confirms that it’s “every man for himself” when it comes to collections; before you rely on assurance from another party, get the promises in writing. Also, although this case does not go into the reasons why the Subcontractor’s materialman’s lien was not perfected, but it is a reminder that every Georgia lien claimant must strictly comply with Georgia’s materialmen’s lien statute and that includes meeting every deadline for filing and perfecting your claim of lien.
What do you think about this decision?
If you have provided labor, materials, equipment or other services on a construction project AND you have not received payment, then you may be entitled to file a lien under Georgia’s current lien laws. Determining who may file a lien and when a lien may be filed can be tricky, but filing the correct document and properly providing statutory notice can be even trickier!
The Sad Reality About Filing A Lien Yourself: Until you’ve dealt with Georgia’s lien statutes, many people think that “filing a lien is easy”. They think all that they need to do is fill-out a “lien form” and file it with the court. Unfortunately, that’s not true! There is no short-cut or no “one-size-fits-all” type of lien.
Because Georgia’s lien laws are strictly construed against the lien claimant, even one small mistake can invalidate a claim of lien; consequently, we highly recommend that you engage the services of a qualified Georgia construction attorney. In addition, because liens are clouds upon the title of the real estate against which they are filed, a lien claimant may be responsible for damages to the owner caused by an improper lien. Nonetheless, we believe that it is important that every construction professional has an understanding of the basic lien statutes. Thus, this article is intended to give you as thorough an understanding of Georgia’s mechanics and materialmen’s lien process as possible and will help you better understand your lien rights. Then, you’ll be more informed as to your legal rights and potential pitfalls as you seek an attorney to assist you.
WHO HAS A RIGHT TO FILE A CLAIM OF LIEN?
Not just anyone can file a lien for a past due invoice. Materialmen’s liens greatly improve a subcontractor’s or supplier’s odds of recovery, however, only certain parties providing certain services are entitled to file a lien for nonpayment. Generally speaking, prime contractors, specialty trade subcontractors, sub-subcontractors, and material suppliers who have provided services, labor or materials which have “improved” real estate are entitled to file a claim of lien. In addition, Georgia’s statutes allow architects, registered surveyors, engineers, and manufacturers of machines the right to file liens if they are not paid for their services. Others may also be allowed to file a lien in Georgia, and for more information on the specifics of O.C.G.A. Section 44-14-361, please click here > >
WERE YOU REQUIRED TO SEND A PRELIMINARY NOTICE?
Assuming that you are statutorily authorized to file a lien, you may (or may not!) have had a condition precedent in order to preserve your right to file a lien. If your contract is directly with the project owner, there is no requirement that a preliminary notice is required; if your contract is with the prime contractor, then a preliminary notice is not required. If your contract is with a subcontractor, then you are required to send a Notice to Owner/Notice to General Contractor within the first thirty (30) days that you begin working. These notices should be sent every time you contract with a subcontractor or supplier as they will PRESERVE your right to file a materialmen’s lien if necessary. Failure to timely send the preliminary notices may prevent you from having any lien rights (there are always exceptions, however, so please check with your attorney if you were unable to or failed to send a proper notice). For more information on Georgia’s statutory construction notice scheme, please click here > >
WHAT IS THE DEADLINE TO FILE A LIEN IN GEORGIA?
Even in you are entitled to file a Georgia construction lien, you must meet the deadline for filing a lien. Generally speaking, all liens in Georgia must be filed within 90 days of the last day in which work was actually performed on the jobsite (which is likely not the same day as the invoice date so don’t look at the invoice date in calculating the deadline!) If the potential lien claimant signed a Georgia statutory lien waiver form, then the time period in which a valid lien may be filed may be reduced to either (i) 90 days from the last day worked or (ii) 60 days from the date of the lien waiver–whichever is less!! Please remember that whoever prepares your Georgia lien will need some lead-time to perform the necessary research and prepare all of the proper documents and get it timely filed.
