Georgia Case Reminds Subcontrators & Suppliers to File Liens ASAP!

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!