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Part 1 – A Guide to North Carolina’s 2012 lien and bond law changes
The General Assembly’s 2012 “short session” resulted in many controversial changes to North Carolina’s mechanic’s lien and bond laws. The changes were included in two bills, House Bill 1052 and Senate Bill 42. Governor Perdue signed both bills into law on July 12. SB 42 was crafted by the title insurance industry and introduces an entirely new concept to North Carolina – the Lien Agent. HB 1052 was crafted by construction industry stakeholders and contains less controversial modifications to the current lien and bond law scheme. Some of the changes in these new laws take effect immediately, some take effect on January 1, 2013, and some take effect April 1, 2013.
Designation of Lien Agent – Effective April 1, 2013, North Carolina’s mechanic’s lien law will require potential lien claimants to provide written notice to a “Lien Agent” in order to preserve all the lien rights that they now possess. If the potential lien claimant does not follow the new requirements associated with the Lien Agent, its lien rights could be terminated or subordinated to others’ interests.
New N.C. Gen. Stat. § 44A-11.1 et seq. will require the designation of a Lien Agent for all private projects where the total cost of the improvements is $30,000.00 or more, except existing single family residences. The owner will choose the Lien Agent from a list of Lien Agents maintained by the Department of Insurance. All Lien Agents will be title insurance companies or agents. The Lien Agent may collect from the owner a fee of $50.00 or less.
Identification of Lien Agent – If the project is one that requires a building permit, then the permit is supposed to identify the Lien Agent, and the permit is supposed to be conspicuously and continuously posted on site. If the building permit does not identify the Lien Agent, or if the permit is not posted on site, then a potential lien claimant can submit a written request to the owner, who is then supposed to identify the Lien Agent within seven days. A contractor or subcontractor must, within three business days of contracting with a material supplier, provide the supplier with a written notice identifying the Lien Agent.
Agent contact information in a written subcontract; or (8) including the Lien Agent contact information in a written purchase order. Any contractor or subcontractor who has received notice of the Lien Agent contact information, whether from the building permit, the inspections office, a notice from the owner, contractor, or subcontractor, or by any other means, and who fails to provide the Lien Agent contact information to the lower-tier subcontractor in the time required under this subsection, will be liable to the lower-tier subcontractor for any actual damages incurred by the lower-tier subcontractor as a result of the failure to give notice.
Notice to Lien Agents – Potential lien claimants who want to preserve their full lien rights must serve a Notice to Lien Agent. The Notice to Lien Agent must include (1) the potential lien claimant’s name, mailing address, telephone number, fax number (if available), and electronic mailing address (if available); (2) the name of the party with whom the potential lien claimant contracted; (3) a description of the real property sufficient to identify it; and (4) a notice of the potential lien claimant’s right later to pursue a claim of lien for improvements described in the Notice. The Notice to Lien Agent can be served by (1) certified mail, return receipt requested; (2) signature confirmation as provided by the U.S. Postal Service; (3) physical delivery and obtaining a delivery receipt from the Lien Agent; (4) facsimile with a facsimile confirmation; (5) depositing with via (a) DHL Express; (b) Federal Express; or (c) United Parcel Service.; or (6) electronic mail, with delivery receipt.
Serving a Notice to Lien Agent does not satisfy the requirements for serving a Notice of Claim of Lien Upon Funds. The notices are different. Potential lien claimants that have served a Notice to Lien Agent still must serve, and if appropriate file, a Claim of Lien on Real Property and a Notice of Claim of Lien Upon Funds to perfect their lien rights.
To preserve its full lien rights, a potential lien claimant should (1) serve the Notice to Lien Agent within 15 days after first furnishing labor or materials; (2) serve the Notice to Lien Agent before the owner conveys an interest in the real property (e.g., before the property is sold or a new Deed of Trust is recorded); or (3) file a Claim of Lien on Real Property before the owner conveys an interest in the real property. If the Notice to Lien Agent is not received by the Lien Agent within 15 days after first furnishing labor or materials, or prior to a conveyance of an interest in the real property, then a potential lien claimant’s lien rights are (1) terminated if the property is sold or (2) subordinated to the new lender if a new Deed of Trust or mortgage is recorded. Accordingly, the easiest and most cost-effective way for a potential lien claimant to preserve its full lien rights will be to serve a Notice to Lien Agent on every project within 15 days after first furnishing labor or materials. Read More.
Click Here to read Part 2 of the article. It will address HB 1052 modifications to the current lien and bond law.