PREPARE YOUR GEORGIA MATERIALMEN’S LIEN:
Many lien claimants attempt to file their own liens as the online forms look “easy”; however, as you frequently find, you “get what you pay for”. The simple parts of the lien include proper identification of the lien claimant which may not be as obvious as you think (e.g., all liens should use a full, legal name such as “ABC SUBCONTRACTING, LLC”) and a description of the services or materials which were supplied. The more difficult aspects of the lien include proper identification of the owner of the real estate (Georgia’s county tax records frequently contain information only on former land owners!) and the legal description of the property to be liened. Generally, listing only a street address on a Georgia lien is not advisable. In fact, in most situations we recommend a limited title search to locate the correct property owner’s name, the metes-and-bounds legal description to the property, and to locate the vesting deed.
Also, Georgia’s lien laws require certain phrases on the lien; if these requirements are not met, then the lien will not be valid even if you do everything else right.
FILING LIENS IN GEORGIA:
We have 159 counties in our state, and your lien must be filed (before the deadline discussed above) in the county where the property to be liened is located. Liens are filed with the Clerk of the Superior Court in the county of the project’s location, and there will be a lien recording fee (which is fairly nominal–between $5 and $10 for the first page of the lien). In addition to filing the claim of lien, we typically suggest cross-referencing the lien to the real estate owner’s vesting document to help increase the odds that the lien will be “found” by those performing title searches.
SERVE NOTICE OF THE LIEN ON THE REAL PROPERTY OWNER:
Georgia’s lien laws require that the owner(s) of the liened real estate be given notice of the filing of the lien within 2 business days of the filing of the lien. We strongly recommend that notice of the filing of the materialmen’s lien be sent via certified mail (that way, you have proof of sending and proof of delivery).
ENFORCE YOUR MECHANIC’S LIEN:
Pursuant to Georgia law, your lien is valid for one year from the date of filing. This “year” gives many lien claimants the opportunity to settle or negotiate payment of their claims with limited attorney time or costs. If payment is not received within the year, however, then you must file a lawsuit against the person or entity with whom your contracted AND a Notice of Filing of Action must be filed within 30 days of the date your lawsuit is filed (and notice given to the owner of the liened property). If you prevail in your lawsuit, then your lien remains enforceable beyond the anniversary of the filing of the lien (this is frequently referred to as “perfecting your lien”). For more information on enforcing a Georgia lien, please click here > >
FORECLOSURE OF A GEORGIA MATERIALMEN’S LIEN:
After you prevail in a lawsuit against the entity which contracted with you for services, labor or material, then you can take the steps necessary to foreclose upon the lien. This gets very complicated, but unless you contract directly with the owner of the real estate, you will likely have to file a second lawsuit to institute foreclosure proceedings. Fortunately, Georgia liens are almost always resolved prior to institution of foreclosure proceedings, but if you find yourself with a valid lien without payment, then you have the option to foreclose the lien and force the sell of the real estate to pay your debt.
Georgia’s mechanics and materialmen’s liens laws are a very useful tool for enforcing payment for the work, materials or services provided by a contractor or a supplier; however, the rules governing the preparing and filing of liens are extremely tricky (we haven’t even discussed the exceptions in this overview!); if you have any questions regarding Georgia’s construction liens or subcontractor liens, please leave us a comment or contact us before your lien rights evaporate.
by Mark A. Cobb
(UPDATED MAY 9, 2013) GOVERNOR SIGNED HB 434 INTO LAW; click here for more information!
We love sharing good news about pending changes to Georgia’s lien laws! A couple of weeks ago, we published a blog post about Georgia 2013 HB 434 which allows Georgia lien claimants to include both general condition costs and accrued interest as a part of their lien claims. At the time our blog entry was published, the Georgia House of Representatives had passed the amendment and the bill was being forwarded to the Senate. Our long-time friend, Senator Jack Murphy sponsored the bill in the Georgia Senate, and, we are pleased to report, the bill passed the Senate unanimously. Consequently, HB 434 has been forwarded to Governor Deal for consideration. Thank you Georgia representatives and senators!
This vital legislation greatly impacts Georgia’s subcontractors and material suppliers. In a recent court decision, a judge ruled that a lien claimant was not allowed to include the whole value of its contract in its lien; thus, for example, the lien claimant was potentially prohibited from included general condition costs, mobilization and demobilization costs, etc. The proposed legislation of Georgia HB 434 attempts to rectify this potentially detrimental court holding by specifically amending Georgia’s lien statute to permit a claim of lien to include the amount due and owing the lien claimant under the terms of an express or implied contract, subcontract, or purchase order as well as interest on the past due balance.
