LIEN LAW REVIEW: HOW ARE THE REVISIONS WORKING?

In 2012, the North Carolina General Assembly passed significant changes to Chapter 44A of the North Carolina General Statutes.  They created a “lien agent” and what was anticipated to be a pre-notice concept to reduce the risk to title insurance companies in terms of potential claims due to the mechanic’s liens filed by subcontractors and suppliers.  We are now three years into the new practice and it is a good time to compare reality with concept.

Originally, there was concern that locating the identity of a lien agent would be difficult and serving notice upon the lien agent cumbersome.  Kudos to the title insurance industry which came together to create www.liensnc.com, a website to which designations are posted, on which subcontractors and suppliers can locate the lien agent, and where the subcontractors and suppliers can relatively easily post their notices to the lien agent.  While there were a few bumps early, by and large the system has been smoothed out to create a functioning bulletin board for the industry.  However, one early concern has come to fruition.  The design of the program was for the owner to designate the lien agent and identify the property being improved.  As was anticipated, contractors are far more likely to undertake this process as they obtain the building permit.  The end result has been less accuracy in owner identification and in identification of the real property.  It is too soon for there to have been an appellate test as to whether the subs and suppliers can rely upon the content of the designation – especially if they have an error in a lien where the error mirrors the designation of lien agent information.  Always, double-check if you need to file a lien.

A bigger challenge comes from the apparent disregard by closing attorneys and owners to actually check whether lien claimants have been paid.  That is most likely the result of a loop-hole in the law and the first major take-away from experience.  The key to preserving a sub or suppliers’ relation back to their first date of performance is the two-step perfection process.  First, the notice to lien agent must be served within 15-days of the date of first performance on the project.  Second, the lien must be filed before a closing occurs.  Though the concept of pre-notice is to reduce the need to rush to file a lien, the reality is that in order to protect yourself, the filing and serving of the lien remains critical.  And, now the 120-days from last performance matters less than getting the lien filed before the closing.

The initial take away is that tract builders are diligently designating their lien agents, then closing properties at will so long as no lien has been filed.  Many, but not all, are not bothering to check with the potential lien claimants to see if they have been paid, but instead are checking the public record and if there is no lien, then they are closing.  Anecdotal evidence indicates that smaller builders and some commercial builders are in fact using the pre-notice aspects of Chapter 44A to verify payment down the chain and for those project, the concept is working in terms of improving communications across a project.  And, finally, there remain a significant number of smaller builders and subcontractors who are wholly unaware of the entire new process, though those numbers are shrinking.

The suggestion is to continue serving your notice to lien agent, open lines of communication to the owner and/or contractor and if the amounts are significant, file your lien sooner rather than later.