This article is taken from a webinar that was presented by SunRay Construction Solutions, featuring Mark A. Cobb, an attorney at law and founding partner at Mark Cobb Law Group. In this article we will discuss how to get paid as a contractor, subcontractor or supplier in the state of Georgia.
We will first start with a brief overview of Georgia’s lien laws. But first, what is a lien? A lien is a remarkable device. It is basically the ability to get collateral from money you are owed. So if you are financing a car and the car company takes an interest in your car and if payment is not made, as everyone knows, the finance company can pick up the car. The same thing happens with a mortgage company on a house or building.
Brief Overview of Georgia’s Lien Laws
Well, the remarkable thing about liens is that someone who does not have any contractual obligation with the owner – someone who is working for a general contractor, subcontractor, or a supplier – if they are not paid, the law presumes that the work, services, or materials which they supplied benefits the owner of the property.
a. Lien rights are broadly construed
So after you have done the work, if you have not been paid, and if you comply with all the state statutes, then you can obtain a lien. Again, that mechanic‘s lien is your collateral that you will get paid. So it helps significantly if you are able to file your liens. And in the state of Georgia, lien rights are broadly construed.
b. Subcontractors and suppliers to subcontractors must comply with notice provisions
Subcontractors, suppliers, and sub-subcontractors qualify for liens as do foresters, architects, engineers, and heavy equipment rental companies. There are many potential lien claimants in the state of Georgia.
In order to preserve your lien rights, certain sub-subcontractors and suppliers to subcontractors must comply with the notice provisions in the Georgia statutes. These documents are commonly referred to as a Notice to Owner or Notice to Contractor.
Some other states call them Notices of Furnishing. But it is a document that the potential lien claimant has to send to the owner and the general contractor within the first 30 days in which they begin supplying materials or providing services.
That gives the prime contractor and the owner an opportunity to ask who is actually working on the construction project. The owner of the property knows who the general contractor is because he or she has hired that contractor. The contractor in terms knows who the subcontractors are on the job. But they do not know who the sub-subcontractors are or who is supplying.
By sending this Notice to Owner, you are giving notice that says you are preserving your lien rights and that you have them because you sent the notice to the owner shifting the obligation to the general contractor or owner. This is to make sure that payments flow downstream.
c. Georgia lien waivers are tricky – remember conditional vs. unconditional and the 90-day deadline
Another point is that Georgia lien waivers are very tricky. Only a few states have a statutorily required lien waiver. Georgia is one of those states. The lien waiver that is published in the states is the only enforceable lien waiver in the state. There are actually two – there is one for interim payments and one for final payments.
d. Deadline to file lien is 90 days from last day worked
They are tricky because they are conditioned upon payment for 89 days. In other words, you sign it and say that you are signing it and it is conditioned upon payment for 89 days.
However, that 90th day and language in the lien waiver that expressly says this on the 90th day, that conditional lien waiver converts to an unconditional lien waiver. So it is important for anyone who is working in Georgia when they sign lien waivers to make sure that 89 days does not lapse.
There is a mechanism for voiding the lien waiver. It is called filing an Affidavit of Nonpayment. The deadline to file a lien in Georgia is 90 days. The last day that was worked or the last day that materials were supplied is not an invoice date, but is the date that someone had to physically be on the job doing work under the contract.
It would not include warranty work or the last day that materials were physically received at the job site. Generally in Georgia, because the lien rights are broadly construed, the amounts that you can request in your property lien is the full amount of the contract.
e. If contract terminated, lien can include P&O on unperformed portion of contract
If the contract is terminated, and it is not the lien claimant’s fault, then the lien can include profit and overhead on the underperformed portion of the contract.
f. Statutory requirements for lien
Because liens are such an amazing mechanism, again, the idea of getting collateral from the third party after you perform your work is really quite remarkable. In order to enforce that, every single aspect of Georgia's lien laws have to be strictly construed.
That is the legal term the courts use that says you cannot miss dotting an eye or miss crossing a ‘T.’ There are even cases that say typos invalidated a lien.
So that is just a quick overview of what you have to do in order to get a lien. But the bulk of the question is, what happens after you file a lien?