To read the proposed change to Georgia’s Mechanics and Materialmen’s Lien Act found at O.C.G.A. Section 44-14-361, please click here.
The construction attorneys at the Cobb Law Group want to keep you up-to-date on all the laws and cases which affect your rights. Please rely on us with any questions you may have regarding Georgia’s lien laws and payment bond claims. Contact us here.
by Mark A. Cobb
Admittedly, the Mechanics and Materialmen’s Lien Act gives Georgia’s contractors, subcontractors and material suppliers a giant step towards getting the money they are owed. And, a giant step is a wonderful gift, but there are other steps which must be undertaken if the lien claimant wishes to enforce its lien. As we’ve discussed before each and every aspect of Georgia’s Lien Law must be strictly construed. In other words, every materialmen’s lien claimant must satisfy every requirement of Georgia’s statutes in order to have a valid lien.
Assuming that a claimant holds a valid lien against the real estate where the work was performed or where the claimant’s materials were used, the lien claimant has a “good start” but he or she needs to continue to meet the additional requirements of Georgia’s lien laws in order to preserve, perfect and enforce its construction lien against the real property owner.
As with virtually every aspect of law, there are always exceptions, but generally, Georgia lien foreclosure laws require a lien claimant to complete two distinct steps before actually foreclosing against the lien.
STEP ONE: FILE A LAWSUIT AGAINST THE PARTY WHO OWES YOU MONEY. In most situations, a property owner has contracted with the general contractor for the construction of his project. The general contractor, in turn, hires specialty subcontractors and material suppliers to work on and supply products to the project. If one of the specialty subcontractors or materialmen are not paid for their work, they may be entitled to file a materialmen’s lien against the real estate where the project is located. In a situation such as this, the lien claimant is usually barred from immediately foreclosing his lien or making the project owner financially responsible for the debt; instead, he must fulfill his obligation and first seek recovery from the person or entity with whom he contracted (e.g., the specialty contractor would have to sue the general contractor before commencing a proceeding against his lien).
Thus, in order to “perfect” its materialmen’s lien, the Georgia lien claimant must file suit against the party with whom they contracted within one (1) year of the date that the lien claimant’s materialmen’s lien was filed.
In addition, within thirty (30) days of filing the lawsuit and pursuant to O.C.G.A. § 44-14-361.1, the lien claimant must file a Notice of Filing of Action for Claim on Mechanics and Materialmen’s Liens with the clerk of court in the county where the lien claimant’s lien was originally filed.
Upon completion of the proper filing of the lawsuit and the subsequent Notice of Action for Claim on Mechanics and Materialmen’s Liens, the lien claimant’s lien has been duly “perfected”. And, assuming that the lien claimant prevails in its lawsuit to recover damages from the defendant (in our example, the general contractor), then the Georgia lien claimant must complete a second step prior to foreclosing upon its materialmen’s lien.
STEP TWO: FILE A LAWSUIT AGAINST THE OWNER OF THE REAL ESTATE AGAINST WHICH THE CLAIM OF LIEN WAS FILED: Although there are exceptions (bankruptcy of the general contractor, for example, may alleviate the need to file the first lawsuit), the typical, second step to Georgia lien foreclosure is a lawsuit against the real property where your work or materials were utilized to request that the court place a “special lien” against the real estate. Assuming that the lien claimant prevails in this second lawsuit and a special lien is granted to the lien claimant, the lien claimant may take the steps necessary to foreclose the lien and, hopefully, recover the money it is owed.
As you can tell, there are many pitfalls and dangers to attempting to enforce liens and foreclose real estate on your own. Failure to strictly comply with Georgia’s lien requirements will invalidate a lien, thus it is highly advisable to engage a qualified construction lawyer with experience filing and enforcing liens. If your business is an official business entity (for example, a corporation, limited liability company, etc.) then you are required to engage a Georgia attorney as Georgia courts have held that an official business entity cannot “represent themselves” as can individuals. Furthermore, making the proper claims, meeting the various statute of limitations and understanding civil procedure as your cases proceed, and presenting damages really need an experienced construction lien lawyer to perfect and enforce your materialmen lien rights.
