Lien Actions Versus Lien Foreclosure Actions

The lawsuits required to perfect and foreclose upon a lien have confused lien claimants and their attorneys for years.  This confusion was recently demonstrated in a recent case entitled Founders Kitchen and Bath, Inc. v. Alexander, No. A15A1262, 2015 WL 6875026 (Ga. App. 2015).

In the case, the trial court granted an owner’s motion for summary judgment against a subcontractor that sought to foreclose on its materialman’s lien.  In deciding to reverse the trial court’s decision, the Court held that issues of material fact still existed as to whether the owner and subcontractor were in privity of contract.

Debra and James Alexander contracted with Cirillo Custom Homes, Inc. (“Cirillo”) to build a house.  Cirillo contracted with Founders Kitchen & Bath, Inc. (“Founders”) to build and install kitchen cabinets in the home.  Founders installed the cabinets and, after not receiving payment, filed a claim of lien.  Founders claimed it was never paid by Cirillo and filed a lien action against Cirillo.  Strangely, the record did not reveal what had become of the action against Cirillo.  Thereafter, Founders filed their action to foreclose its lien against the Alexanders.

Under O.C.G.A. § 44-14-361.1(a)(3), a lien action must be commenced within 365 days after the date of filing the claim of lien.  The Alexanders argued in their summary judgment motion that Founders failed to meet this deadline.  They claimed Founders’ president admitted that Founders had a contract with the Alexanders, and as a result, Founders should have filed its action against them within 365 days.  The trial court agreed that Founders’ lawsuit was filed far beyond the 365-day period and granted summary judgment in favor of the Alexanders.

The Court of Appeals disagreed that the claim was barred as a matter of law and noted disputed facts as to the contractual line of privity.  It emphasized that O.C.G.A. § 44-14-361.1(a)(3) requires the lienholder to seek recovery of the amount of the claim against the contractor within the 365-day limit.  To support its holding, the Court cited a Supreme Court decision that states, “the time within which the action shall be commenced relates to the action in personam against the contractor, and not to the action against the owner of the real estate.”  Southern Railway Co. v. Crawford & Slaten Co., 173 Ga. 450 (1934).

In this case, Founders filed a lien foreclosure action against the owners, the Alexanders, and not a lien action against the contractor, Cirillo.  Therefore, the 365-day time limit would not apply to bar Founders’ claim unless the Alexanders “were effectively acting as their own contractors and had a contract for supplies directly with Founders.”  Accordingly, the Court reversed the trial court’s decision since the record showed that a genuine issue of material fact existed as to whether the Alexanders were in contractual privity with the Founders.

This case illustrates the confusion of many in the construction industry between a “lien action” and a “lien foreclosure action.”  From the perspective of subcontractors, these are two very different claims.  The lien action is an in personam action against the contractor, while the lien foreclosure action is an action in rem against the owner’s property.  Typically, they are separate actions, and the lien action is filed first.

From the perspective of owners, this case demonstrates the danger of blurring the lines of contractual privity, which can cause confusion as to whether a subcontractor is actually a direct contractor with the owner.  The effect is that the “subcontractor” (acting as a contractor) may have a direct action against the owner without pursuing the initial lien action against the contractor.