Lien law revision bill cruises through state senate, followed by ‘hidden lien’ legislation

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Matthew Bouchard, Lewis & Roberts, PLLC shared this update on the impending legislation affecting NC lien laws:

Both the lien law revisions bill and the “hidden lien” legislation sought by the title insurance industry flew through the North Carolina Senate on Wednesday, July 27 with flying colors.

The lien law revisions bill (House Bill 1052), which among other things would (1) provide “double payment” protection for general contractors under North Carolina’s public payment bond statute and (2) permit subs and suppliers to serve a Notice of Claim of Lien Upon Funds even after a party above them in the contractual chain files for bankruptcy protection, passed unanimously 49-0, with one Senator not voting.

The bill was amended prior to the vote to remove treble damages liability for misrepresentations made in lien waivers.  I was listening to the Senate’s deliberations on the amendment, and Senators Brunstetter, Clodfelter, Tillman and Nesbitt all spoke about the dangers of introducing potential unfair and deceptive trade practices liability into a construction project’s payment cycle.  The amendment was unanimously approved by the House on Thursday, June 28.  The revised bill, as amended, can be found here.

The hidden lien legislation (Senate Bill 42), which among other things would require potential lien claimants to preserve their lien rights by providing a “Hi, I’m here” pre-notice to the project owner’s designated lien agent on residential and commercial projects, also passed unanimously 49-0, but not without some heartburn.  In particular, Senator Tommy Tucker of Waxhaw spoke about how the legislation was only before the General Assembly “under a veiled threat” by the title insurance industry, thereby representing a “you’d better!” bill that would leave subcontractors “holding the bag again.”  He expressed his support for the bill since the homebuilding industry supported it, but expressed his desire that the General Assembly re-visit the legislation early in the 2013 session to improve it before its April 1, 2013 effective date.

The version of SB 42 passed by the Senate contained several revisions to the version passed in the House on June 21.  In the intervening week, a group of construction industry stakeholders — yours truly included, in the interest of full disclosure – worked to propose several modifications that would remove some of the rough edges from the House-passed bill.  Those proposed modifications included the following:

  • The requirement of pre-notice will not apply where the improvements in question are to be made to an existing single-family residential dwelling unit that is used by the owner as a residence.
  • The failure to provide lien agent information to a supplier not expected to perform on-site labor will not result in triple damages exposure under North Carolina’s unfair and deceptive trade practices statute.
  • Higher tiered contractors will no longer be able to cut off the lien rights of lower tiered contractors through lien waivers once the lower tiered contractor (1) files pre-notice to the lien agent and (2) serves a notice of claim of lien upon funds up the entire contractual chain and upon the lien agent (under existing law, a higher tiered contractor’s ability to waive the rights of lower tier contractors is only shut off when the lower tiered contractor files a lien enforcement action in court).
  • Where a lien agent is not designated prior to the provision of design services by an architect or engineer, the design professional will be deemed to have met the requirement of pre-notice upon the owner’s designation of the lien agent.

These modifications and others are contained in a conference report that was adopted by both the House and Senate yesterday that you can find here.  Legislative action on the hidden lien bill is complete, subject to the bill potentially being “tweaked” early in the next legislative session.  Both bills are on their way to Governor Perdue for her approval, which is expected before the end of the month.  Read More.

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