1. Failure to Understand Georgia's Statutory Construction Notice Requirements
The first problem is a failure to understand Georgia’s statutory construction notice requirements. In Georgia, certain claimants or potential claimants have to send a Notice to Contractor at the beginning of a construction project.
Two quick definitions that you need to make note of here, are a Notice of Commencement and a Notice to Contractor.
Notice of Commencement: A Notice of Commencement is a document that is filed by the general contractor or the owner of the project. It is a document filed with the Clerk of Courts office and it sets out certain information that helps lower-tired subcontractors file liens, make payment bond claims, etc.
Notice to Contractor: The Notice to Contractor is the reverse – it is a notice that is given by a lower-tier subcontractor or material supplier. It is someone who lacks privity of contract with the general contractor or owner.
In order to file a materialmen’s lien, you must keep in mind that this is something you have to do when you first begin working on a project in Georgia. It is imperative that you understand whether or not you have to comply with Georgia’s statutory construction notice requirements.
In order to determine whether the notice requirements apply to you, it is important to understand your relationship with the owner of the construction project. In legal terms, that is called ‘privity of contract.’ And in Georgia, it is different than it is in other states.
a. How does a potential lien claimant determine whether or not they have privity of contract?
This is actually very simple to understand.
i. Contracted with the project owner
If you are contracted with the project owner, then the Georgia statutory scheme does not apply to you. No preliminary notice is required.
ii. Contracted with the general contractor
If your contracting party is the general contractor, then no preliminary notice is required. In this instance, even though you are not working with the property owner, Georgia says that you have privity of contract with the owner because the general contractor is an agent of the owner. As an agent, the general contractor has hired you, they know that you are on the job, and it is their obligation and responsibility to flow the money downstream to you.
iii. Contracted with the subcontractor
If you are contracted with a subcontractor or lower, then notice is required. That allows the homeowner and the general contractor to know that the payments are filtering downstream to someone who is third tier below when they are making payments.
b. Comply with Georgia Construction Notice Scheme
Thus, if you provide services to any subcontractor or if you are third-tier or lower, then you have to comply with Georgia’s construction notice scheme. There are two things that are very vital for this.
i. Must send Notice to Owner
The first one is that you have to send the Notice to Owner/Contractor (NTO) within the first 30 days that you begin working on the construction project.
ii. Notice to Owner must include certain information
The second obligation is that the NTO has to include the following six items:
Your contact information (including telephone number)
It is recommended that you put a particular employee’s name, project manager’s name or a contract administrator's name. That way if and when someone in a higher tier like the general contractor or owner wants to get a lien waiver or has a question, they have someone who can actually answer their questions. But having an actual person’s name is not required in the lien statute, just the contact information which is address and phone number.
The name and address of the entity which contracted for your goods and services
You need to have the name and address of the entity with whom you contracted. That allows them to flow the money downstream and they know whom to watch to make sure that the money gets down to you.
The name of the project (as described in the Notice of Commencement)
The third thing is you have to have the name of the project. This gets a little tricky. You have to have the name of the project as identified in the Notice of Commencement. So it is a good idea to request or get a copy of the Georgia Notice of Commencement before you send the NTO. Keep in mind that all this has to be done within the first 30 days that you begin on the project.
A description of the materials, labor, and services which you will be providing
You need to have a description of the materials, labor, and services which you will be providing. This can be a very vague description and you do not have to itemize things. It could be something as simple as supplying electrical, conduit and related materials. It does not have to be an automization.
The anticipated contract value of the goods or services you are providing (if known)
The next piece that has to be included is the anticipated contract value of the goods or services you are providing if you know them. If you do not know them, it is wise to state that in your NTO. If you do have a concept of what the contract value is. Include that, but you might want to include some sort of particular language which may be amended or may be altered by future financial arrangements, future contracts, etc.
NTO must be sent to the general contractor and the owner to the address listed on the Notice of Commencement
Finally, the Notice to Owner must be sent to the general contractor and to the owner, to their addresses as they are listed in the Georgia Notice of Commencement. So again, you need to have that Notice of Commencement in hand in order to do this.
c. If you fail to send a Notice to Owner, your lien will not be enforceable
If you must send a Notice to Owner, if the Georgia Statutory Notice Scheme applies to you, and you fail to send the NTO, then your mechanic's lien will not be enforceable. The clerk may accept your lien, it may be filed, but will not be enforceable, and you will not be able to collect. So it is very important when you first begin working on a Georgia project to understand whether or not you have to send an NTO.
