The Lien Agent – SB 42 Lien Law Requirements Effective April 1

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Guest Editorial by Nate Budde, The Lien Blog

The changes to North Carolina’s mechanic’s lien and notice law that we have looked at so far have been those contained in the relatively uncontroversial HB 1052. This post will take a look at the much bigger and more radical changes outlined by SB 42 – pushed through with the vigorous support of the title insurance industry.

SB 42 was designed to confront the problem of “hidden liens,” (the question of whether a lien can be truly hidden is a topic for another post). Starting today, April 1, 2013, lien claimants will be required to give preliminary notice to a designated lien agent in order to preserve their lien rights on certain projects. This “lien agent” is a concept entirely new to North Carolina lien law and is defined by new section 44A-7 as, and required to be, “a title insurance company or title insurance agency designated by an owner pursuant to G.S. 44A-11.1.

Imagine that. It’s pretty convenient for a title insurance company to now be named the “lien agent” for the purposes of these new changes to North Carolina law. First, they no longer need to worry about the dangers of “hidden liens” – the notices are sent directly to them as the lien agent – and further, they are paid by the property owner for this convenience. The payment is nominal, but wow, nice deal.

So, how does this new requirement effect potential lien claimants in North Carolina?

For any private project in North Carolina in which the original building permit is $30,000 or more, the owner is required to designate a lien agent (“title insurance company”) – and the potential lien claimant must serve this lien agent with a preliminary notice in order to protect his rights. The lien agent must be noted on the building permit for projects for which a building permit is required, which should be posted at the job site. If it is not, a potential lien claimant may request the identity of the lien agent by sending a written request to the property owner, who has 7 days in which to respond.

Further, a contractor or subcontractor must provide a material supplier with a notice identifying the Lien Agent within 3 days of contracting with that supplier. The statute is unclear as to what the penalty is for failing to provide timely notice of the identity of the Lien Agent. It is also unclear what will result if a potential lien claimant is forced to miss his deadline to supply notice to the Lien Agent because of a property owner’s (or general contractor’s) failure to timely identify same.

In order to fully protect lien rights, the potential lien claimant must serve the new Notice to Lien Agent to the lien agent within 15 days after first furnishing labor and/or materials to the project. This is not the same as the Notice of Lien, either on Funds or on Real Property. Those forms must also be completed, filed, and/or served subsequently in order to fully perfect the lien.

The Notice to Lien Agent must include: 1) the potential lien claimant’s name, address, telephone number, fax number (if available), and email 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, 4) a statement giving notice of the potential lien claimant’s right to subsequently pursue a claim of lien for the improvements to the property. The service of the Notice to Lien Agent on the identified lien agent may be accomplished by numerous means including certified mail return receipt requested, and other means with receipt confirmation.

The Notice to Lien Agent is new to North Carolina, but lien claimants in many other states have dealt with the requirements of a mandatory preliminary notice. The takeaway is this – potential lien claimants in North Carolina must get used to the Notice to Lien Agent requirement if they want to fully protect their rights.  Read More.