If you have any questions regarding filing lien, perfecting liens, enforcing liens or other Georgia construction law questions, please feel free to call us at (770) 886-5890 ext. 1 or email us today!
by Mark A. Cobb
A recent Georgia Court of Appeals holding may give some subcontractors and suppliers reason to rejoice. In Pinnacle Props. V, LLC v. Mainline Supply of Atlanta, LLC, 735 S.E.2d 166 (Ga. Ct. App. 2012), the court held that a materialmen’s lien placed against a construction project on a development corporation’s real estate was valid and could be enforced.
Background: Mainline Supply of Atlanta, LLC, a construction material supplier, provided pipes, valves and similar materials for use on a construction project in Cobb County, Georgia. This project was an office building being constructed by Pinnacle Properties on real estate owned by the Kennesaw Georgia Development Authority. Originally, the real estate had been owned by Pinnacle Properties, but it was deeded to the Development Authority and leased back to Pinnacle Properties. After the general contractor failed to pay Mainline Supply for its building materials, Mainline Supply filed a Georgia Mechanics and Materialmen’s Lien against the Pinnacle Properties project and the Kennesaw Development Authority.
The Development Authority’s Argument: Although the materialmen sued the development authority (along with Pinnacle Properties), the trial court found that the documents which the parties had signed transferring ownership of the real estate between them severed the ownership of the land and ownership in the building. Thus, the lower court determined that the local development corporation had no ownership interest in the building, but it held that the development authority held a fee simple interest in the land; conversely, the lower court held that Pinnacle Properties held a usufruct (a license to use) in the land, but had “title” to the improvements. Consequently, the Kennesaw Development Corporation was dismissed as a party.
The Material Supplier’s Argument: It is well established that a materialman’s lien may attach to the interests of a “true owner,” that is, someone who has an estate or property interest in realty; but it will not attach to a usufruct, which does not convey an ownership interest and is not subject to levy and sale. Thus, while Pinnacle Properties argued that its rights were a mere usufruct and not subject to a lien, the material supplier argued that Pinnacle Properties had title to the building. Construction lawyers for the material supplier argued that the documents executed between Pinnacle Properties and the development authority severed ownership of the building from ownership of the land.
All of the parties conceded that, typically, any buildings placed upon the land of another–even if they are placed on the property by someone entitled to use the real estate–become part of the realty, and the title to the buildings becomes vested in the owner of the land. However, the supplier argued, this rule may be altered by agreement, and, by looking at the land-exchange documents, the supplier argued that the parties clearly intended to create a special agreement wherein Pinnacle Properties would have a fee-simple interest in the improvements.
The Georgia Court of Appeals Holding: The Georgia Court of Appeals rejected both Pinnacle’s argument that its interest was a mere usufruct and Mainline Supply’s argument that Pinnacle retained a fee-simple interest in the improvements. Nonetheless, the Court opined that an estate for years carries with it the right to use the property in as absolute a manner, and an estate for years may be subjected to the lien. Thus, the Court held that, “Even if Pinnacle does not have title to the building on which the lien is claimed and title is in a third party not subject to the suit, this “will not bar an action for foreclosing the statutory lien of a materialman because if the defendant has any interest in the premises upon which the lien can take effect, that interest is bound. Every legal interest in real and personal property can be seized and sold. Here, Pinnacle had an estate for years in the leased premises, and a materialman’s lien could attach to and be enforced against such interest, subject to the conditions of the lease.”
Summary: Even if the building owner did not have title to the building on which the lien was claimed and title was in a third party not subject to the suit, this would not bar an action for foreclosing the statutory lien of a materialman because if the defendant had any interest in the premises upon which the lien can take effect, that interest was bound.
