NC Appeals Court restores sanity to lien priority

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Guest editorial by Scott Wolfe, Jr.
Reprinted from Construction Lien Blog

Remember when I wrote about North Carolina’s “Relation-Back” rule regarding partial lien waivers? Basically, there was a hugely controversial decision that a lower court in North Carolina rendered holding that partial lien waivers signed by a general contractor effectively change the date of the contractor’s first furnishing of labor and material on a particular project.

That decision of the lower court was very negative in its implications for contractors in North Carolina because before that decision, a lien’s priority in NC was based upon the date that labor and materials were first furnished. As we mentioned, this meant that if you furnished labor and materials on day 1 of a project and then decided to file a lien on that project on day 600, your lien would have taken priority over other liens filed after you first furnished labor and materials (way back on day 1).

It was a big deal that this well-settled NC rule was changed. And thanks to the Court of Appeals of North Carolina’s decision rendered on July 20th of this year (Wachovia Bank v. Superior Construction et al), the lower court’s decision has been reversed and the rules I just explained now apply again. All is well in the world of North Carolinian contractors once again.

This is a huge win for contractors and other similar workers in that state. And if you read the Court’s reasoning, it all comes down to interpretation of the lien waiver language. The lower court interpreted the language in that particular case to refer to the contractor’s lien priority while the Appeals Court interpreted the language to refer to the contractor’s lien rights regarding payment. The Appeals Court did not see the language as having anything to do with priority.

The first furnishing date, which once again determines priority of lien, also determines a lot of other important things, including whether or not a claimant will receive proceeds from a foreclosure. It determines your lien’s priority, which effects ultimately how much money your business will bring in.

Other implications of this new decision? Perhaps the Court of Appeals is leaving the door far too open for language to take control in allowing statutorily determined dates of first and last furnishings to be altered by contract. All we can do is wait to see how this ruling plays out over time, but it’s definitely a positive thing to return the interpretation of NC lien waiver language back to where it aligns with settled notions of NC lien law. Read More.

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