The rules are changing when it comes to North Carolina lien and bond laws. And, the new provisions are substantially altering the way in which all parties involved in lien rights – from owners, buyers, and sellers to general contractors, subcontractors, lenders, and title companies – handle construction, sales, and lending for residential and commercial properties.
House Bill 1052 (HB1052) and Senate Bill 42 (SB42), both of which were passed by the state legislature in 2012, contain a series of new notice requirements. HB1052, which took effect in January of this year, provides new bond claims provisions on public projects; while SB 42, which will take effect April 1, tackles the issue of what title insurers refer to as “hidden liens,” requiring identification of and notice to a lien agent for certain private projects.
Enactment of SB42 stemmed from the state’s statute allowing a Claim of Lien on Real Property to be filed 120 days after the general contractor last furnished material or labor to a property, with so-called relation back to the date of first work. Once complete, the priority of the lien claim relates back to the date when labor or materials were first furnished, creating the potential for unfiled lien claims to be filed after a title search and conveyance, with a superior right to that of the new owner.
To deal with the issue, SB42 establishes the following requirements:
- Designation and duties of a lien agent. If a private project exceeds $30,000, the owner designates a lien agent (title insurers and title agencies). Lien agents must pass along all notices for a statutory fee of $50 per designation.
- Identification of a lien agent. Owners must name a lien agent on the building permit or on a conspicuously posted sign or shall identify the lien agent upon written request within seven days. General contractors and subcontractors shall provide a material supplier with written notice identifying the lien agent within three days of contracting with the supplier.
- Notice to lien agent. To maintain a right to impose a lien from the first day of work on the project, potential claimants must file notice with the lien agent within 15 days after the first furnishing or before an interest in real property is conveyed (i.e., the property is sold or Deed of Trust is recorded).
Technical changes to the statute are in the works, but it appears that the concept of lien agent is here to stay. One prospective enhancement to the present system will be on-line notice to lien agents.
Enactment of HB1052 was designed to address the issue of double payment by general contractors on public projects, which can happen when the general contractor pays its 1st tier subcontractors in full but the 2nd tier subcontractors or below fail to receive payment in full.
The new provisions, which are required on state-owned projects in excess of $500,000 and local government-owned projects in excess of $300,000, are as follows:
- The contractor shall provide a “Project Statement” to all its subcontractors and suppliers. Each subcontractor shall provide a “Project Statement” to all its subcontractors and suppliers.
- Subcontractors and suppliers (at least those below the first tier) should serve a “Notice of Public Subcontract” on the primary contractor.
- If the Notice of Public Subcontract is timely, the subcontractor can pursue the full claim. Otherwise, the claim is limited to the greater of (1) the value of the labor or materials provided within 75 days of the notice or (2) $20,000.
All contractors and subcontractors must provide the Public Statement to their subcontractors and suppliers or they cannot enforce their contracts. And contractors must provide a copy of the payment bond within seven days of a potential claimant’s written request.