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GEORGIA LIEN LAWS.
Term Paper ID:26139
Essay Subject:
Examines provisions & applications of state's mechanics & materialmen's lien statute related to construction projects, competing interests, priority, court decisions.... More...
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Paper Abstract:
Examines provisions & applications of state's mechanics & materialmen's lien statute related to construction projects, competing interests, priority, court decisions.
Paper Introduction:
INTRODUCTION
It is often true that in a bankruptcy case, creditors battle over control of the property of the debtor's estate. Creditors in certain industries have been the beneficiaries of state law in different states that have created special treatment for certain classes of creditors. Industries with the strongest lobbies are usually the beneficiaries of such special protection, and the construction industry lobby has been particularly diligent in securing such benefits for suppliers of goods and services on construction projects for the improvement of real property. The traditional form of protection is the mechanics of materialmen liens granted under state law, but the procedure for the creation and perfection of mechanics and materialmen liens varies from state to state and can be very technical. Each state set
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However, the issue has been complicated by later court decisions. Georgia is a state that has createdsuch laws, and an examination of those laws and their application suggestshow effective they have been. That definition states that material "is somethingthat goes into and becomes a part of the finished structure, such aslumber, nails, glass, hardware, etc., which is necessary to the completionof the building" (Georgia Code 44-14-36 ). The code was amended severaltimes (Yates 14 4). The lienor mustalso file the lien within three months of the last day the lienor furnishedlabor, services, or materials. CONCLUSION The Georgia lien law is more complex than it might appear on firstreading and carries with it a number of court decisions which have alteredsome elements in the law. Material suppliers may have been left unpaid, the bank must examine its potential liability, the surety must determine its exposure, and above all else, the work must be completed (Morrissey and Wallace 125).The Georgia courts invalidated provision in the early 199 s regardingagreements to waive liens before the material or series are supplied, andthese are no longer valid. (1992). The changes in the law in the last year make it absolutely imperative that the construction lawyers prepare their clients for the possible default by one of the other parties (Morrissey and Wallace 125). This modification will greatly increase the protection afforded potential line claimants and minimize the ability of construction contractors and property owners to protect themselves by a blanket assertion of a waiver in the initial contract or subcontract (Morrissey and Wallace 143-144). (February 1992). This means that the issue of who finishes first in therace for priority is of great concern to construction lenders and otherholders of deeds to secure debt as well a to laborers, contractors,subcontractors, and materialmen who rely upon the security of a mechanic'slien for protection. Hall notes that the "collection of a material supplier's claim underthe Georgia materialmen's lien statute must be undertaken with extremecaution" (Hall 154). The court further found that if the jury did find that thelender had waived its right to priority, the security deed would be juniornot only to work done and material furnished from the time the lenderwaived its right to priority but also to the entire amount of work done andmaterials used: Elmore suggests that the priority of a deed to secure debt may be jeopardized when the holder makes additional advances to secure the completion of work with the knowledge of a borrower's insolvency, when the holder through its agents directs the work, or when the holder promises the claimant payment for future work and the claimant relies upon such promise (Hinkel 188). Each state sets its own requirements for the notice andrecording of the lien, and failure to comply with any of these requirementsmay result in the loss of the lien. In addition, notes Hinkel, a juniorlienholder with priority to a deed to secure debt faces the burden ofpaying off the prior deed to secure debt before the junior claimant's liencan be enforced. One of thereasons for this law has been problems in the construction industry duringperiods of a downturn in the economy when contractors and subcontractorswere going out of business with increasing frequency: When a party to a construction project defaults on its obligations, everyone else involved in the project is affected. The lien law provides thatcertain persons "shall each have a special lien on the real estate,factories, railroads, or other property for which they furnish labor,services, or materials" (Georgia Code 44-14-361): 1) 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) contractors, subcontractors, and materialmen who furnish material to subcontractors, and laborers who furnish labor to subcontractors, materialmen, and persons furnishing material for the improvement of real estate; 3) registered architects furnishing plans, drawings, designs, or other architectural services used in building and improving real estate; 4) registered land surveyors and registered professional engineers performing or furnishing services on or with respect to any real estate; 5) contracts, subcontractors, and materialmen furnishing material to subcontractors, and laborers who furnish labor to subcontractors, and all laborers furnishing labor for subcontractors building factories, furnishing material for factories, or furnishing machinery for factories; 6) machinists and manufacturers of machinery who furnish or put up any mill or other machinery in any county or who may repair the same (Georgia Code 44-14-361). The Georgia Legislature extended the act in 1837to