The ‘lien agent’: A new proposal to address hidden liens

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Guest Editorial by Gregory L. Shelton, Horack, Talley, Pharr & Lowndes, P.A.  Reprinted from his June 8 Construction Law Carolinas blog – –

I participated in the Associated Builders and Contractors’ NC Hard Hat Day at the Capitol last Wednesday. The annual event brings ABC members to the North Carolina legislature, where we don white hard hats and meet with state senators and representatives to discuss issues important to the construction industry.

When I arrived at the Legislative Office Building, I ran into Keith Coltrain, a fellow member of the  Construction Law Section of the NC Bar Association, in the hallway. Keith has been working with other bar sections (including the Real Property Section) on the lien law revision as it makes its way through the house and senate. On this particular day, Keith was attending a meeting to discuss Senate Bill 864 and newly proposed amendments that have reignited discussions about “hidden liens.”  You see, title insurance companies don’t like hidden liens, and want to solve the problem by requiring the potential lien claimants (particularly subcontractors and suppliers) to provide some form of notice before closing. On the other hand, some subs and suppliers don’t want new paperwork hurdles dropped in front of their liens.

These opposing forces, combined with the short legislative session, resulted in a bill which avoided the hidden lien issue altogether. Once I saw that hidden liens were off the table this year, I predicted that Senate Bill 864 would become law.

Now, after the latest development, I’m not so sure.  The title insurance companies have floated a proposed bill entitled “An Act to Require Persons Filing Claims of Lien on Real Property for Improvements to Real Property to Give Written Notice to the Designated Lien Agent of the Owner of the Improved Real Property.” The proposed bill would require potential lien claimants to serve a “lien agent” with a “Notice to Lien Agent” identifying the project, the building permit number, the property description, and the contact information of the potential lienor.

Under the proposed bill, the “lien agent” could be an attorney, a title insurance company, or a banking institution. The lien agent would be identified on the building permit; if the project did not require a permit, the owner would be statutorily obligated to provide the lien agent information upon request. If a potential lien claimant failed to provide notification to the lien agent before conveyance of the property, he would be barred from filing a claim of lien against the property.

The ”lien agent” differs from the Florida-style “Notice of Commencement” (filed by the owner) and a “Notice to Owner” (filed by the subcontractor/supplier and served on the owner) approach in two major ways. First, under the “lien agent” approach, the building permit would serve as the owner’s formal notice. Second, the lien agent, a private entity, would replace the Clerk of Court as the clearinghouse for notices. But from the sub/supplier perspective, a formal notice to owner is required either way.

There’s more to come.  Another draft of the “lien agent” legislation is expected from the North Carolina Land Title Association on Monday. This newest version would be routed to Judiciary B Committee this week for consideration.  Read More.

 

 

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