Recent Developments In Georgia Lien law 10-97

By: James C. Busch

On October 29, 1997, the Georgia Court of Appeals ruled on a case involving mechanic’s and materialmens’ liens. The case primarily addressed the issue of contractor’s or owner’s affidavits and their effect on liens.

The case ruled on by the Georgia Court of Appeals is that of Shockley Plumbing Co., Inc. vs. NationsBank, N.A., A97A1560. In this case, Shockley was attempting to enforce a materialmen’s lien. Shockley was not paid for its grading work on a project which was financed by NationsBank. About two months after Shockley’s last demand for payment, the property owner executed a warranty deed in lieu of foreclosure to NationsBank. As part of giving NationsBank the property prior to foreclosure, they submitted an owner’s affidavit that there were no outstanding debts related to the property. Five days later, but still within the three months after it last worked on the project, Shockley filed a lien. Shockley then filed suit to recover the amount of the lien from the proceeds of the bond NationsBank had filed to discharge the lien. At the trial court, NationsBank was granted summary judgment.

Shockley argued to the Georgia Court of Appeals that the trial court was in error since the property owner’s transfer of property by warranty deed in lieu of foreclosure was not a bona fide sale and, thus, Shockley’s lien was not dissolved. The Georgia Court of Appeals disagreed finding that although “bona fide sale” is not defined by statute in this state, the Georgia Supreme Court has held that in order for a transfer by debtor to be considered bona fide and valid, the debtor must receive valuable consideration and the taking or purchasing party must be without notice or ground for suspicion of any intent on the part of the debtor to defraud creditors.

In this case, the Court of Appeals found the property owner received valuable consideration for the warranty deed executed in NationsBank’s favor. The Court also concluded that the mere fact the warranty deed and sale were made in lieu of foreclosure and that NationsBank was the construction lender on the project, without more, was not sufficient to create an issue of fact as to whether NationsBank had any actual or constructive knowledge that the property owner was attempting to defraud its creditors.

This case further strengthens the position that a contractor’s or owner’s affidavit provided prior to the filing of a lien will dissolve the lien. This case also illustrates the need to timely file liens. If Shockley had filed its lien six days earlier, it would have had a valid enforceable lien and probably would have been paid. The need for timely filing a lien must also be weighed against the negative or potentially negative response of the party being liened; but when in doubt, one should always attempt to file their lien as early as possible in order to protect their lien rights.

Mr. Busch is an attorney specializing in commercial and construction litigation for Busch, Reed, Jones & Leeper, P.C. in Marietta, Georgia