The ABCs of Current NC Lien Law

Since we talked last week about possible changes to the lien law, I’ve had a few folks ask me to take a step back and discuss the ABCs of current lien law in North Carolina.  Ask and ye shall receive………..

 Part 1:  Lien Law Rights for Contractors, Subcontractors, & Design Professionals

Who can file a lien?

Anyone who furnishes materials or labor to improve real property can file a lien on that property.  This includes design professionals who provide services related to improvement of real property, contractors, and subcontractors (down to the 3rd tier). 

What types of liens are there in NC?

There are three types of lien claims in North Carolina.

1.  The Claim of Lien on Real Property (NC Gen. Stat. §44A-12) is for a person who contracts directly with the owner of the property.  This can be a general contractor, a separate independent contractor, or a design professional.

2.  The Notice of Claim of Lien upon Funds (NC Gen. Stat. §44A-18 and §44A-19) is available to subcontractors (down to third-tier subcontractors), and allows them to have a lien right to any funds owed to the party that contracted with them in the chain of title.  In other words, if the owner still owes money to the general contractor, and the owner receives a Notice of Claim of Lien upon Funds by a subcontractor (and the lawsuit to enforce the lien is thereafter properly filed), the owner cannot pay the general contractor until the subcontractor’s lien is extinguished.

3.  The Subrogated Claim of Lien on Real Property (NC Gen. Stat. §44A-23) also provides real property lien rights to the subcontractor, to the extent the party he contracted with has lien rights.

When and Where must a lien be filed?

Lien claims in North Carolina must be filed in the clerk of court where the property is located, within 120 days of the claimant’s last date of furnishing. 

What does “perfecting a lawsuit” mean?

A lawsuit must be filed to enforce the lien.  This is called “perfecting” the lien, and it must be done within 180 days of a claimant’s last date of furnishing.  The lawsuit can be filed in any proper county so long as an appropriate Lis Pendens is also timely filed in the county where the property is located. 

What special remedies are available for a lien claim?

If a lien lawsuit is perfected and a judgment rendered, the court can direct the property to be sold to satisfy the lien.  Additionally, you can recover attorney fees for the lien lawsuit.  Pretty cool, huh?

  souffle

Crafting a proper lien is like making souffle- no room for error!

In summary:

As you can imagine, liens can be very powerful tools to help ensure recovery of money owed to contractors and subcontractors on a project.  The key to exercising your lien rights is to keep watch on the running of the claim period (use of online resources can help with this)  and to ensure that the lien is (1) properly drafted; (2) timely served; (3) appropriately filed; (4) perfected with a timely lawsuit.  This is not an area where you can make a mistake—liens are subject to strict rules that must be followed to the t.  If in doubt about a lien issue, contact a knowledgeable construction law attorney in your jurisdiction.

We’ll continue our discussion with Part 2 (next Thursday), when we discuss how to handle a lien on your property if you are the Owner

Comments about your experience using liens to maximize your chances of recovery?  Post below.  [And as always, please sign up for an email subscription to the blog  if you have not already done so].

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Photo “Soufflé” by stu_spivack via Flickr/Wikimedia/Creative Commons

Add a comment »36 comments to this article

  1. Home owner fired me after I was in an accident and could not finish his home on time, I was the GC. He took me to court and successfully won a lien against me of $130K for work he had to finish. I was completely debilitated for several months, on strong drugs and did not respond to lien (was in an accident in a county across the state). He took possession of my truck and tools left at the job site and they were sold at a sheriff’s auction. I have not paid the lien and it has been almost 7 years. He has not attached any subsequent wages from my jobs. I work for other people now, not as a GC. I would like to buy a home and get back into the GC business. Can he attach a lien against my home and/or prevent me from performing work as a GC? My license expired in NC so I’ll have to reapply for a GC license. I don’t own anything with my name on it.

    Reply

    • I’m sorry to hear of your troubles. Regarding your question, it depends on whether or not the judgment against you is still active. He may have sold enough of your equipment to have satisfied the judgment, in which case it would be (or should be) satisfied. But if it was only 7 years ago, technically he can come back and “attach” assets to sell for up to 10 years (and an additional 10 if he follows certain procedures). However, if you are going to be getting a mortgage to buy the home, the mortgage will make sure that they, and no one else, are first priority on the loan. They may require certain hoops for you b/c of the judgment, but if they are satisfied that they will take 1st position on your mortgage, there really would not be an ability for the owners/creditors to get that property. The real question will be what the bank requires to give you a mortgage. They can’t prevent you from working as a GC- that’s entirely up to the GC board. The GC board does, of course, have certain financial requirements that you have to meet.