Georgia Claim of Lien Laws: If you need to file a construction lien anywhere in the state of Georgia, it is vital that it be filed against the proper parties and that all of the deadlines and statutory requirements be met; thus, we encourage you to contact a qualified Georgia Materialmen’s Lien Attorney to help you with your claim of lien. If you have any questions or have any lien claims or bond claims in Georgia, please feel free to contact us or leave your comments below!
by Mark A. Cobb
Since our law firm has a significant core practice area in which we file and perfect mechanics & materialmen’s liens and payment bond claims throughout Georgia, we address prospective clients’ lien questions almost everyday. We are surprised how many contractors and suppliers’ knowledge of Georgia’s construction lien requirements is based upon obsolete lien laws. In 2009, the Georgia legislature approved several significant changes to the Georgia’s Mechanics and Materialmen’s Lien Act. Since we continue to get so many questions regarding these changes, we thought a brief review of the changes made to Georgia’s lien laws in 2009 would be useful to many potential Georgia lien claimants:
SOME OF THE SIGNIFICANT 2009 GEORGIA LIEN LAW CHANGES:
- Date Georgia’s 2009 Lien Law Revisions Went Into Effect: March 31, 2009;
- Notice to Contractor/Notice to Owner: These notices to contractors (sometimes called Notices of Furnishing) must be sent to the owner and the contractor by registered mail, certified mail or statutory overnight delivery at the addresses specified in the Notice of Commencement (the former statutes did not specify the method these notices were to be given);
- Deadline for Filing a Claim of Lien: A Claim of Lien must be filed within 90 days after the lien claimant actually worked on the project or supplied materials to the project (the former requirement was more ambiguous requiring that a claim of lien be filed within three months from the last day worked); it is very important to note that Georgia’s new lien waiver forms may, for all practical purposes, shorten this deadline to sixty days from the date the lien waiver was signed;
- Deadline for Sending a Copy of the Lien to Owner & Contractor: A lien claimant is required to send a copy of the lien to the owner (and, if a Notice of Commencement was filed, to the general contractor) within two business days after the claim of lien is filed (the former lien requirement was ambiguous as to the deadline for sending a copy of the lien to the owner);
- Deadline for Perfecting or Enforcing a Claim of Lien: A lien claimant must file a legal action against the party with whom the lien claimant contracted within 365 days of the date the lien was filed (the former requirement was more ambiguous requiring that a legal action be filed within one year of the last day worked by the lien claimant); it is important to note that this deadline may be expedited if the property owner or the general contractor files a Notice of Contest of Lien (see below);
- What is a Legal Action (for purposes of lien enforcement): Georgia’s lien statute specifies that the lien claimant’s obligation to file a “legal action” may include filing a lawsuit, filing a proof of claim in a bankruptcy proceeding, or filing a demand for arbitration action (the former statute did not include arbitration as a legal action which would perfect the lien);
- Deadline for Filing a Notice of Action: The lien claimant must record its Notice of Filing of Action For Claim on Mechanics and Materialmen’s Liens within 30 days from the date it began a legal action to enforce its lien rights (the former statutes required that this notice be filed within 14 days);
- Notice of Lien Discharge Bond: If an owner, contractor or other interested party files a bond to discharge a materialmen’s lien, then, within seven days of filing a bond to discharge a lien, the party filing the bond must give the lien claimant notice of the filing of the bond (the former lien provisions did not require that notice be given to the lien claimant);
- Notice of Contest of Lien: This is an entirely new section which allows property owners and contractors the ability to accelerate the lien claimant’s deadline to file a legal action to enforce its lien claim; it is important to note that a properly filed lien contest will shorten the lien claimant’s deadline to file a legal action to enforce its lien to 60 days from its receipt of the notice;
- New Georgia Lien Waiver and Lien Release Forms: The revisions introduced new interim lien waiver forms and new final lien waiver forms as the only acceptable lien waiver forms to be used in Georgia; some of the material changes to the new forms include (i) specific language requirements; (ii) requirements that capital letters and a 12-point be used, (iii) the new forms release bond rights as well as lien rights, and, perhaps most importantly, (iv) sixty days after the lien waivers are signed, conditional lien waivers become unconditional lien waivers;
- New Affidavit of Nonpayment Form: Similarly, the statutory form for the Affidavit of Nonpayment has been changed and the older form should not be used any longer; changes to this form include (i) required formatting to include capital letters and font size, (ii) specific language required, (iii) the deadline for filing an Affidavit of Nonpayment has been extended from 30 days to within 60 days, and (iv) if an Affidavit of Nonpayment is filed, then within seven days of filing, a copy of the Notice of Nonpayment must be sent to the property owner (and if a Notice of Commencement had been filed then notice must also be sent to the general contractor);
- New Claim of Lien Form: The Georgia Claim of Lien form was revised to include (i) statutory required language, (ii) specific language printed in 12 point bold font, and (iii) clarification that the date when the claim became due is that last day in which a contractor or subcontractor actually worked on the real estate or a material supplier provided materials for use on the project.
