Bulletin: GA2009001

Date:
June 10, 2009
To:
All Georgia Issuing Offices
RE:
Title Considerations Relating to Mechanic's Lien Coverage in Georgia

Dear Associates:

This Bulletin will address the Company's requirements for insuring transactions where the mechanic's lien exception is deleted from a title policy insuring property in view of the recent changes to Georgia's lien statute which became effective on March 31, 2009.

IN GENERAL

Mechanics, materialmen, laborers, contractors, subcontractors, surveyors, architects and engineers are given statutory liens in Georgia for labor, service, materials used to improve real estate. The performance of work or delivery of material creates the right to assert a lien or an inchoate lien and the statute prescribes additional steps which must be strictly complied with to perfect the lien. Carter-Moss Lumber v. Short , 18 S.E.2d 61 (1941). A mechanic's lien attaches as a lien when material is first delivered or work commences on real property under a contract and is valid for 90 days without recording. See O.C.G.A.§44-14-361. Under Georgia law, there is no difference between on-site and off-site work and priority is the same for all contractors and subcontractors on the same project. Id.

COMPANY POLICY: Issuing Agents may delete the standard mechanic's lien exception from the Owner and/or Loan policies once all of the following conditions are met:

(1) The transaction is one which is qualified under O.C.G.A. §44-14-361.2(B)(i)(ii)(iii); and

(2) There has been no work done or materials provided to the property within 95 days preceding the closing; and

(3) The Seller provides a fully executed Owner/Seller Affidavit attesting to the fact that no labor or materials have been provided within 95 days preceding the closing; and

Claims of Lien appearing of record must be cleared either by full payment or discharged by statutory bond, unless they are deemed expired under O.C.G.A. §44-14-361.1.

PERFECTING A MECHANIC'S LIEN CLAIM

In order to perfect a lien right, a lien claimant has 90 days after completion of work or furnishing the last item of material to file his claim of lien with the Clerk of the Superior Court in the county where the property is located. O.C.G.A. §44-14-361.1(a)(2). The computation of time is determined pursuant to O.C.G.A. §1-3-1(d)(3) and O.C.G.A. §44-14-369. All necessary statutory procedures for recording of a claim of lien must be strictly complied with to assure proper perfection. O.C.G.A. §44-14-361.1(a)(2); O.C.G.A. §44-14-367, O.C.G.A. §44-14-368. If the lien claimant fails to file a claim of lien as required by statute, the lien is extinguished and rendered unenforceable. Id.

The next step in perfecting the lien requires the lien claimant to commence an action for recovery against the person with whom the lien claimant has contracted for recovery of the amount of the claim within 365 days from the date of recording of the claim of lien. O.C.G.A. §44-14-361.1(a)(3). Failure to commence a suit on the lien within 365 days from the date of filing of the lien renders the claim of lien unenforceable under O.C.G.A. Section 44-14-367 subject to the exceptions set forth under O.C.G.A. Section 44-14-361.1(a)(4). Within 30 days after commencement of the foreclosure action the lien claimant must file for record a Notice of Suit with the Clerk of Court in the county where the claim of lien is filed. O.C.G.A. §44-14-361.1(a)(3) and (4). A lien may be disregarded if no notice of suit is recorded within 395 days of the date of recording of the lien as required by statute. O.C.G.A. §44-14-367.

Pursuant to O.C.G.A. Section 44-14-368, an owner or contractor against whom a lien has been filed may record a "Notice of Contest to Lien" in the statutory form in order to reduce the time period in which the lien claimant has to file suit. The owner or contractor must send a copy of the notice within 7 days by registered or certified mail or statutory overnight delivery to the lien claimant and file the notice with the Clerk of the Superior Court. The lien expires unless the claimant commences its action within 60 days from the receipt of this notice of contest. Unless a notice of suit is recorded within 90 days of filing of the notice of contest, the lien is extinguished as a matter of law. Id.

COMPANY POLICY: Issuing Agents may waive a recorded claim of lien if no suit is filed within 395 days from the date the Claim of Lien is filed for record. Issuing Agent may waive the lien without release or discharge as a matter of law if no action is commenced within 60 days and no notice of suit is recorded within 90 days of recording of a Notice of Contest.

WAIVING AND REMOVING LIENS

The right to claim a lien cannot be waived in advance of the furnishing of labor or materials. Any purported waiver or release of lien in advance is void and unenforceable. See O.C.G.A. §44-14-366. However, liens may be waived by a written lien waiver upon partial or final payment. Id . When a lien claimant executes an Interim Waiver and Release Upon Payment in compliance with the statute, the lien claimant's rights run from the date following the date specified in the executed Interim Waiver for all purposes, subject only to the condition that there is payment of the sum stated in the Interim Waiver. Id. We have attached hereto the statutory form for the Interim Waiver and Release Upon Payment as Exhibit A for interim or progress payments.