      Hope that helps.

      Reply

  2. Hi Melissa – just found your web site. I hired GC to replace the roof. I paid half amount so GC can start. GC complete the new in mid August. GC hired subcontractor to do the roof and the roof was leaking after the first rain. Subcontractor came and fix the roof and repaired the ceiling by the end of August and emailed me that GC did not pay him so he will file Lien on Property to my house by the end of September if he will not pay in full. I received the Lien on Real Property filed by subcontractor on 10/01/2014. By contracted with GC I paid GC the final payment after received the Full Unconditional Waiver. Juts couple days ago I received the Notice Claim Lien upon Property from subcontractor prepared by an attorney. Did I do wrong when paid GC the final payment?

    Reply

    • Hi Thanh. No, if you were not served with the notice of lien before you paid the GC, then you did nothing wrong. It is only if you pay after getting notice of the lien that you have problems. A phone call or email stating that “he will file” doesn’t count as the notice. So it sounds like you are okay. I’d send a copy of your waiver to the attorney and explain that no funds are due or owing. That *should* resolve the issue, but the lawyer may want further documents etc as well. But sounds like you are in good shape.

      Reply

  3. We are 6 months past having closed on a new house but still managing completion of various punch list items. The builder’s electrician just cancelled an appointment to complete those items, saying that the builder owes his company tens of thousands in past months overdue payments. Since the electrician (and any other subcontractor) has done punch list work on our house post-closing, is there any way they can put a lien on our property because of money our builder owes them for this or other jobs?

    Reply

    • If the work performed was within the lien period (120/180), than the subcontractor can file a lien. His lien would, however, be based on what is owed by you to the General Contractor. If you have paid all sums due (and have proof), then the lien claim would ultimately be unsuccessful. Also, the lien on your property can only be for the work done to improve your property, not for work done elsewhere.

      Reply

  4. What is the form called and where can I get it to file The Notice of Claim of Lien in Charlotte, NC?

    Reply

    • There is no form per se. The statute tells you what you need to include. You can also go to the courthouse and view previous liens as go-by examples.

      Reply

  5. Thanks for your advice…
    I’m a homeowner who contracted with a general contractor for a master bath renovation. The 3 wk. estimated timeline, has turned into almost 3 months. The GC has blamed the various sub contractors for the delays (tile, glass, granite, cabinetry, etc.). We’re finally on the home stretch, and he’s got one more visit to fix some issues, and we’ll consider the project complete, and issue the final payment (just over $5k). Unfortunately, we’ve been contacted by 2 of the subs (via phone and note on the door) that they have not been paid. In the phone conversation, sub alluded to a lien, but requested we contact him first, before making the final payment.

    What should we do? I haven’t been informed of a Notice of Claim of Lien upon Funds, so as far as I know, nothing formal has been pursued…but how do I know when it’s safe to issue final payment to the GC and be done with this project?

    Reply

    • If you’ve not gotten a Notice of a lien, then you can proceed to pay the builder. However, to save yourself some headache, you may want to go ahead and issue a joint check to the builder and the subcontractor involved, or hold the money until the builder presents lien waivers from his subcontractors. If the project was started (permit pulled) after April 1, 2013, then anyone wanting to file a lien first needs to file a notice of working on the house– have you gotten any of those?

      Reply

  6. We had a condo owner that has failed to pay COA dues for several months. She subsequently filed for bankruptcy, which was granted. She named our COA as a creditor. We received a form from the bankruptcy court that says we cannot take action against her for dues. However, can we place a lien on the condo with the hope of collecting our back dues at the time the condo is sold? Our declarations and bylaws say we can place a lien on the property if dues go unpaid for a long time. The condo is in North Carolina and the COA is incorporated in North Carolina.

    Thanks

    Reply

    • This is a great question, but unfortunately one for a bankruptcy lawyer. The laws concerning bankruptcy are very specialized and I do not feel qualified to comment. If you need a referal to a bankruptcy lawyer, let me know.

      Reply

  7. Is a Real Estate agent considered a contractor?

    Reply

  8. Thankyou so much for this…Does these statutes also apply to tree work that is contracted from the owner not associated with construction. Trimed, cut and removed 9 trees from property at verbel agreement…Thankyou

    Reply

    • Hi and thanks for your comment. Yes, liens can be applied in the situation you described, as it is work done to real improve/maintain real property.

      Reply

  9. Melissa

    I have a Repair & Maintenance contract on a property. And the owner owes
    for several months for repairs and maintenance work. Can I file mechanics lien to recover the funds I am owed.