Please keep in mind that this article is a brief summary of the significant changes to the lien laws made by the Georgia legislature; there are additional changes which have not been covered in this article; similarly, this article does not include matters which did not change (but with which lien claimants must strictly comply); thus, if you have a potential construction lien claim or if you are an owner or a general contractor trying to address a claim lien against your project, then you should contact an experienced Georgia construction law attorney who can help you understand, evaluate and file the claim of lien. Contact the Cobb Law Group to help you with your lien claim today!
We invite you to leave a comment below and tell us how the 2009 changes in the Georgia Lien Laws have affected you or your business.
Assuming you have a valid Georgia mechanic or materialmen’s lien, the lien is good for one year from the date the lien is filed. In order to extend the lien beyond this expiration date, however, Georgia’s lien laws require that the Lien Claimant file a lawsuit against the party with whom they contracted before the lien expires. In addition, the lien claimant must file (and serve) a Notice of Filing of Action for Claim on Mechanics and Materialmen’s Liens. Fulfilling all of the statutory requirements before the statute of limitations expires is referred to as “perfecting your lien”.
Due to the complexity of complying with Georgia’s Lien Laws and the inherent difficulties of self-representation, it is very important to have an attorney prepare this suit and meet the other statutory requirements on your behalf.
We occasionally get telephone calls, however, from subcontractors or laborers who filed their own liens and call us to help them perfect their liens; unfortunately, there are situations where the costs to enforce your lien rights may not justify the legal expenses. In those instances, Georgia offers a possible avenue for these smaller claims–Magistrate Court.
Georgia Magistrate Court is our state’s version of small claims court or the people’s court. Although the Magistrate Court is usually more dignified than the shows on television, it really is a forum for citizens of Georgia who are owed money but aren’t owned enough money to justify the expense and the time of hiring legal counsel. Thus, you may be able to file and prosecute an action in Magistrate Court pro se (that is, representing yourself). Magistrate Court currently has a jurisdictional limit of $15,000 which means you can only file your lawsuit in Magistrate Court if the amount you are owed is less than $15,000; consequently, the Cobb Law Group does not do much work in Magistrate Court, but you can find out more information by clicking here:
If you choose to pursue your claim in Magistrate Court, you are still required to file your Notice of Filing of Action for Claim on Mechanics and Materialmen’s Liens, and we strongly suggest that you hire a Georgia Construction law firm to prepare this document on your behalf as it must meet statutory requirements and will require information relating to the current owner’s of the real estate which may be difficult to locate.
If you have any experience which you wish to share regarding your experience with perfecting liens or filing a lawsuit in one of Georgia’s Magistrate Courts, please leave a comment below.
This is a general information article and should not be construed as legal advice or a legal opinion. The content above has been edited for conciseness and additional relevant points are omitted for space constraints. Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.
This week, we are tackling another great question which we get asked frequently. As Georgia construction lawyers, we are usually glad when a materialmen’s lien is bonded off as it can increase the speed and likelihood of our client’s recovery.
So what is “bonded off”? As long time readers of this blog understand, a properly filed Georgia mechanics lien (which can also be called materialmen’s lien, construction lien, contractor lien, subcontractor lien, or supplier lien) makes the real property where your work was performed or where your materials were used stand essentially as collateral for the debt.
Claim of Lien Review: Let’s use the example that you supply materials on a construction project in Georgia, and you are owed $80,000 for these materials. In a normal, commercial collection scenario, your debt is not secured (there is no collateral) and only one person owes you the money–your customer who contracted for the purchase of supplies. But the Georgia Mechanic’s and Materialmen’s Lien Act gives you the opportunity to put yourself in a much better position by filing a proper supplier’s lien. After you file your materialmen’s lien, then it is possible to force the sell of the real estate (similar to a foreclosure) in order to recoup the money you are owed for your supplies. In addition, this will likely have the effect of bringing the real property owner and the general contractor (if applicable) into helping you solve the problems between your customer and you. Although every situation is unique, we have seen real property owners and general contracts pay you quickly in order to get your Claim of Lien released!