2. Failure to Timely File your Georgia Lien Will Make It Unenforceable
This would be the most difficult one or the trickiest one that you have. But the second reason why liens fail in Georgia is the failure to timely file a Georgia lien. It seems very easy upfront but as you will read below, there are some tricky or technical issues that complicate this a little bit. Generally, in Georgia, liens must be filed within 90 days of the last day in which the materials, services or labor are provided to a project.
Keep in mind that this is not an invoice date. So, if you invoice at the end of the month but your last day of work is the 22nd or 23rd, that 90-day period begins from the 22nd or 23rd, not the invoice date. Ninety days from the last day of work are fairly easy to calculate. However, there is one significant exception to this that impacts a lot of people negatively.
a. Unpaid lien waiver can reduce the time the lien claimant has to file a lien
If you are required to sign a lien waiver prior to receiving payment, an unpaid lien waiver can reduce the amount of time you have in order to file a mechanic's lien.
Georgia only has two valid lien waiver forms. This is an important distinction to recognize, which is valid forms. There is no way through this article to convey what a valid form is but if it is in the lien statute, any lawyer can help you with that. It is fairly easy to find online and is any ugly form in all honesty. It is all caps and difficult to read.
But the two forms are – Interim Waiver and Release Upon Payment and Waiver and Release Upon Final Payment. They are substantially similar forms, but they are very tricky. They are conditional for 60 days and what that means is the lien waiver does not kick in until a condition has been yet. So in other words, you fill out a lien waiver form that you are owed $25,000 on a project.
Upon payment of that $25,000, then you waive your right to file a lien. But as mentioned above, they are tricky. So, after 60 days Georgia’s lien waivers become unconditional. What that means is no matter what, it does not matter whether or not you have received your payment, you have waived your right to file a lien unless you take certain steps. So, it is essential to watch the deadline and enforce your rights before the end of the 60-day period.
b. Sixty-day deadline
It is important to note that the 60-day deadline runs from the date of the lien waiver. It has nothing to do with the last day that you actually work on the project. Furthermore, the 60 days run even if you continue to work on the project which anyone who has been in the construction industry a long time understands – slow pay does not mean that you walk off the job. It just means you are not being paid as quickly as you are supposed to be.
If there is continuing work on a project and payments are slow then you might accidentally forfeit some of the money you are owed. This is so important that we have an example.
Let us assume that you enter into a nine-month contract that begins on January 1 and it is completed at the end of September. Let us say that the pay apps are for $100,000 each of the nine months. So pay apps one through three, or January through March, and the general contractor or owner pay fairly promptly, around 30 to 45 days after you submit your pay app.
Pay apps four and five which is April and May become tardy payments. You ask when the payment is coming, and you are told next week and next week. Sure enough, in about 45 or 60 days the payment arrives. Then the last three pay apps which are the June through September pay apps, are not paid or at the project end, they keep promising payments. You continue until you finally finish the job.
What most people think is that if the last day of work is let us say, September 30, that a lien can be filed for the full amount until December 29, and that you can file a lien for the full amount which would be June, July, August, and September pay apps, and you have until December 29 to file that lien. But that is not true unfortunately in Georgia, if you sign a valid lien waiver.
What really happens is that the ability to collect the June 30 pay app expires on August 29. The ability to collect the July 31 pay app expires September 29. The August 31 pay app expires Oct 30, and the September 30 pay app expires November 29.
The question then becomes whether you have lost $100,000, $200,000, $300,000 or $400,000, so be very mindful of Georgia’s lien waivers.
c. Meet your lien filing deadline
So what you need to do to calculate the deadline for filing a lien is that Georgia’s materialmen liens must be filed either:
- within 90 days of the last day worked, or
- within 60 days of the earliest unpaid lien waiver, whichever is shorter.
Incidentally these are some of the things you can do with an unpaid lien waiver rather than filing a mechanic's lien, but typically a lien is recommended and the easiest and least expensive thing to do.
