Construction Law – NC Mechanic’s Liens (Part 2): New North Carolina Amendments
In April 2013 the North Carolina legislature passed amendments to North Carolina Session Laws 2012-158 and 2012-175, adding additional requirements for mechanic’s liens and their enforcement on certain construction projects.
Session Law 2012-158 requires that a “Mechanic’s Lien Agent” is secured and listed on new home construction jobs that will cost $30,000 or more to complete. The new law does not require a Lien Agent where improvements or additions are being made to an existing single-family home that is also being used as the homeowner’s residence.
The Mechanic’s Lien Agent is be selected through a title company, from a list of registered Lien Agents. The list of available Lien Agents will also be maintained by the North Carolina Department of Insurance. The owner designates the Lien Agent by giving him or her written notice of the Agent’s selection, including a description of the Real Property to be improved. Any building permit for the project must contain the identity of the Lien Agent. The law also requires that there be a sign on the property throughout the construction which identities the project Lien Agent (this can be done simply by posting the building permit). It is advised that subcontractors and/or material suppliers wait to supply labor or material to a construction project until they have Lien Agent information, a copy of the building permit, or, at least, owner contact information.
Generally all parties working on a construction project with a Lien Agent, including suppliers, should give the Agent notice of their involvement within 15 days of commencing work on the project. If a potential lien claimant fails to serve Notice to then Lien Agent within 15 days after commencing work, then the claimant will risk either losing its lien claim altogether or, at a minimum, losing the priority of its lien claim as to deeds of trust recorded after the start of the project. Therefore, a failure by a supplier or contractor to give notice of involvement to the Lien Agent does not necessarily eliminate all lien rights. In order to have lien rights under the Statute, the potential lien claimant may perfect a claim of lien on real property if any of the following conditions is met:
The MLA has received notice from the potential lien claimant no later than 15 days after the first furnishing of labor or material by the potential lien claimant or
The MLA has received notice from the potential lien claimant OR the lien claimant has actually filed a mechanic’s lien prior to the date of recordation of a sale of the property to a non-insider or recordation of a mortgage to a non-insider
If there develops a potential lien situation, the lien claimant must send a written request by certified mail or any other method with delivery receipt (physical, facsimile, email, etc.) to the property owner for the Lien Agent information. In response, the property owner must provide the applicable Lien Agent information within 7 days of receipt of the written request. The potential claimant may then need to give the lien agent notice of the party’s involvement on the project, or issues and claim.
General contractors do not need to give notice to the Lien Agent prior to pursuing a claim, as long as the Lien Agent information is in their contract. But design professionals DO need to give notice to the lien agent of an impending claim, unless the identifying information is not in their design contract. Subcontractors who supply labor on a project must either look at the building permit or request lien agent information from the owner and then give notice of a potential claim to the Lien Agent. Subcontractors or suppliers should provide notice to the Lien Agent of their involvement within 15 days of the first deliveries of labor or material to the project.
If the Lien Agent information is not in a material supplier’s purchase order or contract with general contractors or subcontractors, then those contractors must provide the suppliers that supply materials, but DO NOT supply labor on the project with written notice containing Lien Agent information within 3 days of contracting for the supplies. If the contractor(s) does not provide this requisite notice, then the general contractor or subcontractor maybe guilty of an unfair trade practice and is liable to the potential lien claimant for damages. If a claim is brought under the NC deceptive practices and unfair trade act then the claimant in a lawsuit could also pursue double or treble damages, or attorney’s costs and fees, under statutory recovery, making it a much more expensive omission error. Additionally, material suppliers that DO NOT supply labor on the project still have an obligation to give notice to the lien agent of their involvement to their preserve rights.
Session Law 2012-175, commonly called the “Secondary Amendment,” makes the following changes to the exercise of lien rights:
First, Claims of Lien on Real Property will be required to be filed not only with the Clerk of Court, but also to be served upon the owner of the Real Property and, if it is a subcontractor’s subrogation lien, the General Contractor. Failure to serve the correct parties with the Claim of Lien on Real Property can cause the lien to fail altogether and be set aside by the owner.
Second, the following additional information must be included in the Claim of Lien on Real Property:
If the lien is asserted by a subcontractor, the name of the contractor through whom the subcontractor is asserting the lien; and,
A certification by the lien claimant that the required parties have been served with the Claim of Lien on Real Property.
Third, the statute now clarifies that a subcontractor’s lien upon funds arises upon the first date of furnishing labor or materials to the project, and that the service of a Notice of Claim of Lien Upon Funds only perfects the lien, thus making it legally enforceable. This change attempts to avoid the potential loss of rights that might occur when an upper-tier party files bankruptcy.
Fourth, in establishing priority, a subcontractor asserting a lien by way of subrogation to a general contractor’s right may use either its own first and last furnishing dates, or the general contractor’s first and last furnishing dates.
Fifth and finally, there will be increased penalties against parties for making false statements in lien waivers.
The changes to North Carolina’s mechanic’s lien and public project bond statutes are significant. Unless those who are in the construction process understand – and comply with – these changes, they may lose valuable rights and protections that are provided by these statutes.
A homeowner can attempt to have contractors and subcontractors sign a lien waiver and release form or provision, which could potentially release the property owner from future liability for non-payment. It is not recommended that contractors or subcontractors sign such forms and give away their statutory rights for recovery. And, even with a signed waiver, a contractor or subcontractor may still be able to file a lien.
My firm can assist contractors and subcontractors with pursuing payment through a mechanic’s lien or homeowners with defending against one. Additionally, we can provide legal consultation and services prior to and through any contracting and construction project. This includes the drafting or review of contracts and contract provisions, liability analysis and consulting, bond preparation, and other contractual and transaction work and liability and indemnity protections. It is always recommended that parties to a contract create a clear form and record of what they want and don’t want early in negotiation discussions and contract provisions to prevent confusion, liability, and litigation costs later. Also it is important for businesses to recognize that if there is ambiguity or vagueness in a contract provision, legal precedence holds it may be interpreted against the drafter of the contract and in favor of the non-drafter signor/party.