Special thanks to Chad Reed of Busch & Reed, Marietta, GA, for his contribution to this article.
What You Need to Know Before You Buy or Renovate a Home
People who contribute labor or materials to improve a new or existing home are allowed to file a claim of lien against the home if they do not get paid. In some cases, it is possible for you to pay entirely for your new home or your renovation, and then still be hit with a lien claim by someone you never even heard of, e.g., a lumber supplier or electrician. From a legal standpoint, you can be held responsible for ensuring that anyone contributing labor or materials to improve your property gets paid. In Georgia this claim of lien is called a materialman's or mechanic's lien.
In the event that a lien is filed, there are many potential defenses available to you. Also, such lien claims are limited in their effect: they do not show up on your personal credit report, or stop you from selling or renting your home. What's more, they expire by law within 12 months unless sued upon, which makes these lien claims the weakest of all liens, since other liens remain valid for seven to ten years.
If the contractor does not properly pay everyone, then you may have to. Fortunately, the law provides many ways for you to avoid a claim of lien in the first place, and to get rid of any claim of lien that is filed.
Preventing a Lien
File a Notice of Commencement
Obviously, for you to ensure that everyone is paid who contributes labor and materials to improve your property, you must first know who these people are. To find out, you or your contractor can file a Notice of Commencement in the county real estate records. Anyone who is supplying material or labor to your home will then need to send you a notice to this effect, or else lose their lien rights.
Use Interim Lien Waivers
If your project is lengthy and there will be more than one payment over time to the contractor, then you will want to get Interim Lien Waivers signed each time you make a payment. This will protect you from liens for work you have paid for.
Get a Final Affidavit of Payment
When you make your final payment to the contractor, you can have him sign an Affidavit of Payment, stating that he has paid everyone on the job. This will give you a defense to anyone who later files a lien, and will essentially wipe out the lien. When you buy a new home, the builder has probably already signed such an affidavit that will give you a defense to any liens.
How To Get Rid of a Claim of Lien
Demand a Cancellation
If you spot an obvious defect in the lien, you or your attorney may write or call the lien claimant and convince them to remove the claim of lien simply by pointing out its defects. To know what type of defects to look for, read the section below on Defending Against a Lien.
Wait Until It Expires
If you are not planning to move in the next year, and the claim of lien is for a low dollar amount that you do not expect the lien claimant to file suit over, then you may want to just wait it out until the lien expires on its own within twelve months. A significant percentage of liens are wiped out this way each year, because the person who filed the lien never files a lawsuit. This is especially true if the amount of the lien does not warrant the expense of a lawyer to sue.
Bond It Off
If you do intend to sell your home soon, you may want to bond off the lien claim. The lien claim will then be against the bond instead of your home. Many companies issue such bonds, and they usually charge a fee related to the size of the lien.
File a Notice of Contest
A Notice of Contest is a document you file with the county real estate records and mail to the lien claimant, demanding that the lien claimant file suit or have the lien expire within 60 days. Note that the lawsuit does not need to be against you, but against the person who owes the money directly -- most likely your contractor.
How To Defend Against a Claim of Lien
Defenses Based on Notices, Waivers and Affidavits
If someone files a claim of lien when they should not have -- because they never served you with a required notice, or because they signed a lien waiver -- then that can be a perfect defense. Point this out to the lien claimant, and they will likely voluntarily cancel the lien. Note that if you buy a new home that gets liened, the builder probably signed an Affidavit of Payment that will invalidate the lien. If so, just call the lien claimant and tell them you have a builder's affidavit, and ask them to remove the lien.
Defenses Based on the Lien Form
If the lien is not timely filed, or if it incorrectly states the name of the property owner based on the recorded deed, then the lien is defective on its face and will not hold up in court. A lien claimant will likely remove any such lien falling into this category, if you point out the defect.
Defenses Based on the Work
There may be additional defenses to you based on the work performed or the amount claimed in the lien, but it may be that only your contractor knows these details. If the lien is for a large amount and is sued upon, your contractor will be the one initially sued and raising these defenses. If you acted as the contractor, then you may want to wait and see if the lien claimant sues, bond off the lien, or file a notice of contest.
It is not commonplace for a homeowner to get a claim of lien filed against his property. However, in the event that you do face a lien claim, you should be aware that there are many possible defenses available to you.
For More Information
The lien statute contains many sample forms that you can use. See O.C.G.A. § 44-14-360 et seq. for more information (see the Official Code of Georgia online).