The lien agent bill threatens subcontractor and supplier lien rights

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Greensboro attorney Greg Higgins, Nexsen Pruett,  shares insights on proposed revisons to the NC lien laws. Reprinted from The Subcontractor, published by the American Subcontractors of the Carolinas.

The “lien agent” bill introduced by the North Carolina Land Title Association threatens the value of subcontractor and supplier lien rights.

The bill, which is identified as Senate Bill 42, will require subcontractors, suppliers and other lien claimants to provide written notice to a “Lien Agent” in order to preserve their lien rights. By adding steps to the lien process, the bill appears to favor the interests of title companies, lenders and others over the interests of contractors, subcontractors and suppliers. In fact, if the extra steps associated with the new Lien Agent concept are not followed, a contractor’s, subcontractor’s or supplier’s lien rights will not take effect as of the first day that it furnished labor or materials. That would largely eliminate the relation back of lien claims.

Senate Bill 42 will require the appointment of a Lien Agent for all projects where the total cost of the improvements is $30,000.00 or more. In order to preserve the full lien rights that subcontractors and suppliers now possess, potential lien claimants will be required to:

(1) figure out who is designated as the Lien Agent and,

(2) serve a Notice to Lien Agent before the owner sells or refinances the property.

Unfortunately, figuring out who is designated as the Lien Agent may not be easy because it may require a visit to the project site, a visit to the permitting or the submission of a formal request to the project’s owner. Additionally, since subcontractors and suppliers are not likely to know when or if an owner will sell or refinance the property, they will be forced to serve a Notice to the Lien Agent on every project in order to preserve fully their lien rights. As a result, this bill will add a significant paperwork burden and expense to every project.

Additionally, if a Notice to Lien Agent is not served, a subcontractor’s or supplier’s lien priority will fall behind the interests of others. If a lien priority falls behind the interests of others, the lien claim is not likely to be paid.

This bill may cause many contractors, subcontractors, and suppliers to lose the priority of their liens for work performed or materials supplied on projects, because they will fail properly to comply with the extra notice provisions in the new law.

Senate Bill 42 was approved by the House Judiciary Committee on June 20 and passed the by the North Carolina’s House of Representatives on June 21. It is expected to be returned to North Carolina’s Senate for consideration next week. Read More.

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