Bill Text: GA SB466 | 2011-2012 | Regular Session | Introduced

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Bill Title: Mortgage, Liens, Security; provide for lenders to give notice to contractors; construction loan is nearing default; definitions; procedures

Spectrum: Partisan Bill (Republican 6-0)

Status: (Introduced - Dead) 2012-02-21 - Senate Read and Referred [SB466 Detail]

Download: Georgia-2011-SB466-Introduced.html

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12 LC 34 3315

Senate Bill 466

By: Senators Tippins of the 37th, Williams of the 19th, Rogers of the 21st, Gooch of the 51st, Jackson of the 24th and others

A BILL TO BE ENTITLED
AN ACT

To amend Chapter 14 of Title 44 of the Official Code of Georgia Annotated, relating to mortgages, conveyances to secure debt, and liens, so as to provide for lenders to give notice to contractors when a construction loan is nearing default; to provide for definitions; to provide for procedures and limitations; to provide for related matters; to provide for an effective date; to repeal conflicting laws; and for other purposes.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF GEORGIA:

SECTION 1.

Chapter 14 of Title 44 of the Official Code of Georgia Annotated, relating to mortgages, conveyances to secure debt, and liens, is amended by adding a new article to read as follows:

"ARTICLE 10

44-14-650.

(a) As used in this article, the term:

(1) 'Borrower' means the person or entity to which a construction loan is extended under a loan agreement with the lender. Unless otherwise specified in the notice of commencement, for notice purposes under this article, the borrower shall be presumed to be the owner of the real estate, or some other person acting for the owner, as specified in a notice of commencement, if any, filed or posted pursuant to subsection (b) of Code Section 44-14-361.5, relative to the improvement of the real estate.

(2) 'Construction loan' means any loan of money by a lender to a borrower in whole or in part for the payment for work performed and labor, materials, and services provided for the development, building, or construction upon real estate, including improvements, modifications, or additions thereto, which loan is secured by an interest in the improved real estate; provided, however, that this article shall not apply to any construction loan:

(A) Not exceeding $1 million in principal; or

(B) Relating to residential real estate other than for work performed relative to subdivision, multiple lot, or tract development work, including such work as grading; utility installation; curb, gutter, and street installation; landscaping; and work of similar nature not exclusively for the benefit of a single lot of residential real estate.

(3) 'Default' means any act or omission by a borrower relative to its obligations to a lender concerning a construction loan and related loan agreements and documents that would entitle the lender to cease further funding under the construction loan or to exercise any right of foreclosure against or otherwise pursue its security interest in or sale or transfer of the real estate in satisfaction of the construction loan obligations.

(4) 'Lender' means a person extending a construction loan to a borrower, including any assignee or transferee of such loan. For notice purposes under this article, the person identified as the construction lender in a notice of commencement, if any, filed or posted pursuant to subsection (b) of Code Section 44-14-361.5, relative to the improvement of the real estate, may be deemed to be the lender of record.

(b) The definition of terms in Code Section 44-14-360 shall also apply to such terms when used in this article.

44-14-651.

(a) If, prior to the distribution of all funds available under a construction loan, a lender either:

(1) Makes a final determination to cease or materially delay or interrupt for more than five days further advance of funds to the borrower pursuant to the loan; or

(2) Gives notice of default to the borrower,

whichever first occurs, the lender shall within five days thereafter serve written notice, as described in subsection (b) of this Code section, of that determination or notice of default on the contractor and any subcontractor or materialman who have given written notice to the lender as described in subsection (c) of this Code section.

(b) The written notice required of the lender under subsection (a) of this Code section shall be transmitted by the lender by registered or certified mail or statutory overnight delivery to each such contractor, subcontractor, or materialman having given written notice to the lender as described in subsection (c) of this Code section, provided that the notice described in subsection (c) of this Code section is received by the lender at least five days prior to the determination to cease or delay payment or giving of notice of default by the lender to the borrower required by subsection (a) of this Code section. The written notice by the lender shall be addressed to each contractor, subcontractor, or materialman at the address shown on the notice to the lender given under subsection (c) of this Code section and shall set forth the date of the determination to cease or delay payment or notice of default to the borrower.

(c) In order to be entitled to the notice by the lender under subsection (b) of this Code section, a contractor, subcontractor, or materialman shall give written notice to the lender by one of the following methods:

(1) Furnishing a copy to the lender of the notice to the contractor, when and in the form required to be given to the owner or the agent of the owner and to the contractor pursuant to subsection (c) of Code Section 44-14-361.5, at the address set forth for the construction lender in the notice of commencement filed pursuant to subsection (b) of Code Section 44-14-361.5, or if no notice of commencement is recorded, to the lender's registered agent as shown in the records of the Secretary of State; or

(2) Furnishing such notice by registered or certified mail or statutory overnight delivery to the lender at the address shown on any notice of commencement filed pursuant to subsection (b) of Code Section 44-14-361.5, or if no notice of commencement is recorded, to the lender's registered agent as shown on the records of the Secretary of State setting forth:

(A) The name, address, and telephone number of the person providing labor, services, or materials;

(B) The name and address of each person at whose instance the labor, services, or materials are being furnished;

(C) The name of the project and location of the project set forth in the notice of commencement; and

(D) A description of the labor, services, or materials being provided and, if known, the contract price or anticipated value of the labor, services, or materials to be provided or the amount claimed to be due, if any.