all counties in the state, and in 1861, the Georgia Supreme Courtdefined some of the terms in the statute. "Owner Defenses under Georgia'sLien Statute." Georgia State Bar Journal, 76-8 . Creditors in certainindustries have been the beneficiaries of state law in different statesthat have created special treatment for certain classes of creditors.Industries with the strongest lobbies are usually the beneficiaries of suchspecial protection, and the construction industry lobby has beenparticularly diligent in securing such benefits for suppliers of goods andservices on construction projects for the improvement of real property.The traditional form of protection is the mechanics of materialmen liensgranted under state law, but the procedure for the creation and perfectionof mechanics and materialmen liens varies from state to state and can bevery technical. The law works well so long as there are nodisputes over specific issues in terms of filing, compliance, and conflictsbetween different involved entities, but there such claims are made oftenand lead to a good deal of litigation over these issues. Sallie E. Southern Bank & Trust Company is one which addressees theview that representations and assurances made by the holder of a deed tosecure debt to assure contractors and laborers that sufficient funds areavailable to pay bills may constitute a waiver of priority. The ownershould first examine the lien for its validity under the Official Code ofGeorgia. The term materialmen refers to all persons furnishing the tools,appliances, machinery, or equipment included in the definition of materialsunder the Georgia Code. GEORGIA LIEN LAWS The Georgia mechanics and materialmen's lien statue is consideredcomplex and can create problems for every owner or developer in the state.Under this statute, the owner's property serves as an insurance policy forthe payment of all contractors, subcontractors, and material suppliers on aconstruction project. Michael. This means that the owner generally hasany defenses possessed by the general contractor in an action by thelienor. Hall, J. and Matthew W. OWNERS Owners seek to protect themselves from the consequences of Georgia'slien statute. It states: [a] right to claim a lien or to claim upon a bond may not be waived in advance of furnishing of labor, services or materials. To file a valid lien, thelienor must include critical information in the lien itself, such asspecifying the among the lien, the correct name of the owner of theproperty, the correct description of the property, and the sate the debtbecame due. Theclaimant also alleged that the lender had closely directed the work throughagents from the beginning and had informed the claimant that it would payfor all material and labor needed to finish construction. Thus, Elmore might havesurvived this decision. References Crewdson, Robert L. "ConstructionLaw." Mercer Law Review, 125-633. The deed does not have to berecorded before the work of the mechanic begins, and it is also notnecessary for the proceeds secured by the deed to be advanced before thework starts (Hinkel 187). The lien isunenforceable if there is any material defect in the services, work, ormaterial provided by the lienor. The holder of a deed to secure debt usually haspriority over a competing mechanic's lien if the holder takes the deed tosecure debt without actual notice of the mechanic's claim and before awritten claim of lien has been recorded. v. However, the next challenge came from Reid v.Saul, decided by the Georgia Court of Appeals, which found no obligation bycontract or operation of law which required a construction lender toprotect subcontractors from the risk of doing business with its borrower.Hinkel finds that the issue is now muddy with conflicts among these threedecisions: The disbursement of loan proceeds pursuant to a construction loan agreement does not create a contractual duty between the lender and the subcontractors, nor does it waive the priority of the lender's deed to secure debt. InRutland Contracting Co. He says there must be an early determination whetherthe materials were delivered to the job site, the materials wereincorporated into the job site, deliveries were made within the statutorythree-month people, and payment wa made by the general contractor fromproper sources. There are a number of legal cases addressing issues of priority. Hinkel, Daniel F. Another act was passed in1834 extending these liens to other cities throughout the state. This statue contains a number of technical defenses which couldmean that the lien is invalid. Assuming that the construction lien has beenproperly filed and prosecuted, the owner will have to pay for services ormaterials he or she has likely already paid for through previous paymentsto a now bankrupt or insolvent general contractor. The Georgia Court of appeals also ruled at that time onseveral lender liability issues to clarify further the potential exposure abank has when it becomes heavily involved in a construction project: The economic downturn has also led to an increasing number of surety claims as construction projects continue to fail. It is alwaysvital that the owner understand fully his or her rights under the lienstatute as a way of limiting exposure generally and to defend againstparticular liens (Crewdson 76). Wallace. However, in some casesthe removal of the lien may not be absolutely necessary, though the ownermay want the psychological peace of having it removed anyway. v Dykes Paving &Constrtuction Co.: Georgia Supreme Court redefines the Scope ofMaterialman's Lien Satautes." Mercer Law Review, 14 1-14 6. In this case, the Georgia Court of Appeals triedto decide which parties are entitled to a lien claim under the state'smaterialman's lien statutes. If theforeclosure is undertaken by a senior lienholder, all junior lien holdersare eliminated from consideration. Dykes Paving &Construction Co. The first instinct of an owner faced with a constructionlien is to have it removed or satisfied immediately, and often a lenderwill exert pressure on the owner to do just that. Any purported waiver or release of lien or bond claim