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Partial Release of Lien

I am a private lender with a first mortgage / construction loan on a single-family home in Atlanta Georgia. My Borrower has requested from the General Contractor release of liens during the construction funding. The General Contractor has not and will not provide the Borrower with either final release for those sub-contractors that have finished or partial release of lien from himself or sub-contractors. I informed the Borrower and the General Contractor that is will not fund the final draw request without releases. My understanding is that the Borrower can still be liable for any unpaid sub-contractors bills even if the Borrower pays the General Contractor. The General Contractor is that his contract doesn’t provide for any releases other than the Final Release with the Final Payment. I am correct in not funding until I receive the releases, because first you can't change state lien status in a contract and it is dumb to fund without the release.

1 reply

Oct 9, 2018

That's a tough situation, but Georgia has unique lien laws that might help. First - it's completely reasonable to require lien waivers from all subs and suppliers on a project in addition to a waiver from the general contractor. As you mentioned above, it's entirely possible for a general contractor to receive full payment, for that contractor to not fully pay their subs and suppliers, and for those subs and suppliers to file a subsequent lien claim due to nonpayment. One option may be to ask the contractor for the names of all subs and suppliers on the project. Then, with that information, it could be possible to obtain lien waivers from those parties prior to making final payment. At the very least, talking to those subs and suppliers can help gauge whether everyone's been paid on the job. Another option, one that's pretty standard in GA and specifically outlined in the lien statute is to require a Sworn Statement from the contractor that states that all parties have either (1) waived their lien rights in writing, or (2) have been paid in full. Upon making such a Sworn Statement, the lien rights of subs and suppliers will be dissolved (unless any of them have filed a Preliminary Notice of Lien Rights) if made in exchange for final disbursement of the contract price. If some party has filed a Preliminary Notice of Lien Rights, their lien rights may still be dissolved if a Demand of Filing Lien Claim is sent to the claimant pursuant § 44-14-361.4(3) of Georgia's lien statute if the claimant does not file their lien within 10 days of receiving the demand. Finally, it may be worth reminding the contractor that, if a lien claim is filed by one of their subs and suppliers, the owner and/or lender for the property will very likely be entitled to rope the contractor into the legal action - reminding the contractor that a lien claim is also their problem can help to facilitate lien waivers. Regardless - when a contractor is adamant about refusing to provide lien waivers, it's probably a good idea to proceed with caution.

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