North Carolina Lien Rights for Contractors, Subcontractors and Design Professionals
All contractors, subcontractors and design professionals who are interested in increasing their chances of being paid for their work need to be able to assert their lien rights. Often having a valid lien in place is the only difference between getting paid in full and not getting paid at all. It is almost always good practice for those working on or supplying materials or designs to construction projects to secure and protect their lien rights.
What is a lien and who can file a lien?
When a contractor, subcontractor or design professional performs work or supplies materials, a lien helps secure their right to be paid for their work. Design professionals, contractors and subcontractors who provide services, labor, or materials to improve real property can file liens. Lien rights are important and are protected by the North Carolina Constitution. (N.C. Const. art. X, § 3.)
What are the advantages of filing a lien?
Filing liens and preserving the right to file a lien will help contractors get paid. Banks routinely understand the value of liens in the home loan business and would never loan money without filing a mortgage lien to help secure payment. Similarly, contractors and design professionals should preserve their lien rights and file liens when appropriate. Specific notice, recording, and foreclosure procedures set out in the North Carolina statutes must be followed to file a lien. In exchange for following these procedures, a lien claimant can gain the following benefits:
- A lien can attach to the real property where materials were delivered or where construction took place. This is powerful because it can cause a court to direct that the property be sold to satisfy the lien. Importantly, filing a lien can mean that your claim is paid before a mortgage (or judgment) that is later attached to the property because a lien can relate back to when work started on the project. Who gets paid when a property is sold may come down to who properly filed a lien and who did not.
- A lien claimant can recover their attorneys’ fees spent in a lawsuit filed to recover payment on the lien.
- Where a subcontractor gives notice of a claim of lien, the owner must retain sufficient funds to cover the lien. If the owner fails to do so, then they will become personally liable to the subcontractor.
Liens are very powerful tools to ensure that design professionals, contractors and subcontractors recover money owed to them for work that they completed on a project.
What types of liens are there in North Carolina?
Design professionals, contractors and subcontractors may file three types of lien:
- Claim of Lien on Real Property: This lien can be filed by persons who contract directly with the owner of the property, such as a general contractor, a separate independent contractor, or a design professional.
- Notice of Claim of Lien upon Funds: This lien can be filed by subcontractors. This lien provides subcontractors with a right to any funds owed to the party that contracted with them in the chain of title. For example, if the owner still owes money to the general contractor and the owner receives a Notice of Claim of Lien upon Funds by a subcontractor, the owner cannot pay the general contractor until the subcontractor’s lien is satisfied. If the owner fails to do so, then they will become personally liable to the subcontractor.
- Subrogated Claim of Lien on Real Property: This lien provides lien rights to the subcontractor to the extent the party he contracted with has lien rights. For example, a first tier subcontractor can step into the shoes of the general contractor and assert the general contractor’s lien rights if the general contractor has lien rights against the real property underlying the construction project.
When and Where must a lien be filed in court?
Lien claims must be filed in the clerk of court where the property is located, within 120 days of the lien claimant’s last date of furnishing labor, materials or services.
Does a lawsuit need to be filed?
Yes, to enforce the lien a lawsuit must be filed within 180 days of a lien claimant’s last date of furnishing labor, materials or services.
Are there any disadvantages to filing a lien?
A properly filed lien has few disadvantages. An improperly filed lien, however, can lead to a loss of your lien rights. Courts will enforce every legal requirement associated with properly filing a lien, which can lead to harsh and unforgiving results. For example, if you miss the filing deadline by just one day, you lose your lien rights. When it comes to liens, knowledge is not only power, it’s a necessity.
The attorneys at Skufcalaw are familiar with North Carolina’s lien laws and are able to help contractors and design professionals secure their lien rights.
Please contact us for more information.