Contractor’s Liens – Part I

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This article was first published in the September, 2013 edition of The Profit published by the Atlanta Real Estate Investor Alliance.

In this article, I begin a two-part discussion about contractor’s liens.  Under Georgia law, these liens are called mechanic’s and materialmen’s liens.  I call them contractor’s liens for simplicity because these liens apply to a broad array of contractors including laborers, professionals and traditional subcontractors.

Contractor’s liens were first introduced into the United States during the formation of Washington D.C. by Thomas Jefferson to encourage construction of the new capital city.  Thereafter, contractor’s liens were slowly adopted throughout the country to give contractors an additional remedy upon nonpayment.  The policy behind contractor’s liens is simple.  Owners are reluctant to pay for construction work before the work is completed.  That work, once performed, is impractical to repossess.  Therefore, contractor’s liens were created by law to give contractors additional leverage.  Today, contractor’s liens are a powerful tool.

It is important to distinguish between the right to lien and the right to sue.  Any unpaid contractor (or anyone else) has the right to sue for an amount owed.  However, the law grants contractors an additional right to place a lien on the property in which they have delivered goods, labor or services.  A contractor wants to file a lien when he is unpaid because it gives him an advantage on collection and leverage in negotiation.  After all, an owner cannot generally sell property without satisfying all lien holders.[1]

A variety of unpaid contractors can file a lien.  This includes providers of materials including traditional construction materials, tools, appliances, machinery or equipment.[2]  It also includes engineers, architects, land surveyors and other development and construction professionals.  Finally, it includes all those who provide labor and, of course, any combination of the above.

Contractors have a right to file a lien against the property they have performed the work on or provided the materials to.  This is true regardless of whether the provider of materials or services is in contract directly with the owner of the property.  Therefore, subcontractors can file a lien against the property they delivered goods or services to.

If a contractor wishes to file a lien, he must follow a strict statutory procedure and do so within ninety days after the substantial completion of work, the furnishing of professional services, or the date the materials are delivered.[3]  The contractor also has to comply with the law precisely in regards to notice and form of the lien.  Failure to comply with the requirements exactly voids the lien.  If the lien does not produce a payment or settlement quickly, the contractor must file suit within one year to preserve his lien and its priority.  In next month’s article, I will discuss these requirements in more detail.

Any contractor wishing to file a lien against a property should retain an attorney with experience in this area.  One technical mistake will lead to an unenforceable lien.  It could also lead to liability against the contractor for slander of title, among other things.  Any owner who has had a lien filed against his property should contact an attorney to review it and see if it is enforceable.  Many are not.

Disclaimer: The information contained in this article is for informational purposes only and is not legal advice or a substitute for legal counsel.  It does not constitute advertising or solicitation. The information in this article may or may not reflect the most current legal developments; accordingly, this article is not guaranteed to be complete, and should not be considered an indication of future results.


 

[1] One notable exception to this rule is that an owner may post a bond instead of paying a contractor’s lien and thus sell his property.  See O.C.G.A. § 44-14-364.

[2] O.C.G.A. § 44-14-360(4).

[3] O.C.G.A. § 44-14-361.1(2).