Release of Lien on Filing of a Bond

By: James C. Busch

This article will address the situation where a lien has been properly filed and the contractor then files a bond to release that lien. The Official Code of Georgia (O.C.G.A.) Sec. 44-14-364 specifically addresses the requirements to place such a bond and the mechanic’s and materialmen subsequent rights and remedies. Typically, contractors will “bond around a lien” in the residential setting in order to allow the property owner to close. In the commercial setting this is done to prevent the property owner, bank, or general contractor from exercising rights usually found in their contracts providing for a variety of damages if liens are not removed upon demand.

O.C.G.A. 44-14-364 states in pertinent part that “… the owner of the real estate or the contractor employed to improve the property may … discharge the lien by filing a bond in the office of that clerk.” Thus, only the property owner or the contractor may bond around a lien placed on the real property in question. O.C.G.A. 44-14-364 goes on to state that the “… bond shall be conditioned to pay to the holder of the lien the sum that may be found to be due the holder upon the trial of any action that may be filed by the lienholder to recover the amount of his claim within 12 months from the time the claim becomes due.” This portion of the statute provides that the lien must be drafted so as to require payment to a lienholder that amount found to be owing at the conclusion of a lawsuit which was filed within 12 months of the date the lien became due. Therefore, if a property owner or contractor bonds around a lien a lawsuit must be filed within 12 months of the date the claim became due in order to be in the position to file a claim on the bond. Next, the lawsuit must result in a favorable judgment before a claim may be placed upon the lien.

The bonds addressed by O.C.G.A. 44-14-364 are required to be filed in the superior court of the county where the liened property is located. The amount of the bonds are double the amount claimed under the lien except in cases involving a lien against residential property which may in the amount claimed under the lien. The bonds must be with good security approved by the clerk of the court (i.e. unencumbered real estate) or cash bond.

Once the bond is filed with the appropriate superior court the lien in question is discharged and will no longer encumber the property. It is important to keep in mind that the party filing the bond is under no obligation to notify the lienholder of the filing of the bond. Thus, a source of funds may be available to the lienholder without his/her knowledge. Therefore, it is important to consider checking the title of the liened real estate to determine whether a bond may have been filed to bond around your lien.

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