Bond Review: Pursuant to Georgia law, mechanic’s liens and materialmen’s liens are clouds on real estate title; this means, the owner of the real estate may not have a clean title to convey to another person. Thus, claims of liens may prevent the liened real estate from being sold, conveyed or re-financed. Because there may be a legitimate dispute (for example, the lien is invalid, the work performed or the materials supplied were not acceptable, etc.), the real property owner has a mechanism for removing the Claim of Lien, and this mechanism is commonly referred to in Georgia as “bonding off” the lien.
How does a real property owner bond off a lien in Georgia? There are two common ways for a real estate owner to bond off a materialmen’s lien. The owner can either pay a cash bond to the clerk of court or, more commonly, the owner purchases a bond from an insurance company and files this information with the clerk of court where the lien was filed (there are many steps which an owner must undertake in order to adequately bond off a lien which we will address in a future blog entry).
Thus, if the supplier in our example above meets all of the legal requirements for enforcing his lien, he will look for recovery from the bond rather than from the forced sell (i.e., foreclosure) of the real estate. So, the “collateral”, if you will, has been substituted: the collateral was originally a piece of land, now the collateral is either cash being held by the clerk of court or an insurance policy essentially guaranteeing payment if the lien is enforced. Needless to say, it will probably be easier and quicker to collect the balance owed from cash or an insurance policy rather than negotiating the steps of a legal foreclosure.
There are so many specific and unique issues which arise with Georgia’s Mechanics and Materialmen’s Lien Laws; if you have questions, please contact us at the Cobb Law Group.
We would enjoying hearing your comments and experiences with a construction lien which was bonded off.
Potential clients regularly call us and ask how long a lien lasts in Georgia. As is true in most areas of law, the short answer is “it depends.”
Georgia Liens are Valid for One Year: In Georgia, a Claim of Lien is valid for one year from the date that the lien is filed. If the lien claimant files a materialmen’s lien and then doesn’t enforce its lien rights within the year, then the mechanics or materialmen’s lien will automatically expire.
How Lien Claimants Can Extend the Lien Beyond One-Year: If the lien claimant enforces its rights before the one-year anniversary of the filing of the original construction lien, then the lien will continue to be valid. How does a Georgia Lien Claimant enforce its rights? Generally speaking, the Lien Claimant must (i) file a lawsuit against the party who owes them money, and they must (ii) file a Notice of Filing of Action for Claim on Mechanics and Materialmen’s Liens (“Notice of Action”). Not only must these steps be done, but they must be done correctly and in compliance with the Georgia Mechanic’s and Materialmen’s Lien Act. In order to do so, you will need a Georgia construction lawyer to help you meet all of the requirements. If all of the necessary steps are taken in a timely manner, then the Claim of Lien does not expire and it continues in force beyond the one year anniversary of filing the lien.
Exceptions to Filing A Lawsuit: Sometimes, a mechanic’s Lien Claimant is prohibited from filing a lawsuit against the party who owes them money–this would most likely happen if the party who owed the money filed for bankruptcy protection. This or any other scenario requires an experienced, Georgia Construction Lawyer in order to advise the Lien Claimant of the steps necessary to perfect and preserve its lien in Georgia.
How Can a Real Property Owner Shorten the Validity of a Construction Lien? Earlier, we advised that Georgia Liens are (initially) valid for one year from the date the lien was filed; if additional steps are not taken by the Lien Claimant, then the lien will expire. The real property owner may file a Contest of Lien which shortens the time the Lien Claimant has to file its collection lawsuit, file the Notice of Action, etc. from the one-year anniversary to 60 days from the date of the filing of the Contest of Lien. Of course, if the Georgia Lien Claimant meets its obligations to perfect its lien within this shortened period, then the Georgia Materialmen’s Lien survives and continues beyond the sixty day period.
Please contact the Cobb Law Group if you have any questions regarding the filing of Georgia liens, Georgia’s Construction Lien Laws, perfecting and enforcing liens in Georgia, or the expiration of liens in Georgia.