The full scope of COVID-19’s impact remains to be determined, but we can be sure that the fallout will be significant for individuals directly affected by the virus as well as practically every segment of the economy. The construction industry is no different. Fortunately (or unfortunately, depending on your point of view), the 2008 recession likely provides some examples of what we can expect in the coming weeks and months.
In 2008, both capital and credit became less available, which resulted, in many instances, in non-payment to contractors and subcontractors on projects throughout the Carolinas and subsequent lien filings by those same contractors and subcontractors. The spike in lien filings in North Carolina was so great that the State Legislature actually changed the laws governing liens to create lien agent requirements and prevent “hidden liens.”
We should expect similar issues of nonpayment and lien filings in the wake of COVID-19. Therefore, it is a good practice that we re-familiarize ourselves with the lien filing requirements under North Carolina and South Carolina law.
When and why should a mechanic’s lien be filed?
In the construction context, a lien is simply a form of security for a debt owed to a contractor for labor or materials furnished for a project. Here, we are talking only about liens against real property. A lien against real property can be a highly effective tool for resolving payment disputes with owners or general contractors. A lien is typically filed well before a lawsuit and for far less expense. However, because a mechanic’s lien may threaten the priority of other liens, such as a mortgage or deed of trust, or otherwise violate loan documents, it may quickly get the attention of an owner and provide the lien claimant with more leverage than if it filed a basic breach of contract claim.
Filing a mechanic’s lien in North Carolina
In North Carolina, “any person who performs or furnishes labor or professional design or surveying services or furnishes materials or furnishes rental equipment pursuant to a contract with the owner of real property” for the improvement of that property may assert a claim of lien. If a person is a subcontractor, they may also assert a claim of lien under certain circumstances but only to the extent the contractor with whom they contracted may assert a lien.
As long as a contractor has complied with the lien agent requirements for a project, their lien relates back and will be effective from the earliest date they furnished labor or materials at the property at issue. The lien agent requirements are discussed in detail in Chapter 44A, but the gist is that an owner should provide its contractor with lien agent contact information so that the contractor may provide a Notice to Lien Agent to inform the agent of their provision of labor or materials for the project. That notice allows the lien agent to perform its due diligence in the event that the property is sold or encumbered while construction is ongoing. If a party fails to provide a Notice to Lien Agent, their lien will only take effect from the time of filing and service. If the property has been sold or encumbered, the contractor may lose its lien rights or have those rights significantly diminished as a result of a junior, subordinate lien position.
To be valid, a lien must be perfected and enforced timely. Perfection of a lien includes the service and filing of the lien itself. A lien must be filed and served within 120 days of the last date of furnishing of labor or materials by the lien claimant. A lien may be served by U.S. Mail on the owner and, if a subcontractor is seeking a lien, the contractor with whom they contracted. The lien must be filed with the Clerk of Court for the county in which the property is located. The lien itself must contain the following information:
- Name and address of the person claiming the lien
- Name and address of the record owner of the real property subject to the lien (and the name and address of the contractor in the case of a subcontractor)
- A description of the real property subject to the lien to allow for identification of the property.
- Name and address of the person with whom the claimant contracted for the furnishing of labor or materials
- Date upon which labor or materials were first furnished upon said property by the claimant
- Date upon which labor or materials were last furnished upon said property by the claimant
- General description of the labor performed or materials furnished and the amount claimed to be owed.
The second step of the lien process—enforcement—requires the filing of a lawsuit that requests a court to confirm the validity of the lien and to enforce the lien by allowing for foreclosure of the lien and a sale of the property. A lien enforcement lawsuit must be commenced within 180 days of the last date of furnishings in the county where the property is located. A party may also commence a lien enforcement lawsuit in any county so long as they also timely file a Notice of Lis Pendens in the county where the property is located.
Filing a mechanic’s lien in South Carolina
South Carolina does not have a lien agent requirement like North Carolina, but it does have a comparable process. In South Carolina, a general contractor may file a “Notice of Project Commencement” with the clerk of court or register of deeds in the county where the property is located. That notice must identify the name and address of the person filing the notice and the owner of the property, a description of the improvement being made on the property, and the location of the project. If a Notice of Project Commencement is filed, it limits the liability of the general contractor and creates an obligation for sub-subcontractors and suppliers (i.e., persons who did not contract with the general contractor) to serve a Notice of Furnishings—similar to a Notice to Lien Agent—to protect their rights.
Generally speaking, South Carolina law also requires the two-step process of perfection and enforcement of a lien but the requirements are slightly different. Like North Carolina, South Carolina allows a lien to be asserted by any contractor who contracts with the owner of real property to furnish labor or materials for the improvement of real property. Subcontractors may also assert a lien to the extent the contractor with whom they contracted may assert a lien. To perfect a lien under South Carolina law, a lien must be filed and served within 90 days of the last date of furnishings. The service requirement under South Carolina law requires actual proof of service such as a delivery receipt from a process server or a certified mail receipt. In fact, some counties in South Carolina require proof of service before they will allow a party to file a lien.
South Carolina does not have a statutorily prescribed lien form like North Carolina. However, lien filings typically include much of the same information like the name of the claimant, the name of the contracting parties and owner, a description of the property, the date of the first and last date of furnishings, a description of the work performed and the amount owed. A lien filing must also include the contractor’s license number if a license is required for the work performed. The lien claimant must also provide a statement of account and verification of the lien and the statement of account. Once the lien is perfected, a lien claimant has 6 months from the last date of furnishings to file a lien enforcement lawsuit and a notice of lis pendens.
These are only a few of the basics of mechanic’s lien law under North Carolina and South Carolina law. If you believe you have a lien claim or if a lien claim has been made against you, please contact Skufca Law at 704-376-3030 to discuss what considerations or defenses you may have before taking action.