Mechanics’ and Materialmens’ Liens
Most contractors and suppliers provide materials and work before being paid. This opens them up to the risk of not being paid for work done or materials supplied on a project. Georgia’s lien statutes provide contractors and suppliers of material or labor an effective means of securing payment.
A mechanic’s or materialman’s lien is a claim against real property that is filed and recorded in the real estate records of the county where the property is located. A claim of lien should be cross-referenced to the deed by which the owner took title to the real property in question. This will ensure that the lien appears in the property’s chain of title. That, in turn, may motivate the property owner to pay the lien claimant in order to remove the lien from the chain of title. It may also result in the owner filing a court action to extinguish an unenforceable lien.
Lien rights are subject to numerous technical requirements and deadlines. This makes it prudent to retain an attorney who is familiar with the law as it applies to construction mechanics’ and materialmen’s liens.
O.C.G.A. § 44-14-361 provides that the following persons shall each have a special lien on the real estate, factories, railroads, or other property for which they furnish labor, services, or materials:
(1) All mechanics of every sort who have taken no personal security for work done and material furnished in building, repairing, or improving any real estate of their employers;
(2) All contractors, all subcontractors and all materialmen furnishing material to subcontractors, and all laborers furnishing labor to subcontractors, materialmen, and persons furnishing material for the improvement of real estate;
(3) All registered architects furnishing plans, drawings, designs, or other architectural services on or with respect to any real estate;
(4) All registered foresters performing or furnishing services on or with respect to any real estate;
(5) All registered land surveyors and registered professional engineers performing or furnishing services on or with respect to any real estate;
(6) All contractors, all subcontractors and materialmen furnishing material to subcontractors, and all laborers furnishing labor for subcontractors for building factories, furnishing material for factories, or furnishing machinery for factories;
(7) All machinists and manufacturers of machinery, including corporations engaged in such business, who may furnish or put up any mill or other machinery in any county or who may repair the same;
(8) All contractors to build railroads; and
(9) All suppliers furnishing rental tools, appliances, machinery, or equipment for the improvement of real estate.
In general, for a claim of lien to be valid and enforceable, all of the following requirements must be met:
- The lien claimant must be in substantial compliance with the contract for building, repairing, or improving; for architectural services furnished; for registered forester services furnished or performed; for registered land surveying or registered professional engineering services furnished or performed; or for materials or machinery furnished or set up.
- The lien claimant must be in privity of contract with the owner, either directly or indirectly.
An example of indirect privity of contract occurs when a subcontractor provides materials or work to a property owner pursuant to a contract with the prime contractor, who has a contract with the owner.
- The claim of lien must be filed in the superior court of the county where the real property is located within 90 days after the completion of the work, the furnishing of the architectural services, or the furnishing or performing of such surveying or engineering services or within 90 days after the material or machinery is furnished.
- The claim must state in substance the following:
“A.B., a mechanic, contractor, subcontractor, materialman, machinist, manufacturer, registered architect, registered forester, registered land surveyor, registered professional engineer, or other person (as the case may be) claims a lien in the amount of (specify the amount claimed) on the house, factory, mill, machinery, or railroad (as the case may be) and the premises or real estate on which it is erected or built, of C.D. (describing the houses, premises, real estate, or railroad), for satisfaction of a claim which became due on (specify the date the claim was due, which is the same as the last date the labor, services, or materials were supplied to the premises) for building, repairing, improving, or furnishing material (or whatever the claim may be).”
- The lien must state 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 lien must contain a notice to the owner of the property on which a claim of lien is filed that such owner has the right to contest the lien.
- If a lien claimant is a second tier subcontractor or materialman, and the owner has filed a Notice of Commencement, the lien claimant must provide a written Notice to Contractor to the contractor and the owner within 30 days of first delivering labor or materials, or of the filing of a Notice of Commencement.
- No later than two business days after the date the claim of lien is filed of record, the lien claimant must send a copy of the claim of lien by registered or certified mail or statutory overnight delivery to the owner of the property. (If the owner’s address cannot be found, the copy may be sent to the contractor, as the agent of the owner, or, if the owner is an entity on file with the Secretary of State’s Corporations Division, to the entity’s address or the registered agent’s address.
- In all cases in which a notice of commencement is filed with the clerk of the superior court by the owner, a lien claimant must also send a copy of the claim of lien by registered or certified mail or statutory overnight delivery to the contractor at the address shown on the notice of commencement.
- The lien claimant must commence a lien action for the recovery of the amount of the party’s claim within 365 days from the date of filing for record of his or her claim of lien. The owner can shorten this time limit by sending the lien claimant a Notice of Contest of Lien stating that the time limit is shortened to 60 days from receipt of the notice. The lien action can be a court action, arbitration claim or the filing of a proof of claim in a bankruptcy case.
- Within 30 days after commencing such lien action, the party claiming the lien must file a notice with the clerk of the superior court of the county wherein the subject lien was filed. The notice must contain a caption referring to the then owner of the property against which the lien was filed and referring to a deed or other recorded instrument in the chain of title of the affected property. The notice must be executed, under oath, by the party claiming the lien or by such party’s attorney of record.
There are a number of defenses that may be asserted by the owner to try to extinguish a lien. Possible defenses include waiver and release, full payment, the fact that a lien claimant was not licensed at the time of contract or delivery of the materials or work, and the failure of a lien claimant to maintain separate accounts for the materials and work provided to each property.
Prior to the final disbursement of the contract price by the owner, the owner may obtain a sworn statement from the contractor stating that the agreed price or reasonable value of the services or material have been paid. Such a statement, accompanied by payment, will be deemed to be an absolute defense to a claim of lien, even if the contractor did not pay the lien claimant, unless the owner has knowledge that the affidavit is false.
To alleviate such an injustice, O.C.G.A. § 44-14-361.3 allows a potential lien claimant to file a preliminary notice of lien rights, thereby giving the owner notice of the claimant’s lien rights prior to the filing of a lien. If such a filing is made within 30 days after the date the lien claimant last provided materials or services to the owner, with a copy by certified mail to the contractor or owner within 7 days of the filing, the contractor’s affidavit is not a defense.
An issue that often comes up is whether the lien claimant substantially complied (or performed) under the contract. This is typically a question for a trier of fact to resolve; however, the parties can specify what constitutes substantial compliance in the contract. For example, the parties may agree that a certificate of completion from an architect or engineer constitutes substantial compliance.