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.