Last Monday, on April 1, 2013, a significant change to the North Carolina lien laws took effect.  Owners, contractors and subcontractors and title insurers, alike, will all take notice.

Adopted in July 2012, the law at issue is entitled: "An Act to Require Persons Furnishing Labor or Materials In Connection With Certain Improvements to Real Property to Give Written Notice to the Designated Lien Agent of the Owner of the Improved Real Property to Preserve Their Lien Rights".

Why This Law.  The new laws are intended to address the "hidden lien" or the "surprise lien" problem on private construction projects.  A "hidden lien" or "surprise lien" occurs when, for example, the statute of limitations applicable to a general contractor's lien rights, and the contractor's filing of a notice of claim of lien, extends beyond the closing date for the sale of the real property.  Consider the hypothetical:  (1) If a general contractor last performs work on DATE X, that contractor has until DATE X-plus-120 days to file a Claim of Lien on Real Property.  (2) However, if the closing date on the property is DATE-X-plus-60 days, the general contractor has another 60 days after the sale date to file its Claim of Lien on Real Property, and that lien will still attach to the property even though the property is now in the hands of an innocent purchaser.  In other words, the lien may have been "hidden" at the time of purchase to the purchaser's "surprise".

The appointment of "lien agents", and the requirement that all potential lien claimants notify those "agents" of their existence and the specifics of potential claims, should quiet problems like the foregoing.

What Generally Must Be Done By the Owner.  Owners designate the "lien agent".  On private projects of a certain value -- "for which the costs of the undertaking at the time that the original building permit is issued is $30,000 or more" -- the owner is to designate a "lien agent" to receive notices from potential lien claimants.  The appointment of a "lien agent" is a prerequisite to obtaining a building permit, and failure to do so may exempt potential lien claimants from statutory time periods governing lien rights.  A group of North Carolina title companies have designed a website -- www.liensNC.com -- that is to house both "lien agent" and lien rights information, statewide.

What Generally Must Be Done By Contractors and Subcontractors.  Contractors and Subcontractors provide the identity of the "lien agent", but they must also give notice to the lien agent of their rights. With regard to notice OF the "lien agent", contractors and subcontractors are required to provide written notice of the "lien agent's" contact information within 3 days of contracting with any subcontractor or supplier.  With regard to notice TO the "lien agent", contractors and subcontractors that want to preserve their right to file a lien against real property should complete the statutory form "Notice to Lien Agent" and provide the "Notice" within 15 days of that notifying party's first furnishing of labor or materials to the project.