North Carolina Lien Law Update: Lien Law Study Committee Issues Report and Recommendations

Lien Law Update: Lien Law Committee Issues Its Report and Recommendations

By: Gregory L. Shelton
Shelton Law Carolinas

The lien law.

To understand where we are, let’s recall from whence we came.

When the economy tanked in 2008, title insurance companies experienced a double digit rise “hidden lien” claims (liens filed after property is sold that relate back to a pre-closing date). Consequently, the title insurers introduced legislation that would wipe out all liens not perfected by closing. Seeking to broker a middle ground, the Construction Law Section of the North Carolina Bar Association formed a committee to examine the issue and, if consensus existed, draft proposed changes to the lien law. That effort resulted in HB 489, introduced last year in the North Carolina General Assembly. HB 489 passed the House, and the Senate referred the bill to the study committee process. The matter was then referred to the Legislative Research Commission’s Committee on Mechanics Liens on Real Property (the “Committee”).

The Committee met on three occasions in February and March of this year. On March 27, the Committee released its report and recommendations. The Committee also submitted draft bill 2011-TGz-13A[v.10] incorporating the proposed revisions to Chapter 44A (the mechanic’s lien law) and related statutes.

The draft bill, if enacted, would make the following changes to the lien law:

  • Require service of Claim of Lien on Real Property (subs and suppliers are already obligated to serve the Notice of Claim of Lien Upon Funds);
  • Allow lien claimants to rely upon registered agent and registered office addresses on record with Secretary of State for purposes of serving lien documents;
  • Clarify that a lien on funds arises immediately upon first furnishing of labor or materials, and remove the requirement that a notice of claim of lien upon funds be attached to a subrogated claim of lien on real property, to address bankruptcy decisions barring post-petition lien claims;
  • Provide statutory forms for final and partial lien waivers;
  • Provide that a former owner of property is not a necessary party to a lien enforcement action;
  • Provide that a sub or supplier may use its own date of first and last furnishing in the claim of lien document, or the date of the general contractor through which the claim of lien on real property is being asserted, when asserting a subrogated lien on real property;
  • Require subs and suppliers not in privity with the general contractor (i.e. second-tier and below) to provide notice of their involvement in a project as a condition of making a payment bond claim;
  • Expand the definition of “improve” to include off-site fabrication; and
  • Subject those who sign false statements regarding sums due or claimed to be due to liabity under North Carolina’s Unfair or Deceptive Trade Practices Act (which permits an injured party to recover triple damages plus attorneys’ fees) and providing that signing a false statement constitutes deceit and misconduct under contractor licensing statutes.

Notably, the draft bill does not address hidden liens. The Committee explained in its Findings and Recommendations that “[in] the time alloted to it for its work . . . the Committee was not able to evaluate unresolved issues” relating to hidden liens. The Committee recommended that the issue be studied in preparation for the 2013 long session.

The Committee’s pragmatic decision to leave the hidden lien issue for next year increases the odds that the Committee’s proposed changes will become law. Additionally, a great deal of work remains in crafting a satisfactory solution to the hidden lien controversy.

About Gregory L. Shelton

Gregory L. Shelton is licensed to practice in North Carolina, South Carolina, and Florida. He is a South Carolina circuit court mediator and North Carolina superior court mediator. Greg is the Managing Editor of the North Carolina Construction Law Deskbook, the definitive treatise on construction law in the state. He is also Florida board certified as a construction law specialist. He practices at Shelton Law Carolinas. SC: (803) 670-0024 NC: (704) 940-9012
NC Law

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