When a lien claimant executes an Unconditional Waiver and Release Upon Final Payment in compliance with the statute, the lien claimant has no further lien rights against the property for all purposes, subject only to the condition that there be payment in full of the claimed amount set forth in the Waiver. Id. We have attached hereto the statutory form for the Unconditional Waiver and Release Upon Payment as Exhibit B for final waivers upon payment. Such amounts are conclusively deemed to be paid in full upon the earliest to occur of (1) actual receipt of funds; (2) execution by the claimant of a separate written acknowledgement of payment in full; or (3) 60 days after the date of execution of the waiver and release unless prior to this date the claimant has filed either a Claim of Lien or an Affidavit of Nonpayment. Id. Within sixty (60) days after execution of the waiver and release where the claimant has not filed a Notice of Claim of Lien or an Affidavit of Nonpayment, Issuing Agents should confirm the amounts set forth in the waiver and release by obtaining a separate written acknowledgement stating that payment in full has been received by the lien claimant.

A mechanic's lien may be dissolved by a Contractor's or Owner's Affidavit pursuant to O.C.G.A. §44-14-361.2. A property owner seeking protection from liens may obtain a sworn Final Contractor's Affidavit from their general contractor (e.g. person who entered into an agreement with the owner for improvements to real estate). Id . The property owner must have a direct contractual relationship with the general contractor. The Affidavit must state that the contractor has paid all the subcontractors, materialmen, and supplies the agreed contract price or reasonable value of the labor, supplies and materials furnished at his request and it must be executed in connection with the final disbursement of the contract price and prior to final disbursement to the general contractor. Id. Language in the Affidavit which states that "as far as I know all bills for labor and materials have been paid" is not sufficient to dissolve a lien. Saye v. Athens Lumber Co., 93 S.E.2d 806 (1956). Generally, if executed in connection with the final payment of the contract price, the Affidavit will protect the property owner from liens which might subsequently be filed by the general contractor, subcontractor, materialmen, and suppliers. O.C.G.A. §44-14-361.2. A sworn statement by the owner will meet this requirement only when the Property Owner Contractor is conveying title in a bona fide sale or loan transaction. Id . Purchasers and lenders, who have taken an interest in the improved property, are entitled to rely on this Contractor's Affidavit or sworn statement of the owner as protection against subsequently filed liens. Id. Issuing Agents should be aware that neither the Final Contractor's Affidavit nor an Owner's Affidavit will protect against liens recorded prior to the closing including, but not limited to, liens filed in the county's recording gap.

COMPANY POLICY: If an Issuing Agent has actual knowledge that work has been done or materials furnished within the three months prior to closing, the following is required:

(1) Issuing Agents should update the title prior to the closing to determine if there are any claims of lien recorded since the date of examination of title. All claims of lien appearing of record prior to the closing must be cleared.

(2) If amounts remain unpaid for work or materials or if the Issuing Agent has actual notice of liens recorded in the gap (i.e. the contractor sends a letter with the lien attached prior to closing), then these amounts must be paid at closing and the Issuing Agent must obtain an Unconditional Waiver.

(3) When the work was done by a contractor, the Issuing Agent must obtain a sworn Final Contractor's Affidavit and Final Waiver or release of the Contractor's lien rights. The Owner's Affidavit will meet this requirement only when the Property Owner Contractor is conveying title in a bona fide sale or loan transaction.

(4) If the work is still in progress, this Contractor's Affidavit and Interim Waiver can be used pursuant to the requirements set forth in Section C(3) of this Bulletin.

Before deleting the mechanic's lien exception from any title policy, Issuing Agents must carefully examine all affidavits and waivers to determine that the forms are in strict compliance with the statutory forms.

FILING A BOND

After a claim of lien has been filed and either before or after foreclosure proceedings are instituted, the owner of the property or the contractor may discharge a specific lien by filing a bond with the Clerk of the Superior Court in the county where the real estate is located. O.C.G.A. §44-14-364. All necessary statutory procedures must be strictly complied with to assure property release of lien upon filing of a dissolution bond. Id. COMPANY POLICY: If the property owner claims that a recorded lien is not valid either because of deficiencies in the work performed, the contract price or the improper filing of the lien and therefore should be removed from title, we require the owner to file a bond of discharge to release the lien while the owner asserts their defenses. When the property owner files a bond to discharge a recorded lien, we require a file-stamped copy of the bond filed with the Clerk of the Superior Court prior to closing in the face amount claimed under the lien for residential property and double the amount claimed under the lien for commercial property. Issuing Agents should confirm that the discharge bond complies with the statute and is filed within the proper time frame.

SUMMARY OF REQUIREMENTS

A. What are the requirements for issuing Owner and/or Loan Policies on construction to permanent financing? In order to insure over mechanic's liens in the permanent loan policy, we require the following:

(1) All liens which are disclosed by the search of the public record must be disclosed.