    Reply

    • In NC, repairs fall under the definition of improvements to real property, so you could file a lien if you are within the proper timeframe (i.e., 120 days from last service to file notice; 180 days from last service to perfect in NC).

      Reply

  10. I may be missing an obvious section of law regarding this, but failing to find it, I thought I’d pose my question to you. How do liens work in regard to public property/projects? Can you even file a Claim of Lien on Real Property or a Subrogated Claim in such a situation? I mean, I can’t see the court ordering a school district to sell a school to pay a contractor or subcontractor. If you can, then who would be considered the owner (using a school as the example)? If you cannot, then outside of a filing Notice of Claim of Lien upon Funds with the obligor (though the question of owner still rears its head), what can you do? Understanding the generic nature of my question, I only expect a generic answer.

    Reply

    • Justin:
      Good question. You are absolutely correct- you cannot “lien” public projects. If a public project is federal, you have what is called a Miller Act claim. If the project is state or local, you have a Little Miller Act claim. Essentially, these Acts force general contractors on government projects to obtain payment and performance bonds. These bonds are for the benefit of subcontractors, since they cannot place liens on government property.

      Reply

  11. Melissa,

    Thank you for the time you put into this blog. I’m currently trying to help a subcontractor that has run into some hard times as many people have during these very difficult economic times. This young man cannot afford an attorney so I am trying to do a good deed by trying to help him recover money owed to him. I’ve never had reason to file a lien but I offered to research the process and help walk him through it. He was a first tier subcontractor and the GC didn’t pay him the last payment he was due. We’re hoping we’re following the correct steps and not making any mistakes.
    1)We drafted the Liens
    2)He verbally notified the GC that he would be filing a lien.
    3)He filed a Claim of Lien on Real Property G.S. 44A-12 and a Notice of Claim of Lien Upon Funds by First Tier Subcontractor G.S. 44A-19 pursuant to G.S. 44A-23. I’m hoping this was correct since he’s not the GC.
    3)He filed it immediately after refusal to pay, Date labor last furnished was 5/21/12, date filed 5/24/12 in the county where the real property is located.
    4)He mailed a copy of the stamped and filed liens to the owner of the real property and the GC on the date of filing 5/24/12. Should he have served before filing?
    He has still not been paid and I’m stumped on how to perfect the lawsuit. He still has 5 months time left but he could really use the money. The amount is under $5,000. Does he perfect the lien with a lawsuit through Small Claims Court or a different lawsuit. I can’t seem to find this answer clearly on-line.

    Thanks

    Reply

    • Everything you mentioned sounds good, so far. You perfect a lien through filing in either District or Superior Ct. I would not recommend Small Claims Court, as (1) everything is appealable to District Court; (2) you are going to be asking for permission to sell the property subject to the lien, which is something I’m not sure they can even grant; and (3) magistrates would likely punt this in any event. Since the amt is $5k, I’d file in District Court. [THe ususal caveats apply–I’m only giving general information based on what you presented to me as the facts; I’m not your lawyer; etc etc]

      Reply

  12. Melissa, thanks, all your blogs provide excellent practical advice. my question is on priority of interests. Do claim of liens on funds prime previously existing perfected security interests of banks. More specifically, if a subcontractor files a lien on funds against a contractor, does that lien come ahead of a bank’s perfected security interests on the assets of the contractor even if the bank’s security interests were filed before the subcontractor started performing any work for the contractor? And if so, are there some circumstances where the liens do not prime the bank’s liens?

    thanks,

    Reply

    • Thanks, Chris, for your comments. Great question! Generally, it is first come, first served. That is, if the lien wasn’t filed until after the bank’s security interest is perfected, the lien will be in second position. However, if the contractor did work (date of first work) prior to the bank getting its interest, that becomes stickier. Claims of lien on funds can pre-date a bank’s security interest. Usually the bank will ask the owner to indemnify them from such claims, bond off any known liens, and/or have the owner get all (known) contractors to sign a subordination agreement. The bank wants to be in #1 position. If a bank loan is being used to purchase the property it generally gets first priority. But if a lien is already in place, the bank in some cases is stuck with it. This is actually a very complicated area of the law because of the competing interests, and several appellate cases on the issue. For example, if the owner re-finances with a different lender, is that lender stepping into the shoes of the first lender, or does he lose priority since he came later? So, it really depends on the exact facts of a particular case.

