ANNIE, GET YOUR LIEN AGENT (Because there are big changes coming to North Carolina’s Materialmen Lien laws)

Kerri Sigler | Former Partner at Wait Law, P.L.L.C.

UPDATE: New post with more details about North Carolina’s new lien laws available here.

North Carolina’s laws governing construction liens (a/k/a materialmen liens) will change dramatically starting April 1, 2013.  Although reading a phone book would be more interesting than trudging through the new statutes, understanding the new requirements and the pitfalls will be vital to contractors wishing to protect their lien rights going forward.

Here are the changes in a nutshell.

Starting April 1, 2013, most construction projects will require the property owner to designate a lien agent – a title insurance company kept on a list maintained by the Department of Insurance – before a building permit will issue and work can begin.  All contractors (subs included) on the job must then announce their presence to the lien agent within 15 days of the first furnishing of labor or materials to the site.  To do this, contractors must send the lien agent a Notice to Lien Agent, which is not a lien, but merely an announcement that you, the contractor, started work and reserve the right to file a lien at a later date. There is a sample form in the statutes, available online.

The lien agent compiles and maintains all the Notices to Lien Agent it receives and provides them upon request to parties such as potential purchasers of the property, title companies, closing attorneys, potential lien claimants, etc.

However, these lien agents are not the agents of the owner for any purpose other than receiving and compiling the Notices to Lien Agent.  Therefore, to perfect a claim of lien, you must still file and serve your lien on the owner, not the lien agent.

Contractors who do not send a Notice to Lien Agent within 15 days of starting work are not necessarily out of luck if trouble arises, but they would be taking a major gamble.  Here is why. If you do not announce your presence within those first 15 days, and you thereafter file and serve a claim of lien but the property was mortgaged or re-financed in the meantime, you are now behind the bank in terms of the priority of your lien. Whereas, you would have been in front of the bank had you timely filed your Notice to Lien Agent.

Worse still, if you do not hit the 15 day window at the beginning and later file and serve a claim of lien, but you do it after the property sells, you are out of luck.  No lien. And that was really the point of the changes: to prevent “hidden liens.”

These laws are new and leave lots of questions unanswered.  There are new forms, exceptions to new rules, and ways contractors and subs need to change the way they do business to protect themselves as a matter of course. So, make sure you’re up on the new laws and have plans in place to deal with them to preserve your lien rights.

Posted in Blog, News and Information.