You decided to try your hand at flipping houses. You purchased a fixer-upper in the perfect neighborhood and hired a contractor to perform the renovation. As the renovation progresses, the project is over-budget and going well past the planned completion date. The contractor is demanding additional money before completing the work. You are frustrated with how much you have already paid the contractor and decide to fire him, replacing him with a new contractor to complete the renovation. The new contractor finishes the project to your satisfaction, and you’re finally ready to list the property. You think the challenges of this project are finally over but receive a claim of lien by certified mail from the original contractor. You may have heard of a lien but didn’t know exactly what it meant or how it would affect your project.
A “lien” is a claim filed against real property for money owed to a contractor or “lien claimant.” Once filed, the real property is collateral to secure payment for the work performed or materials provided by the contractor. In Georgia, this type of lien is referred to as a Mechanics and Materialmen Lien. The lien is recorded in the county where the real property is located and immediately affects the marketability of the title. In other words, you won’t be able to sell the fixer-upper until the contractor’s lien has been addressed. Since every day you hold the property costs you money, it’s important to know you can challenge Mechanics and Materialmen Liens.
Please note, the information provided here is only a guide. Mechanics and Materialmen Liens are highly technical and require strict compliance. To protect your property interests, you should consult an attorney with experience in lien matters.
- Time to file the lien: Mechanics and Materialmen Liens must be filed in the county where the real property is located within 90 days of completion of the work or furnishing of materials or services. If the contractor leaves the job before the work is complete, the lien must be filed within 90 days of the last date the contractor performed work or provided materials or services. If the lien is not filed within this period, it is void.
- Notice of claim of lien: The contractor must provide you, the owner of the property, with notice of the claim of lien by certified or overnight mail within 2 days of filing the claim. The claim of lien must identify the contractor (or other individual or entity that performed work or provided materials or services), the amount claimed, the property, the date the amount came due, and the last date work, materials, or services that were supplied.
- Expiration: The claim must include a statement that the contractor must file a legal action (lawsuit) to collect on the lien within 365 days from the filing of the lien and that if no such action is filed, the lien is void after 395 days from the filing of the claim. Without this language, the lien is invalid and should not be accepted for filing.
- Notice of contest of lien: You can contest the lien, shortening the time for the contractor to file an action to collect on the lien from 365 days to 60 days. The notice of contest must be filed with clerk of superior court in the county where the real property is located and must be cross-referenced to the claim of lien. The notice of contest must also be sent to the contractor, or lien claimant, by certified or overnight mail within 7 days of filing. If no action is filed, the lien shall be extinguished 90 days after the notice of contest is filed.
- Bonding the lien off: Sometimes, there is no time to challenge the lien. In that situation, you can obtain a bond from an insurance or bonding company. The bond then secures the contract’s claim and the lien no longer ties up the property. The bond steps into the shoes of the real property, which can now be sold. This process helps you transfer the property while you contest or litigate the lien.
These are the basic rules for liens of this type, but before you start buying to flip, you should consult an attorney. These rules are highly technical and if not followed scrupulously, your property can be stuck in limbo for months. So, again, it is important to consult an experienced attorney in these matters to ensure you are fully protecting your investment.