If your Lien Does Not Properly Attach, then the Lien Will Be Invalid
The third reason why liens fail in Goergia is if your lien does not properly attach. And if it does not properly attach, then it will be invalid. Whether or not a lien attaches to a particular piece of real estate, can be a very complex legal question. However, the two common mistakes that are seen when people file their own lien are:
a. Correct identification of the owner of the property to be liened
If the owner is not identified correctly, then the title abstractor may not discover your lien and that is a big deal when you file a lien. You want to prevent the real property from changing hands and you want to be ahead of any future creditor or lender to the owner of the property, so you want that lead to pop up. That way you basically get paid before those events occur.
i. Name misspelling
However, if the name is misspelled (something as simple as that), the title abstractor is not going to find your lien and it will probably not be enforceable against any transfer to third parties.
ii. Failure to include a joint tenant
Another thing to think about is that you must include all the owners. Frequently and particularly in a husband-and-wife situation you have to include the joint tenant. Maybe you think that Party A owns it when really it is Party A and B, or perhaps the property has already been deeded to some children. So maybe there are three to four owners of the real property. You must identify each and every one independently.
iii. An individual’s trust
Similarly, individuals often put the property in trust, so it is employed to recognize that it is not just John Smith’s property, but it is the irrevocable trust of John Smith, dated January 2014 that actually owns the property.
iv. A similar/albeit distinct corporate entity
A lot of times in commercial properties, there are different but similar names, and so ABC Company may become ABCD partial/parcel 1 Company, or ABCD partial/parcel 2 Company. It is very important to make those distinctions. Failure to do that will invalidate your lien.
b. Correct identification of the real estate
This is the second big problem that prevents attachment of the lien of the real property – the correct identification of the real estate.
i. Use of street address
It is not recommended to use a straight address typically, particularly on new construction lots. Lots of times the street addresses are not known or difficult to find.
ii. Failure to use metes-and-bounds description
Also you want to make sure that your property is picked up by a title abstractor. So it is always recommended to use a metes and bounds legal description.
iii. Relying upon tax office for information
Many people rely on the tax office for ownership and deed information. While that may be a useful starting point, do not rely upon that. Georgia has 159 counties and of those counties, the vast majority update the lien record once a year. That gives a lot of opportunity for transfers to occur and so you may not be identifying the correct owner if you rely solely upon that information.
Failure to ‘Perfect’ the Lien Will Cause Your Lien to Expire
The fourth and final reason why liens fail in Georgia, is the failure to perfect the lien. So many people think that when they file a mechanic's lien it lasts forever, and they are going to get paid. But that is unfortunately not true.
a. In Georgia, liens automatically expire unless properly perfected
In Goergia, liens automatically expire unless they are perfected.
i. Generally, liens expire 395 days from the filing date
Generally, liens expire 395 days from the date that they are filed.
ii. If Notice of Contest of Lien is filed, lien will expire 90 days from the date of the notice
If an owner or general contractor has filed a document called a Notice of Contest of Lien, then the lien will expire in 90 days from the date of the Notice of Contest of Lien.
So how do you make your lien exist beyond that 395-day period, or that 90-day period? You must perfect the lien. Generally, the lien statute requires that you must take steps to enforce your lien within that time period. There are several different methods which can include such things as mediation, arbitration, or pursuing something in bankruptcy court if one of the parties has filed bankruptcy.
b. File suit
But typically, the most common means of perfecting the lien is filing a lawsuit against the entity with whom you contracted. You have to do that before the deadline and the deadline is a little bit different than the expression day of the construction lien. The deadline to file this suit or take this action is 365 days from the date the lien was filed or 60 days from the date of the Notice of Contest, whichever is shorter.
c. Notice of Filing of Action to enforce materialman’s lien is properly filed
In addition, within 30 days of taking that action (like filing a lawsuit), then you must also file a document in the lien record that is called a ‘Notice of Filing of Action’ to enforce materialman’s liens.
Basically, it connects the dots between the lien that you file, the lawsuit or other action you have taken. It lets the world know that you have perfected your lien and that your lien is good for at least 21 years in Georgia at that point.
So hopefully, you will get paid by the owner at some point without even having to foreclose the construction lien.
Summary of the Top Four Reasons Why Georgia Liens May Not Be Enforceable
Here is a summary of the four reasons why Georgia liens may not be enforceable.
a. Failure to understand Georgia’s statutory construction notice requirements
The first one is a failure to comply with Georgia statutory construction notice requirements.
b. Failure to timely file your Georgia lien
c. If a lien does not properly attach, then it will be invalid
If the lien does not properly attach, it will be invalid.
d. Failure to ‘perfect’ the lien will cause the lien to automatically expire
You also have to ‘perfect’ the construction lien otherwise it will expire and be meaningless.