Options and Deadlines to Enforce Liens
It may seem a little frustrating, but because every project is different and every timing is different, there is no set answer. So really, you have to determine an analysis. It is partially a legal analysis, but probably more importantly, it is actually a business analysis.
a. Every project is different
What do you do with your liens? You want to look at what is going on with that particular project for example.
i. Closing or refinancing?
You may want to find out if there is a closing or refinancing that is going to occur.
If so, you need to do your best to find out who the real estate agents are that are involved, who the closing attorney might be, or the potential lender so that they can get a copy of the lien.
The lien is recorded at the courthouse, and it should be found when the title abstractor goes to the courthouse to look at the title for the real property that is being conveyed. But you do not want to take that risk in case the title abstractor was to make a mistake.
And as you can imagine, particularly with, say home building, and someone building 200 homes. That title can actually be rather confusing because you have taken a large piece of land or perhaps an assemblage of land and divided it into multiple parcels for sale. The houses are selling quickly so you want to know who is buying it and get them noticed.
The lien has to be dealt with before the closing. So it is an ideal opportunity to do something to try to get paid.
ii. Aggressive vs. passive
Do you want to be aggressive in pursuing the lien or do you want to be passive? There is no immediate obligation to do anything with the lien. So sometimes it is best to do nothing. A clear example would be if you know there is a real estate closing and the property is being sold. You might want to wait and see if you get paid voluntarily.
Another reason to be passive. Perhaps you are a subcontractor and there is a payment between the owner and the general contractor. You want to see what happens with that rather than be aggressive and spend money pursuing your lien rights.
An example of that is with a $7,000 lien. Let us assume the general contractor is involved in quite a bit of litigation. You can go ahead and file the lien and see what happens with this litigation. It might distract the general contractor.
Unfortunately, it might cost the general contractor so much that he ends up going out of business. But the bottom line is when it comes time to enforce the lien rights, if you wait a little bit, you might be able to do it for a very low cost.
You might be able to file suit against the general contractor and basically, obtain an immediate judgement – either a default judgement or consent judgment. Whereas right now, the general contractor might try to fight and that would cost them more money.
iii. Value of debt
If you aggressively want to pursue, you tend to look at the value of the debt to be aggressive. If you are owed $250,000, and you are a smallish business, that could be a substantial part of your annual income. You need to be aggressive and there are several opportunities to try to bring the parties together to talk, negotiate, file suit, and commence an action.
iv. Other claims
Another thing to look at with lien claims in the beginning is to look at other claims. That gives you a lot of information. If you file a lien against a construction project and then want to know what to do, you are going to see what other lien claimants are out there.
If you are the only lien claimant on a large project, it might be an indicator that perhaps you might have some exposure that you are unaware of or have not shared. If there are multiple lien claimants, then it is easy to say that maybe someone upstream is having problems – either the general contractor or the owner.
Try to figure that out so that you can find the best strategy for moving forward to get paid.
b. Must commence an action prior to one year of filing lien
In Georgia, after you file a lien, your lien is good for one year from the date of filing. So that one year is an opportunity to assess, strategize, try to get payment passively or aggressively, whichever tact works.
But if you want the lien to expect to extend beyond that one-year period, then you are going to have to commence an action. The one-year deadline is very important to remember. More often than not, you are also going to use an attorney to help you with this.
In fact, if you are a registered entity such as a company, a corporation, or an LLC, then you have to use a lawyer in the state of Georgia to help you enforce this, but you want to be able to give that attorney ample time to prepare an adequate lawsuit, and get it filed.
c. Exception: Notice of Contest of Lien
There is one exception to the one-year filing deadline, and that is if the owner or the general contractor on the project files a Notice of Contest of Lien. The document is actually kind of misnamed. It is not really a contest of lien in the sense that it is not contesting the technical or legal aspects of the lien.
All it does is reduce that one-year deadline. Again, that is one year from the day the lien was filed. The Notice of Contest of Lien reduces that one-year period to 60 days from the date of the Notice of Contest of Lien. In order to commence an action, all it does is shorten your statute of limitations from one year to 60 days.
Depending on when the Notice of Contest of Lien is filed, you are still likely going to get more time than 60 days because you have never seen a Notice of Contest filed the same day that lien was filed. But that 60-day period makes you decide how aggressive you are going to be and how much money you are going to put forward to collect your own money.