(d) The lender shall not be liable to the contractor or any other subcontractor or materialman based upon the determination by the lender to cease, delay, or interrupt further advances to the borrower under the construction loan or to give the borrower notice of default if the lender gives such contractor, subcontractor, or materialman notice of such determination in accordance with this article, and the determination or notice is otherwise permitted under the loan documents, or if such contractor, subcontractor, or materialman failed to give written notice to the lender pursuant to subsection (c) of this Code section, or such notice, if given, was not received by the lender at least five days prior to such determination or notice to the borrower.

(e) The failure of the lender to give notice to the contractor and to any other subcontractor or materialman under subsections (a) and (b) of this Code section may subject the lender to liability to the particular contractor and any other subcontractor or materialman to the extent of the then unpaid amount of the actual value of the work performed or materials, supplies, services, and direct labor costs furnished by the respective contractor or other subcontractor or materialman, plus 15 percent for overhead, profit, and all other costs from the date on which the notice of the lender's determination or notice should have been served on the contractor and any other subcontractor or materialman and the date on which the notice of the lender's determination or notice is served, as provided in this Code section, to the extent that such contractor, subcontractor, or materialman would have been entitled to assert a claim of special lien on the improved real estate. The lender may agree in writing with the respective contractor and any other subcontractor or materialman to any other reasonable method of determining the value of the labor, services, and materials furnished.

(f) The liability of the lender shall in no event be greater than the amount of undisbursed construction loan funds at the time the notice by lender should have been given under subsections (a) and (b) of this Code section, unless the failure to give such notice was done for the purpose of inducing continued performance by any contractor, subcontractor, or materialman of any work or furnishing of labor, materials, or services or otherwise defrauding the contractor or any other subcontractor or materialman. The lender is not liable to the contractor or any other subcontractor or materialman for consequential or punitive damages for failure to give timely notice under this article. The contractor and any other subcontractor or materialman entitled to receive notice by the lender pursuant to subsections (a) and (b) of this Code section shall have a separate cause of action against the lender, as provided in this Code section, for damages sustained as a result of the lender's failure to give timely notice under this article. Such separate cause of action may not be used to hinder or delay any foreclosure action filed by the lender, may not be the basis of any claim for an equitable lien or for equitable subordination relating to the lender's security interest, and may not be asserted as an offset or a defense in the foreclosure case. In any such separate action by a contractor, subcontractor, or materialman seeking to enforce the rights under this article, the prevailing party is entitled to recover costs and expenses of such litigation, including reasonable fees for the services of its attorneys and costs for bringing such action, including but not limited to trial and appeal, in an amount to be determined by the court.

(g) For purposes of serving notice on the contractor, subcontractor, or materialman under this article, the lender may rely on the name and address of the contractor, subcontractor, and materialman listed in the notice to the lender given under subsection (c) of this Code section.

(h) The contractor or any other subcontractor or materialman may not waive the right to receive notice under this article.

(i) Any contractor or other subcontractor or materialman receiving notice of a lender's determination to cease or delay payment or notice of default under subsection (a) of this Code section shall have the right to suspend further work on or furnishing of labor, materials, or services to the real estate upon giving five days' prior written notice to the lender, the borrower, the contractor, and any other party with whom it contracted for the performing of such work or furnishing of labor, materials, or services, notwithstanding any contrary contractual provisions and without any obligation for ongoing performance or supply. Unless the contractor or any other subcontractor or materialman giving such a notice of intention to stop work, within 30 days after giving such notice, receives:

(1) Full payment of all amounts then due for work performed or labor, materials, and services furnished; and

(2) Reasonable evidence adequately assuring that the construction loan funding by the lender will resume and continue or that other suitable financial arrangements have been made by the borrower to reasonably assure the contractor, subcontractor, or materialman that funds will be available for funding performance of further work and furnishing of additional labor, material, or services contracted to be performed on the real estate,

then such contractor, subcontractor, or materialman may, upon additional five days' written notice to the same persons, terminate any existing contract or agreement to the extent further performance or furnishing would otherwise be required and shall be entitled to and may pursue all remedies available to it for nonpayment and the breach of the contract. Any such notice shall be given in the form and manner and to the persons to whom the notices were required to be given by the contractor, subcontractor, and materialman under subsection (c) of this Code section.

(j) The exercise by any contractor, subcontractor, or materialman of any rights against a lender under this article shall not affect any other rights and remedies otherwise available to it against other persons or parties, legally, contractually, or equitably, for full payment for the work performed or labor, materials, and services provided."

SECTION 2.

This Act shall become effective upon its approval by the Governor or upon its becoming law without such approval.

SECTION 3.

All laws and parts of laws in conflict with this Act are repealed.