North Carolina's New Lien Law
If you have anything at all to do with the construction industry, you have probably heard that the North Carolina lien law changed substantially as of April 1, 2013. The North Carolina General Assembly overhauled the lien statutes with the goal of eliminating the "double pay" problem that has plagued the construction and title industry in recent years. Double pay situations arise when the owner pays its general contractor but either the general contractor or one of its subcontractors experiences cash flow problems and fails to pay its subcontractors or suppliers. The unpaid subcontractor then files a lien on the project and the owner ends up in protracted litigation or paying for the same work twice. In an attempt to resolve this issue, the amended lien laws require contractors, subcontractors and suppliers to provide notice of their involvement to all. Failing to do so will jeopardize the right to obtain payment for work performed or materials supplied to the project.
Effective April 1, 2013, if the estimated cost of a project is in excess of $30,000 and not for improvements to an owner-occupied, single-family residence, then the owner of a property must designate a lien agent. The lien agent must be a title insurance company that is included on the list of registered lien agents maintained by the NC Department of Insurance. The owner must also post the building permit on the property which lists the lien agent for the project.
Once the lien agent is designated, all contractors, subcontractors and suppliers must serve a notice to the lien agent within 15 days after first furnishing labor or materials to the project. If a notice is not received by the lien agent within 15 days after first furnishing labor or materials or prior to a conveyance of an interest in the real property, then a potential lien claimant's rights are (i) terminated if the property is sold or (ii) subordinated to the new lender if a new Deed of Trust is recorded.
Another important area the new law impacts is lien waivers. Prior to the new law, a lien waiver signed by a contractor before the subcontractor files a lawsuit to enforce its Claim of Lien on Real Property waives the subcontractor's right to enforce the contractor's lien on the real property. Effective April 1, 2013, the new law provides that a contractor's lien waiver will not prejudice the rights of the subcontractor if: 1) the subcontractor has given notice to the lien agent; 2) the subcontractor has served a notice of claim of lien on funds on the owner; and 3) the subcontractor has delivered a copy of the notice of claim of lien upon funds served upon the owner to the lien agent.
These new laws create significant hoops for contractors and subcontractors to jump through in order to file a lien claim. Contractors and subcontractors will need to be able to prove compliance with the statutory provisions by keeping proper records. Owners will want to make sure that they follow the new requirements of naming a lien agent at the very beginning of the project and no later than at the time of contracting with the general contractor in order to preserve the protections under the new lien law.