(2) A Final Contractor's Affidavit, in the proper form, stating that the general contractor has paid all the subcontractors, materialmen, and suppliers the agreed price or reasonable value for the labor, supplies and materials furnished at the request of the general contractor, must be provided.

(3) Upon final payment of the contract price, we require the general contractor, subcontractors, materialmen, and suppliers to execute a Final Waiver containing unconditional waiver of lien language in the proper form.

B. What are the requirements for issuing Owner and/or Loan Policies on Builder/Owner Sales? In order to insure over mechanic's liens in the permanent loan policy, we require the following:

(1) Issuing Agents should update title prior to closing to determine if there are any liens recorded since the date of examination of title. All claims of lien appearing of record prior to the closing must be cleared.

(2) If amounts remain unpaid for work or materials or if the Issuing Agent has actual notice of a lien recorded in the gap, these amounts must be paid at closing and the Issuing Agent must obtain an Unconditional Waiver.

(3) When the work was done by a contractor, the Issuing Agent must obtain a sworn Final Contractor's Affidavit. The Owner's Affidavit will meet this requirement only when the Builder Owner is conveying title in a bona fide sale or loan transaction.

(4) If the work is still in progress, this Contractor's Affidavit and Interim Waiver can be used pursuant to the requirements set forth in Section C(3) of this Bulletin.

C. What are the requirements for issuing Owner and/or Loan Policies on construction loan mortgages? A construction loan mortgage will have priority over mechanic's liens if the closing on the construction loan occurs prior to the commencement of work or furnishing of materials. The requirements for issuing Loan Policies on construction mortgages where the construction mortgages will have priority over mechanic's liens are as follows:

(1) The Owner/Borrower must provide a fully executed Affidavit attesting to the fact that no labor or materials have been provided within 95 days preceding the closing.

(2) You must add a "pending disbursement" clause or mechanic's lien exception to the policies insuring a construction loan mortgage.

"Pending disbursement of the full proceeds of the loan secured by the mortgage set forth under this policy, this policy insures only to the extent of the amount actually disbursed but increases as each disbursement is made in good faith and without knowledge of any defect in or objection to the title up to the full amount of the policy."

If work has commenced within 95 days preceding the closing on the construction mortgage, the Issuing Agent must obtain a sworn Contractor's Affidavit, in the proper form, stating that the general contractor has paid all the subcontractors, materialmen, and suppliers the agreed price or reasonable value for the labor, supplies and materials furnished at the request of the general contractor, through the date of closing. In addition, the Issuing Agent will need to obtain an Interim Waiver and Release Upon Payment from all subcontractors, materialmen, and suppliers who preformed work on the property prior to closing. If amounts remain unpaid for work or materials or if the Issuing Agent has actual notice of a lien recorded in the gap, these amounts must be paid at closing and the Issuing Agent must obtain an Interim Waiver(s).

If you have questions related to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.


Exhibit A: Interim Waiver and Release Upon Payment and Exhibit B: Unconditional Waiver and Release Upon Final Payment (Click to View)


For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.

THIS BULLETIN IS FURNISHED TO INFORM YOU OF CURRENT DEVELOPMENTS. AS A REMINDER, YOU ARE CHARGED WITH KNOWLEDGE OF THE CONTENT ON VIRTUAL UNDERWRITER  AS IT EXISTS FROM TIME TO TIME AS IT APPLIES TO YOU, AS WELL AS ANY OTHER INSTRUCTIONS. OUR UNDERWRITING AGREEMENTS DO NOT AUTHORIZE OUR ISSUING AGENTS TO ENGAGE IN SETTLEMENTS OR CLOSINGS ON BEHALF OF STEWART TITLE GUARANTY COMPANY. THIS BULLETIN IS NOT INTENDED TO DIRECT YOUR ESCROW OR SETTLEMENT PRACTICES OR TO CHANGE PROVISIONS OF APPLICABLE UNDERWRITING AGREEMENTS. CONFIDENTIAL, PROPRIETARY, OR NONPUBLIC PERSONAL INFORMATION SHOULD NEVER BE SHARED OR DISSEMINATED EXCEPT AS ALLOWED BY LAW. IF APPLICABLE STATE LAW OR REGULATION IMPOSES ADDITIONAL REQUIREMENTS, YOU SHOULD CONTINUE TO COMPLY WITH THOSE REQUIREMENTS.

References

Bulletins Replaced:
GA2008005 This Bulletin has been replaced by GA2009001.
Related Bulletins:
None
Underwriting Manual:
12.12 Mechanic's Liens
 
15.32 Pending Disbursement Clause
 
GA 12.12.17 Mechanic's Liens
Exceptions Manual:
GA Mechanic's Liens
 
Mechanic's Liens (Statutory Liens for Services, Labor or Material)
 
GA Pending Disbursement Clauses
 
Pending Disbursement Clauses
Forms:
None