      Reply

  13. You write that those who “provide services related to improvement of real property, contractors, and subcontractors (down to the 3rd tier)” are able to file a lien. As a general contractor, I paid in full the subcontractor who installed tile floors, showers and backsplashes in a custom house. I then received a Claim of Lien which was filed by the person who actually did the work. It seems the the subcontractor I hired had subbed the work to someone else (a 3rd tier subcontractor?). What recourse do I have?

    Reply

    • Renee:
      Thanks for your comment. If you paid your subcontractor in full, then the fact that the subcontractor sub’d it out again should not matter to you. You’ve undoubtedly received a Notice of Claim of Lien on Funds plus a Claim of Lien on Real Property. If you’ve met your obligations to the party you contrated with, and do not owe that party more money, then they cannot successfully go after you. If, however, you still owe any money (at all) to your sub, you cannot pay that money to them until the lien issues with their subs are resolved. It is possible that the sub-subcontractor also has claims on the real property, but that is an issue for the owner and not for you as G.C. Did you get a lien waiver from your sub when you paid him? If so, that should also protect you from claims of the sub’s sub.

      Reply

  14. Melissa, thanks for maintaining this site I find it very informative. I have a question: Do you know if non-licensed consultants are eligible to file a lien against real property in NC. I am an environmental consultant and provide a variety of services to land developers such as wetland delineation, permit preparation, erosion control consulting, and assistance with a variety of water quality related regulatory issues. Would these services be considered labor? Would an environmental consultant be considered “any person who performs labor”?

    Reply

    • John:
      Thanks for your comments. You raise an interesting question about non-licensed consultants.

      Under the statute, “Improve” means to

      build, effect, alter, repair, or demolish any improvement upon, connected with, or on or beneath the surface of any real property, or to excavate, clear, grade, fill or landscape any real property, or to construct driveways and private roadways, or to furnish materials, including trees and shrubbery, for any of such purposes, or to perform any labor upon such improvements, and shall also mean and include any design or other professional or skilled services furnished by architects, engineers, land surveyors and landscape architects registered under Chapter 83A, 89A or 89C of the General Statutes, and rental of equipment directly utilized on the real property in making the improvement.

      It appears that your work would *likely* not fall under that definition, absent some physical improvement itself on the real property; i.e., actual marking in the field or some such. (Nothing is absolute in the law, and an argument could be made that you do fall under it). However, even without a lien right, you can always sue under a breach of contract theory. Call me if you want to discuss further.

      Reply

  15. Melissa,

    Thanks for the very helpful info! I was wondering, what rights does someone have if a lien has been falsely placed against them? I brought my car into an autobody shop after an accident to get an insurance quote. When I brought in the car it had body damage but was driveable. I got the insurance check and the owner of the shop called me and told me that I needed to come in and sign the check over to him. I told him that I wanted to pick up my car and drive it because I was not sure how many of the repairs I wanted to do and when due to my own financial situation. He told me that the car was no longer driveable because they had taken so much of it apart for the insurance quote. I was shocked that they would do this! He told me that he needed me to come in and give him money immediately so they could order parts. I explicitly told him that I did not want him to order any parts or do any work on the car. He called me back a few days later and very aggressively told me that I needed to come in and sign a contract with him and give him money to buy parts. I told him that I was not happy with the way they were dealing with me and that I just wanted my car back at that point. He told me that they had already ordered parts for the car the day after I told him not to! And that if I wanted my car back that I would have to pay a “30% restocking fee” on the price of the parts to get my car back. Now he is telling me that he is going to put a Mechanic’s Lien against me/my car for the 30%!

    What are my rights and what can I do about this sleeze who is obviously trying to shaft me?

    Thank you,
    Michael

    Reply

    • Michael:
      Thanks for commenting. Mechanics liens and real property liens are somewhat different creatures, and I don’t have any experience with mechanics lien issues. However, you might want to call Legal Referral Service line at 919-677-8574 and have them set you up with a half hour consultation with someone who has expertise in that area of law. Good luck to you.

      Reply

  16. Will North Carolina Be Changing It's Mechanic Lien Laws? | Construction & Mechanics Lien Blog
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  18. Hi Melissa – Great primer on the construction lien laws in North Carolina. It gives a great baseline understanding of what a lien does, what type of instruments are available for filing in North Carolina, and the like. Will be mentioning on my Construction Lien Blog. Would you like to re-work this (slightly) and have it published on our blog as a guest post? I think that this would make a great post for our audience.

    Reply

    • Scott–
      Thanks for the comment and your future mention. Would love to talk re: guest post. Drop me a line (mbrumback@rl-law.com) and give me more details on what you are looking for.

      Reply

  19. Great post, thank you! For a lien novice like me, it was very informative. Also, love the souffle photo!

    Reply

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