Resources

Protection Through Lien Rights

WHAT IS A MECHANIC’S LIEN?

A mechanic’s lien is a statutory right in Georgia to proceed against the real property. It is an extremely effective option to ensure payment for goods and/or services rendered. In Georgia, it is the only way to recover against those parties with whom you have no contract. Basically it is a foreclosure process behind existing security interests. Because liens are in derogation of common law rights, they are strictly construed against the claimant. Thus, a party seeking to enforce a lien must be extremely careful to ensure that all the necessary procedures are followed.

All 50 states provide lien rights but the rights and procedures vary widely. This article only discusses the process and procedures for Georgia liens. Do not assume that the procedures in any other states are even remotely similar to Georgia. In the event that you intend to do work outside of Georgia, please contact us or an attorney that practices in the work local to ensure that you file the proper notices to protect any lien rights.

It is important to note that lien rights are in addition to contractual rights. Thus, Owners and General Contractors who have not properly protected their interests can be forced to pay twice for the same goods and services.

WHO IS ENTITLED TO MECHANIC’S LIEN PROTECTION?

• Mechanics “of every sort” who do work or furnish material
• Contractors
• Subcontractors
• Materialmen
• Laborers
• Architects
• Registered foresters
• Registered land surveyors and registered professional engineers
• Contractors, subcontractors and materialmen and laborers supplying to subcontractors
• Manufacturers and machinists
• Railroad builders
• Rental suppliers

HOW ARE LIENS DECLARED, CREATED AND PROSECUTED?

In order to declare, create and prosecute a lien you must have done the following:

1. Substantially complied with the Contract.
2. Filed the claim of lien “within three months of completion of the work” – please note that statute requires that the lien be filed within three “months”, and as such is not calculated by the days. Thus, some periods for filing a lien are shorter than others.
3. A claim of lien must be filed in the superior court where the land is located. We highly recommend that a claimant use the form provided by the Georgia Statutes when filing the lien.
4. A copy of the claim of lien must be sent to owner or contractor.
5. Commencement of an action within 12 months of the date the “claim became due” against the party who owes the initial debt, i.e. the party who requested the goods or materials. It is important to note that the first action is against the party who contracted for the good or services, and the action to foreclose upon the lien or bond occurs at a later time, unless the party who owes the debt cannot be found, or the venue is also correct for the owner.

** The total amount of liens cannot exceed contract price – generally not an issue.

HOW DO YOU DISSOLVE A LIEN? (NOT THE SAME AS BONDING OFF A LIEN)

A lien can be dissolved through the following:

1. Obtain a written waiver of lien rights. (We strongly recommend use of statutory forms).
2. Obtain a “sworn” statement which provides the following: (A) The amount claimed in the lien has been paid, (B) the transaction is one of sale, loan or final disbursement of contract price, (C) there exists no valid preliminary notices or claims of lien at the time of payment
   
   .
3. If no notice of action is filed within a year after substantial completion, after fourteen (14) months has passed, the owner or his attorney may file an affidavit in the superior court of the county where the property is located attesting that the property records have been researched and that a proper notice has not been filed within the requisite period.

LIENS OF THOSE WITHOUT DIRECT CONTRACTUAL RIGHTS

If a party seeks to file a lien against property in which it does have a direct contractual relationship with the Owner or the General Contractor, there can potentially be additional notices required. Whether an additional notice is required depends on whether a Proper Notice of Commencement has been filed.

1. Notice of Commencement

In order to ensure notice of parties providing labor or materials for parties not in a direct contractual relationship, an Owner or General Contractor should file a Notice of Commencement. A Notice of Commencement requires suppliers and sub-subcontractors to provide notice of being on the project or forever be barred from asserting any lien rights on the Project.

A “Proper” notice of commencement has been filed by the General Contractor. A “Proper” Notice of Commencement must follow the procedures listed below:

A. The Notice of Commencement must be filed “not later than fifteen days” after physical commencement on the Project;

B. The Notice of Commencement must be filed with the clerk of the superior court of the county where the property is located;

C. The Notice of Commencement must posted at the site. (We strongly recommend that a photograph be taken of the Notice of Commencement after is has been posted).

D. The Statute requires that a Notice of Commencement contain the following:

i. name, address and telephone number of contractor;
ii. name, and location of project and legal description;
iii. name address of true owner (correct legal name);
iv. name and address of person other than the owner at whose instance improvements being made. (i.e. leases).
v. name and address of surety;
vi. name and address of construction lender

*** Lien laws are strictly construed against the claimant, and thus substantial compliance with the above may be sufficient. However, to ensure that the Notice of Commencement is valid we recommend and advise that all of the above requirements be provided.

E. If a subcontractor provides a written request for a Notice of Commencement, the Contractor must provide a copy within ten days of a written request

2. Notice to Contractor

A “Notice to Contractor” is necessary if and only if a valid notice of commencement has been filed. If a Notice to Contractor is required, it must be provided to the Owner or Contractor within thirty (30) days after the filing of a Notice of Commencement or within thirty (30) days of the first provision of labor or materials to the project.

The Notice to Contractor must contain the following:

A. name, address and telephone of person supplying labor or materials;

B. name and address of person to whom labor or materials are being supplied (sub e.g.);

C. name and location of project;

D. description of services, labor being provided; and

E. the contract price or the anticipated value of the labor and/or materials

HOW DO YOU RELEASE A LIEN?

• File a Release of Lien in the Superior Court where the property is located;
• Can be released by bond;
• Can also be released by posting cash (procedure varies by county) double the amount (unless residential);

LIEN WAIVERS

• Now set forth in statute (throw away your old favorites)
• One statutory form for interim waivers (does not bind anyone who has not signed)
• One form for final and unconditional (may bind if a valid final payment affidavit is obtained at the same time)

CONCLUSION

The Georgia Lien statutes contain many pitfalls and potholes that can impede your ability to collect for labor and services provided. Thus, the most pressing advice that Stone & Bellus, P.C. can provide is to be careful and follow the procedures exactly as provided by statute.