Root canals & Lawsuits: two things to avoid (Law Note)

man flossing

 No one (with the exception of sadistic dentists)  likes root canals, and no one (except lawyers) likes lawsuits.  In the same way you can prevent (or limit) the need for root canals through proper flossing habits, you can limit the number of lawsuits you need to be involved in if you include everyone you should the first time around.  For those involved in filing construction liens, this means that when you perfect a lien by filing the lawsuit, be sure you include everyone you need to include.  A recent North Carolina Court of Appeals case demonstrates this principle in full living color.

In Lawyers Title Insurance Corp. v. Zogreo, LLC, __ N.C. App. __ (November 16, 2010), two contractors filed and perfected valid liens on a piece of property.  They did not include, in the lawsuits to perfect the liens, the banks which had given funds to the property owner after they first began work on the property.  The Court held that it was entirely proper not to include the banks (who held deeds of trust on the property to secure their loans); however, by the contractors’ failure to include them, they were forced to later litigate priority issues with the banks.  This is because “if a subsequent encumbrancer is not joined [in the underlying lien perfection lawsuit], he is not bound by the judgment in the action between the contractor and the owner.” 

In other words, even though they filed proper liens, filed the lawsuits timely, and even won final judgment in those lawsuits, because they did not include the banks, the banks were free to start a new action, which they did in this case.  The banks also obtained an injunction to stop any judicial sale of the property until priorities could be established.

Moral of the story? It is better to include all subsequent encumbrancers (i.e., the banks) when perfecting a lien.  It’s not required, but it is better practice.  (And flossing your teeth isn’t required, either).   After all, who wants a root canal, or, in this case, to re-litigate your right to be paid money in yet another expensive lawsuit?  When it comes to root canals and lawsuits, fewer is better.

Sign up for email delivery of all blog posts directly to your email through the subscription box on the front page of the website.

——————-

Photo: Day One Hundred Fifty-One by Eric Mesa via Flickr/Creative Commons License

NC Lien & Bond Law Summit: Make Plans to Attend!

change sign

  

As I have mentioned previously, there are plans in the works to change the lien law for North Carolina projects.  You can attend a Summit on the proposed changes to learn more and have your say.

On Tuesday, January 4, 2011, at 2pm at the NC Bar Center in Cary (8000 Weston Parkway), the  Construction Law Section will host a summit of industry leaders and constituent groups to:

  • explain and discuss the proposed revisions;
  • provide an overview of the draft legislation; and
  • provide an opportunity for industry input

To attend, please RSVP to sections@ncbar.org no later than Thursday, December 30, 2010.

——————–

Photo:  “Time for Change” by David Reece via Flickr/Creative Commons license.

The 123s of Current NC Lien Law: Issues for Owners

Last week, we talked about the ABCs of liens for contractors, subcontractors, and design professionals.  For every yin, there is a yang.  Today we’ll talk about the 123’s of how to handle a lien claim if you are the Owner of the property. 
 
   James Bond 007   An Owner can always “Bond off” a lien
  

—————-

If you are  the owner of the property, you may not have been aware that subcontractors were not being paid, if lien waivers were not being submitted or were fraudulently executed by the general contractor.  Being served with a Notice of Claim of Lien on Funds and/or a Claim of Lien on Real Property can literally stop work on a project.  Many construction deeds of trust and similar bank financing require owners to keep the property free from liens or other claims on title. 

If you are the Owner faced with a Lien on your property, what can you do?

Rule #1:  Never pay “over” a lien.  Even if you owe the contractor $80,000, and the subcontractor’s lien is for $5,000, do not think you can set aside $5,000 for the subcontractor (to be worked out later) and pay the contractor $75,000. 

Rule #2:  Consider your options carefully:

            Option 1:  Finish the project without any additional payment to the contractor.  Pay for a replacement contractor to finish, offset those payments, pay lien claimants from remaining funds.

             Option 2:  Issue a joint check payable to the lien claimant and the contractor.

             Option 3:  Bond off the lien upon funds (N.C.Gen. Stat. 44A-20)

             To bond off the lien, you issue either a bond (equal to 1 ¼ ) or a cash payment (equal to the full lien value) to the Clerk of Court, which is held pending resolution of the dispute.

Rule #3:  If the project is upside down, consider negotiating directly with a subcontractor for a reduced payment in exchange for a lien cancellation filed by the subcontractor.

Rule #4:  Whatever you do, do it after consultation with your construction law attorney.  Liens cannot be ignored, and properly handling them can make or break your project.

Experience working with a lien on your property?  How did you handle the situation?   Also, as always, if you have questions or comments about this or any other post, drop me a line. 

———————————

Photo “James bond – quantum of solace” by Julien Haler via Flickr/Creative Commons license.   



 

 
 

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].

—————————

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

Lien Law Changes Ahead? Add your voice!

How a Bill Becomes a LawAre you familiar with North Carolina lien law provisions?  Ever think they should be changed and updated?  You are not alone.   The NC Bar Association (through the Lien Law Revision Committee of the Construction Section) is in the process of preparing substantive changes to a proposed new Lien Law statute.  The committee is aiming to have a prepared piece of legislation drafted for consideration in the upcoming legislative session of the General Assembly.

According to the Lien Law Committee, revisions to the statute are needed for several reasons, including:

  • handling the uncertainty created by recent Bankruptcy court decisions relating to liens
  • reexaming the “relation back” and “double payment” issues in current lien law
  • reexaming the long form lien waivers and current problems with those waivers

Last week, at the Design Professionals Lliason Committee (another Construction Section committee), I was given a copy of the lien law draft proposal for a revision to the lien law.  The Lien Law Committee wants their proposals to be discussed by the construction industry, so that all sides can be fully vested in the new lien process.

Review the proposal and let me know what you think.  The proposal contains some rather large changes to the lien statute.  Are these good, bad, or irrelevant to your business?  Email me or comment below with any thoughts, questions, suggestions, or concerns.  I will pass all comments along to the Lien Law committee.

———————–

Photo “How a Bill Becomes a Law” by Peter Merholtz via Flickr/Creative Commons license.

Copyright © All Rights Reserved · Green Hope Theme by Sivan & schiy · Proudly powered by WordPress