Many confusing changes took effect to North Carolina’s lien laws on April 1, 2013 and many of our construction clientele want to make sure that their interests are protected so we have provided this helpful guide to answer some common lien law questions and contractor lien rights questions that our clients have asked. An experienced Construction Attorney can work with you to ensure the lien requirements are met so that your interests are protected should a dispute arise on the construction project.
Introduction
A general contractor has the ability to place a lien on real property in North Carolina. A lien that is placed on the property may help to secure payment of debts for the work performed pursuant to a contract agreement. There are certain requirements that must be fulfilled in order to properly protect the interest that general contractors and subcontractors have in the property. Many people incorrectly assume that subcontractors do not have any lien rights. Subcontractors do have contractor lien rights — they are just different than those of the general contractor.
North Carolina General Statute
North Carolina General Statute §44A discusses contractor lien rights for both general contractors and subcontractors. A notable item in the Statute is the time frames, which create important deadlines as to when the claim of lien must be provided, and when an action to foreclose on the claim of lien must be filed. If these deadlines are ignored, the contractors could be left without an enforceable lien interest. There are some things that lien laws do not allow the contractors to recover. Lien laws do not allow recovery for lost profits, consequential (indirect) damages, or attorney’s fees. The remedy for these would be under the terms of the contract. A lien can help you to recover debts owed for the work; this includes the principle amount for the work completed as well as interest if it is agreed upon in a written contract.
Lien Agent
In the construction process, the owner usually designates a lien agent. The owner is not required to designate a lien agent if: (1) the construction or improvement project is occurring on a single-family dwelling that is already in existence and occupied by the owner as a residence, or (2) a project valued at less than $30,000 of improvements or (3) the project is a public building project. All other types of property improvement projects will require a lien agent to be designated. The lien agent must be designated no later than the time the owner first contracts with any person to improve the property. Improvements include labor, materials, design services, surveying services, and rental equipment. The designated lien agent’s information must be posted at the site, either attached to the building permit or on a separate sign.
Next, the contractors (including subcontractors) must, for projects that are over $30,000, provide Notice of their contractor lien rights within 15 days of first furnishings of labor or materials at the site. This is considered pre-notice and is required to address the problem of hidden liens. The lien claimant must request the contact information of the lien agent by any approved method per N.C.G.S. § 44A-12(f), including electronic mail, with delivery receipt. After this information is requested, the claimant must serve the lien agent a Notice. The Notice is not filed with the Clerk of Superior Court. Subcontractors must be provided the contact information for the lien agent within 3 business days of the contract formation. A contractor that fails to provide this information to a subcontractor can be liable to the subcontractor for all damages incurred as a result of the failure.
Filing the Lien on Real Property
Now that the lien agent information is identified, you may file a claim of lien on the real property. This claim must be filed in the office of the clerk of superior courts in the county where the real property is located. All claim of liens must be filed, either by the general contractor or the subcontractors within 120 days of the last furnishing of labor or materials at the site of improvement. The claim that is to be filed with the clerk of superior courts must state the date of the last furnishing of labor and/or materials.
Enforcing the Lien
Next, a lawsuit must be commenced in order to foreclose on the claim of lien. The lawsuit must be commenced no later than 180 days after the claimant’s last furnishing of labor or materials at the site of improvement. In the complaint for the lawsuit, there are two key things that must be alleged. The first is that there was a breach of contract, and the second is an action to seek foreclosure of the lien. Without those two claims, the enforcement of the lien will not succeed.
Subcontractor’s Rights
Generally, the two instances that a subcontractor may have a lien on real property are when the owner has a direct liability to the subcontractor or under a subrogation lien. Subcontractors, in addition to having a claim of lien against the real property, also can have a claim of lien against funds owed. A Subcontractor’s lien on funds has priority over all other lien claimants to an interest in funds, except other contractors.
In order to foreclose on the lien on real property, the subcontractor must sufficiently show 7 items.
- That there was a contract for the improvement of the property;
- That they furnished labor or materials to the site;
- That they are owed money under a contract agreement;
- That they complied with the statutory requirements to establish a claim of lien upon funds;
- That they served a Notice of Claim of Lien upon Funds to the proper parties;
- That each of the proper parties received the Notice of Claim of Lien upon Funds; and
- That the funds were withheld.
Discharging a Lien
There are many methods to discharge a claim of lien other than foreclosure of the claim. Some of those methods include:
- The Claimant filing a document canceling the lien or acknowledging the satisfaction of the indebtedness.
- Owner files instrument of satisfaction signed and acknowledged by the claimant stating that indebtedness has been paid or satisfied.
- Claimant files to enforce the claim of lien on real property within the prescribed time.
- Filing a judgment or decree of a court showing that the lien enforcement action has been dismissed or determined adversely to the claimant.
As you can see, there are many different requirements that must be met in order to properly enforce or discharge a claim of lien. The Tran Law Firm is capable of helping contractors, subcontractors, and owners understand what needs to be completed to ensure that their contractor lien rights and financial positions are protected.