Georgia’s Two-Step Enforcement Process
In Georgia there is a two-step enforcement process in order to get the lien to extend beyond that one-year period, or if another Contest of Lien is beyond that 60-day period.
a. First, commence an action to ‘perfect’ the lien
This is called ‘perfecting the lien.’ Perfecting is just a legal term that relates to the additional steps required to be taken in relation to a security interest. You take these steps in order to make it effective against third parties.
So again, think about a lien. If you are a subcontractor or supplier, and you have had a contract with a general contractor, you are trying to enforce the lien against the owner and that is what perfection means. You are going to take certain steps to do it in Georgia.
In Georgia, those steps require that the lien claimant commence an action. That is Step One to perfect a lien, and commencing an action commonly means filing a lawsuit, but it is wise to look into your contract, because if your construction contract has a mandatory arbitration provision, then fulfill the steps required by the contract and by the rules governing the arbitration.
b. Commencing an action
That is also considered commencing an action. If the general contractor or owner files for bankruptcy, there is a mechanism for commencing an action under the bankruptcy code if the general contractor absconds or leaves the state. There is a mechanism for that. There are several ways to commence an action, but the single most popular way is to file a lawsuit.
And the second most popular way is to file a mandatory arbitration claim. When you file a lawsuit in Georgia, as the lien claimant, you need to file against the entity with whom it contracted. So the subcontractor most likely has a contract with the general contractor, not the owner.
So this first step to perfect the lien could potentially involve filing a lawsuit against the general contractor; the owner comes later. commencing an action is Step One to perfect a lien.
c. Notice of Filing of Action to enforce the lien
Step Two is to file a Notice of Filing of Action to enforce the lien. That must be done within 30 days from the commencement of the action. It is a short document, but it has a long title. This is basically a document that is put into the lien record.
It is cross-referenced with the original lien, it says that you are the lien claimant, you have perfected your lien, and it will say that you have done it by “___.” That is where you describe the lawsuit.
And there is certain statutory information you have to give the lawsuit. Or you describe the demand for arbitration or the bankruptcy mechanism. It gives notice to the world that your lien was filed and within the one-year deadline or the 60-day deadline, you have commenced action. Now your lien has extended beyond that one year period.
So Step One to perfect a lien is commencing an action. Step Two is filing an Action to enforce the lien.
Foreclosure of Lien
Now let us assume that after you commence an action that the lien claimant prevails. You have a couple of opportunities at this point. You can certainly collect from the entity with whom you contracted.
So if you are the electrical contractor, if you have filed a lawsuit or you arbitrated the claim of lien with the general contractor, and you prevail, there is an opportunity to get that entity to pay you. This actually happens with quite a bit of regularity, so that is not something to forget it can be either through a garnishment or it can be through voluntary payment.
That is probably Step One, but if they do not pay, then you still have your lien out there. Georgia has a two-step process: the first step is going against the entity with whom you contracted with, and Step Two is if you win, go against the owner.
a. Typically a separate action
That is typically a separate action. There are some opportunities there where you can combine the lien foreclosure with the original lawsuit, but those are less common in Georgia possible. You have to know what you are doing and one of the key components.
b. Similar to mortgage foreclosure process
Many lien claimants think they have a lien and they have to collect their money. Well, if you want to foreclose, the process is very similar to a mortgage foreclosure process. It is relatively simple and yes, the property can get sold at the courthouse steps.
But to be honest, it rarely happens in a lien situation. There are two reasons for that. First, the owner or perhaps the general contractor will come forward and pay. No one wants to lose their house or their commercial building to a lien claimant.
Owners may have balked at having to pay, since they may have already paid their general contractor. They will wonder why they have to pay a second time. Well, they may have to, to prevent a foreclosure.
c. Must confirm equity and superior creditors
The second reason is you have to do some legal research before you foreclose to see whether there is equity. If you sell this property, will enough money be recovered to pay your claim? The equity is not just the amount you are owed, but it has to cover superior creditors too.
So in a typical residential situation, for example, you may have a $200,000 mortgage that is ahead of any lien claimants. In order to justify foreclosing the lien, you have to make sure they have enough equity to pay the mortgage off, to pay any other superior creditors, and your lien.
There is some math involved and some research that must be done.