Georgia's new construction lien bill, Senate Bill 374 (SB 374), will go into effect March 31, 2009. SB 374 was arrived at after months of negotiations and concessions by senators, construction lawyers, industry trade groups, and lobbyists. The result is that there is something in it for everyone concerned. Below is an explanation of the upcoming changes and how they will benefit suppliers and subcontractors, builders, and property owners.
Changes that Benefit Suppliers and Subcontractors
Notice of a Bond to Remove a Lien
Lack of bond notification has cost suppliers and subcontractors hundreds of thousands of dollars in the past. An existing loophole in the lien law allows a property owner to remove a lien by filing a bond, but does not require that the property owner inform the company that filed the lien. This allows a builder to proceed forward with a closing and sell the property without paying the supplier or subcontractor the money owed. Because a credit manager is not notified that the lien has been bonded off, the creditor often lets the lien simply expire while waiting to be paid upon closing, or wastes time and money suing the property owner when the lawsuit should be against the bonding company.
The changes that will go into effect next March require the property owner to notify a creditor that its lien has been bonded off the property. This will allow the creditor to take immediate action against the bonding company, which is then actually holding the funds owed to the creditor. Historically, creditors have had a much quicker and easier time collecting their debts from a bonding company than from a builder -- that is, when they know that a lien has been bonded off. The problem has been that creditors are typically in the dark, not knowing that a bond has been filed and by whom. This problem is virtually eliminated by SB 374, since property owners who file a bond must notify the creditor who filed the lien (if a contractor files the bond instead, he must notify the property owner).
In the future when notice of a bond is required, suppliers and subcontractors will likely see far fewer liens being bonded off, and collect far more money at closings when the property is sold. For those liens that are bonded off, the creditors will be able to take quick action to collect the debt from the bonding company.
Deadlines
All lien-related deadlines have been revised by SB 374. The good news about the revised deadlines is that they are more clearly defined, and creditors will essentially have more time to file a lien claim, more time to send a copy of it to the property owner, more time to file a lawsuit to perfect the lien claim, and more time to file a notice of the lawsuit.
Lien claims will need to be filed within 90 days, rather than within three months, of when labor, services or materials were last supplied to the premises. A copy of the claim of lien will need to be sent to the owner "no later than two business days after the date the claim of lien is filed of record." Both of these deadlines are more clear and precise than the current ones, and should reduce litigation over whether a lien was timely filed and sent to the owner.
When the new changes go into effect, creditors will potentially have up to 90 days longer in which to file a lawsuit to perfect the claim of lien, depending upon when the lien is filed. That is because the 365 days to file suit will not begin ticking away until a creditor actually files a claim of lien, instead of beginning when labor, services or materials are last provided, as it does now.
Additionally, there will be more time to file a notice of the lawsuit. It will need to be filed within 30 days after the lawsuit to perfect the claim of lien, rather than the current 14 days, providing more than double the time to get the lawsuit's case number which must appear on the notice.
For all of the deadlines, there will be a new method for counting days, consistent with the method used throughout Georgia law. If a deadline falls on a weekend or a public holiday, it will be extended to the next business day, rather than moved up to the preceding business day as is now done. This will provide more time to meet the deadline rather than cutting it short.
Definitions
The existing law says that "the date the claim was due" must appear on the claim of lien, and that this is the date from which the time period begins to run during which a creditor can file a claim of lien. However, it is not entirely clear what is meant by this phrase, causing some people to use the wrong date and file their lien claims late. In the revised law the date is clearly defined as "the last date the labor, services, or materials were supplied to the premises."
Another confusing phrase in existing law refers to an "action," and states that a notice must be filed whenever an action has begun pertaining to the lien claim, or the lien claim is invalidated. The problem has been determining what "action" means. Cases had determined that it meant more than just a lawsuit to perfect a lien claim, but the full extent of what it meant was still wide open. To eliminate confusion and litigation over this term, the revisions include a definition for "lien action," which is "a lawsuit, proof of claim in a bankruptcy case, or a binding arbitration." In all such cases, a notice will need to be filed within 30 days to preserve the lien claim.
Changes that Benefit General Contractors and Homebuilders
Notice of a Claim of Lien
Currently the law states that a copy of the lien must be sent to either the owner or the contractor, making it inconsistent who receives notice. Sometimes an owner may receive a copy of the claim of lien, and other times a contractor may receive it. To make notice more consistent, the law was revised to state that a copy of the lien claim must always be sent to the current property owner, and if a contractor has filed a notice of commencement, then a copy must also be sent to the contractor at the address appearing on the notice of commencement.
Revised Lien Waiver Forms
Yet another change that will benefit contractors primarily, but will also clarify things for suppliers and subcontractors, are revised lien waiver forms. In the future, new language in bold, capital letters will appear on lien waivers, explaining what the waiver means. The new language makes the lien waivers more consistent with the intent of the law. Creditors should read such waivers carefully before signing them.
Changes that Benefit Property Owners
New Notice of Contest
When the revised law goes into effect, property owners will gain a new right to demand that a creditor "use it or lose it" with respect to their claim of lien. By sending a "Notice of Contest" to the creditor who filed the claim of lien, the owner can demand that a lawsuit to perfect the claim of lien be filed within 60 days or the lien claim is invalidated. The reason for this provision is that a significant portion of lien claims are never sued upon before they expire, and they appear in public records against the property for a year during this time. Property owners who believe an invalid lien has been filed will have a way to speed up the process and get liens dealt with one way or another. This should not impact suppliers and subcontractors who file their liens in accordance with the law. Allowing an owner to speed up the lawsuit process is balanced by the provision explained above that extends the time for filing a lawsuit by up to 90 days (in the absence of a Notice of Contest).
Expiration Date on Lien
Another change aimed primarily at benefiting owners is a requirement that the claim of lien include a statement on when it expires. Currently, people who are unfamiliar with Georgia lien law, such as out-of-state lenders, do not understand that a materialman's and mechanic's claim of lien expires by law after a certain time period if not sued upon, and they sometimes seek to have such expired lien claims formally cancelled or voided. By placing the expiration date on the claim of lien itself, owners can refinance or sell their property without going through the hassle of getting expired liens removed. This will also benefit creditors, as they will no longer be asked to provide cancellations or quitclaim deeds long after their claim of lien has expired.
Summary
All in all, the changes to the lien law are minimal, considering that this is the first large-scale review of Georgia's lien law ever. Senators, lawyers and industry professionals spent months reviewing the law, and basically decided that the law was solid and effective as it stood, and just needed some tweaking here and there. All sides worked together to be fair and ensure that no extreme measures were taken that could hurt the construction industry, or that would have unintended consequences.
Although many of the changes will only need to be dealt with by your employee, agent or attorney who prepares your lien claims and files suit to perfect them, it is useful for any construction business owner or credit manager to stay informed of these changes. Seminars will be held during the coming year by various groups, including the Georgia Lien Rights Coalition. Be sure to enroll in such a seminar, where you can get written materials about the changes, ask questions, and talk to your peers in attendance. To read the new lien law, just click below.
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