Like most states, North Carolina has laws allowing those who provide labor or materials or rental equipment to a construction project to “lien” the project in the event of non-payment.
While the general availability of filing a lien is a simple rule in North Carolina, it is more complex to determine how a party can file in the state. The manner of filing a lien in North Carolina depends on the claimant’s role in the project. We take a shot at explaining the North Carolina lien scheme in this post, and compare it to how liens are filed in other states like Washington and Louisiana.
Those Who Contract With The Owner:
Those who contract with the “owner” on a North Carolina construction project, and who are not paid for labor or materials, may file a “traditional” mechanics lien with the county recorder.
The lien must be filed within 120 days from the last date labor or materials are furnished to the project, and must follow other formalities required by statute. These formalities are set forth in N.C. Gen. Stat. § 44A-12, which also provides a form to be used when filing.
This lien actually attaches to the property at controversy, affecting the property’s title.
Those Who Do Not Contract With The Owner:
For those who do not contract with the property owner, the North Carolina lien scheme offers two possible remedies.
First, a “Notice of Claim of Lien Upon Funds” is something that is delivered – and not filed – to parties “up the contract chain.” This requires those up the chain to put a freeze on funds that may be due the claiming subcontractor. If a Notice of Claim of Lien Upon Funds is delivered to the Owner, and the Owner thereafter disburses funds to the general contractor, the claimant can then escalate its notice into an actual lien.
Second, a “Subrogation Lien” is filed by a sub or lower-tier sub within 120 days from when the general contractor last performs work, and may be filed only if a Notice of Claim Upon Funds was delivered to the Owner and some amount of money is due to the GC from the Owner.
Both of these lien remedies are discussed below in this post.
Claim of Lien Upon Funds
The rules are a bit different for those parties to a construction project who do not contract with the owner. Who are these parties? Subcontractors, Second-Tier contractors and suppliers, Third-Tier contractors and suppliers, etc.
Unlike parties who contract with the owner (i.e. generals), lower tier contractors cannot file a ‘traditional’ lien. Instead, these contractors protect their right to payment by serving a “Notice of Claim of Lien Upon Funds.” The requirements for this notice is set forth in N.C. Gen. Stat. § 44A-19.
This notice does not affect a property’s title, and it is not filed with the county records. Instead, it is served upon every party “up the chain” from the claimant.
So, for example, a first tier subcontractor would deliver notice of claim to the owner and the general contractor.
While a traditional lien provides a claimant a lien on the property, this type of lien provides the claimant only with a lien on the funds at controversy. After receipt of the notice, if the owner or other party makes payments down the construction chain with funds that are liened (i.e. eventually belong to the claimant), the party who improperly made the payment will be personally liable to the claimant for payment.
If the party is the owner, the claimant may then file its notice with the country recorder.
Lien Through Subrogation
In addition to the “Notice of Claim of Lien Upon Funds,” subcontractors and lower-tiered subcontractors can also file a mechanic’s lien against the property through “subrogation” of the general contractors right to lien.
With this type of lien, the lien claimant must: (1) have served a Notice of Claim of Lien Upon Funds to the property owner; and (2) the general contractor must be owed money from the owner. The subrogation lien must be filed within 120 days from when the general contractor last furnished labor and/or materials to the project.
Comparing with Other States: Louisiana and Washington
One of the problems with lien statutes across the country is balancing the rights of laborers and materialmen to get paid with the interests in protecting a property owner from being required to pay for the services twice, and to have its property title illegitimately affected.
Different states balance these issues differently.
In Washington, lower-tiered contractors are required to provide the owner with notices prior to filing a lien.
In Louisiana, there is a focus on the public records, allowing owners to file notices in the public records that affect the interests of lien claimants.
North Carolina balances these issues differently, essentially allowing only those who contract with the owner to immediately affect a property owner’s title. If the contract is not with the owner, the lien at first only affects the funds. If the parties continue to refuse the claimant payment, the problem grows, and more parties become personally liable for the debt and the property’s title is at stake.
Zlien prepares, files and serves both “Liens’ and “Notice of Claim of Lien Upon Funds” in North Carolina.
With regard to “Liens,” filed by those who contract with the property owner, there is a $295.00 flat charge which includes the document preparation, filing and service upon interested parties. Also, liens that are recorded by subs and those who did not contract with the owner are also $295.00.
With regard to “Notice of Claim of Lien Upon Funds,” which are delivered and not filed, these are considered a notice, and are charged our low flat fee for preparing and delivering notices.