Imagine that you have just completed a renovation project for a homeowner in Atlanta. Your contracting firm was hired to evaluate the site and demolish and renovate major parts of the home, including the kitchen, garage, and bathrooms. You and the homeowner enter into a contract for a set price. Yet, at the end of the job, the homeowner stiffs you and does not pay the balance of the contract.
Fortunately, Georgia gives contractors (as well as others who improve real property) the ability to file mechanics' liens. Placing a lien on the homeowner’s property, sometimes called “liening the job,” can give you leverage with which to secure payment.
While filing a mechanic’s lien is not as time-consuming or as expensive as filing a lawsuit, you must think carefully before taking this step. Most disputes can instead be resolved through negotiation, as well as some forceful communication. Most Georgians are reasonable people, and you should do your best to deal directly with the property owner prior to filing a lien.
It goes without saying that you should begin by mailing copies of your final invoice and/or statements to the homeowner. If that receives no response, telephone the owner. Send an email, even if it's repetitive, in order to create a paper trail. And then try writing a formal demand letter on your company’s letterhead.
If your communications are still ignored or brushed aside, you might consider investing in a lawyer to write a demand letter on law firm letterhead. Sometimes, property owners may take you more seriously if they believe that you are willing to get an attorney involved. While attorney’s rates differ (for instance, from rural areas to more metropolitan areas like Atlanta), having a lawyer write a simple demand letter will probably cost no more than a few hundred dollars.
More often than not, these steps will be enough to push the property owner to pay the balance owed, or at least come to the negotiating table to pay some substantial portion of that amount. Put differently, these communications are often sufficient to save you the time, cost, and aggravation of a lien filing or lawsuit.
Unfortunately, though, the above steps might not be enough. Some property owners will still refuse to pay you for your work. Sometimes they may argue that your work was shoddy or did not comply with the contract; other times, they may simply stiff you, assuming that you will move on.
Not surprisingly, Georgia law allows you to sue a homeowner who has not paid you, on grounds of simple breach of contract, or based on other related causes of action (such as quantum meruit). The same theories apply if you are a subcontractor or supplier suing a general contractor. But regardless of whether you are a general contractor, subcontractor, or supplier, the state also allows you to file a mechanic’s lien.
Liens must be publicly filed in the clerk’s office in the county where the property is located, of which there are 159 in Georgia. The lien becomes a cloud on the owner’s home title, meaning that the title is subject to your company’s interest in it. This will make it difficult for the homeowner to sell the property or refinance it through a bank or other institutional lender. The result is that filing a lien can incentivize the homeowner to settle with you in order to get you to clear the title.
Under O.C.G.A. 44-14-361, people or entitles who “furnish labor, services, or materials” are entitled to file a lien. Georgia’s law is incredibly broad, allowing many different types of workers to file liens against properties. (Some states are far more restrictive). Under the statute, lienors can include, for example:
The technical title of a mechanic’s lien in Georgia is a “Claim of Lien.” Fortunately, the form is fairly self-explanatory and is meant to be easy for business people to draft. You can see a model example of the Notice form here. The form must, among other bits of information, include your company’s name, the homeowner’s name, the location of the property, and the amount of money still due. You must also describe the labor or material you provided (in other words, how did you improve the property?).
You will see that your signature needs to be notarized, meaning that this form is a sworn statement—the legal equivalent of swearing to the veracity of the contents in court.
The timing of your filing is important. Under the terms of O.C.G.A. 44-14-361.1, a lien must be filed “within 90 days after the completion of the work, the furnishing of the architectural services, or the furnishing or performing of such surveying or engineering services or within 90 days after the material or machinery is furnished in the office of the clerk of the superior court of the county where the property is located.”
In other words, you have about three months in which to file your lien, starting from your last work on the project. If you wait for a year while you try to negotiate with the owner, or forget about the balance due, then you will not be permitted to file a late lien.
Georgia’s legislature is clearly trying to incentivize potential lienors to make (or settle) their claims quickly, and not allow liens to be filed long after a construction project is completed. While this gives owners some comfort in knowing that lien periods have expired, it means that you must act quickly to ensure that you do not lose any lien rights.
If you settle your dispute with the owner, O.C.G.A. 44-14-362 requires that you remove the lien from the docket: “Upon final payment after all labor, services, or materials have been furnished, a person who has filed a preliminary notice of lien rights shall either deliver a cancellation of the preliminary notice of lien rights at the time of final payment or cause the notice to be canceled of record within ten days after final payment.”
Moreover, a “person who fails to so cancel a preliminary notice shall be liable to the owner for all actual damages, costs, and reasonable attorney's fees" the owner incurs in having the preliminary notice canceled. Put differently, you could find yourself liable for the legal fees associated with the owner needing to file a court action to remove the lien, if you do not do it yourself.
Liens are a powerful tool, beyond a lawsuit, for contractors to achieve payment. But they are not necessarily your first or best move. Remember that merely filing a lien will not force the Georgia owner to pay you (nor will it force the general contractor to pay you if you are a subcontractor). The owner will receive notice of the lien, but unless you file a further lawsuit to foreclose on the lien, then it will merely sit on the property docket.
However, filing a lien will send an aggressive message. If you take this step, it might put the homeowner on the defensive, and encourage the homeowner to get lawyers involved, or to retaliate by publicly claiming that you did shoddy work. Perhaps this is the direction that you need to take, unfortunately, if the homeowner is refusing to pay. But just be aware that you may quickly escalate the dispute if you file a lien.
Finally, remember that liens and the laws surrounding them in Georgia can be highly technical. If you are owed a substantial sum of money, it might be worth your investment in a consultation meeting with an experienced construction attorney who can advise you of your rights.