or of this code section executed or made in advance of furnishing of labor, services, or materials is null, void, and unenforceable (Morrissey and Wallace 143).This change will have a dramatic effect on construction planning because acontract or property owner may no longer rely upon a blanket lien waiver inthe original contract: Instead, each contractor or subcontractor must be dealt with on an individual basis in order to avoid having a lien placed on the property subsequent to the completion of the contract. Thecase of Elmore v. Gay Estate, for instance, the GeorgiaSupreme Court found that a seller of real estate who had received apurchase-money deed to secure debt and who knew at the time of the salethat the purchaser intended to subdivide the land and make improvements andalso knew that the purchaser did not have assets sufficient to pay for suchimprovements did not waive the priority of its deed: The Court held in Rutland that knowledge of improvements forged no ground for a waiver of priority and that the solvency of the security deed's grantor was a matter for the materialman to determine before extending credit and not a circumstance that could give rise to a loss of priority by the grantee under the deed to secure debt (Hinkel 188). While the mechanic's lien generally comes second after a deed tosecure debt, a lien claimant can waive priority by express written lienwaiver or by his or her conduct, though waiver is a matter of intent thatmust be demonstrated by some affirmative express intention. However, Rutland did not involve a third-party security deed holdermaking a loan to finance construction, and there was also no evidence thatthe security deed holder directed the work through agents or made anyassurances to materialmen that they would be paid. The lawstated that all debts that were due to any mason or carpenter in thespecified cities for building or repair work on a house would constitute anencumbrance on the house. Recent decisions, says Yates, affirm that the courtintends to stop an earlier liberalizing trend and to take a moreconservative, strict construction approach to lien statutes (Yates 14 6). Yates, Jennifer. The first materialman's lien statute inGeorgia was enacted in 182 and provided liens to masons and mastercarpenters doing work in the city of Savannah. "Lien Claimants and Real Estate Lenders--the Struggle for Priority." Georgia State Bar Journal, 187-189. However, the lien claimantstated that after obtaining the security deed, the lender ratified andadopted the claimant's contract, guaranteed payment, and made additionaladvances to procure the completion of the building in spite of theknowledge on the part of the lender that the borrower was insolvent. COMPETING INTERESTS Under the lien law in Georgia, real property is often burdened withthe concurrent existence of a deed to secure debt and a mechanic's lien,and this often raises the issue of priority, which can become especiallyimportant if the real property is sold through foreclosure. in 1992. This was in the Official Code of George, section 44-14-366, which makes several changes in the ability or right of individualsto waive claims of lien. In this case,the security deed was recorded before the mechanic's lien claimant startedwork and before the claim of lien was recorded. Under Georgia law, such protective liens are mandatory. Property owners and contracts therefore can nolonger rely on blanket lien waivers to prevent liens from being placed onthe property. INTRODUCTION It is often true that in a bankruptcy case, creditors battle overcontrol of the property of the debtor's estate. It should be noted, however, that the lender in Reid did not make an overt promise of payment to the lien claimant, so Elmore may still be authority where the facts show an express promise of payment to materialmen by the lender (Hinkel 188). In other instances, thegeneral contractor or his subcontractors may use their lien rights as aform of leverage during temporary construction disputes. "Caveat Venditor: The MaterialSupplier's Dilemma on a Construction Project." Georgia State Bar Journal ,154-158. The holder ofa deed to secure debt may waive priority under one of four conditions: 1) the deed is intended to be junior and so states in express terms; 2) the holder has caused lien claimants to relay upon the existence of construction loan proceeds to their detriment; 3) the holder has misled the lien claimants so as to create an estoppel; or 4) the holder has committed fraud (Hinkel 187). Morrissey, Brian J. (May 198 ). Lack of substantial compliance by the lienor is considered anaffirmative defense and not a set-off to the lien claim. The court heldthat such allegations were sufficient to present a question to the jury asto whether the claim of the materialman had priority over the security deedof the lender. Failure in any of these matters can invalidate the lien(Crewdson 76-77). In order to prove his claim, the supplier must observecertain basic rules: 1) he must maintain a separate job account forsupplies delivered to different properties; 2) the materials must bedelivered to the job site; 3) the claim of lien must be filed within threemonths after the date of last delivery of materials; and 4) suit must befiled within twelve months after the date of claim comes due (Hall 154). The scope of the materialman's lien statutes in Georgia wereredefined in the case of Benning Construction co. "Benning Construction co. The owner should also determine whether alienor performed work, or supplied materials, under separate contractsbetween the owner and the general contractor. v. (November 1989). The lien statute is strictly construedagainst the lienor, so minor errors by the lienor may invalidate the lien.The lienor must comply substantially with the contract for the furnishingof services, labor, or material to the construction project. MECHANICS AND MATERIALMAN'S LIENS The most significant change in the law in the early 199 s was made bythe General Assembly with regard to the enforceability of mechanic's andmaterialman's liens. (1994).
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