Lawyer Article

Effective October 1, 2005, Senate Bill 887 changed the North Carolina lien law to provide clarity and simplicity to key players in the construction industry: owners, lenders, title companies, contractors, subcontractors, suppliers and their legal counsel.

The new law is important to owners because it clarifies when property may be liened and because it allows parties at risk for double payment -- owners, contractors and higher level subcontractors -- to bond off liens on funds. It is important to contractors and subcontractors because it provides them with an improved method for ensuring payment for their work. The new law also modifies the names of forms to be used in filing liens to eliminate general confusion about the effect of a particular lien.

New Definitions, Forms and Ability to Bond off Liens on Funds
The new law permits contractors to file what is now called a “Claim of Lien on Real Property” (formerly called a “Claim of Lien”). It permits subcontractors and suppliers to file what is now called a “Claim of Lien Upon Funds” (formerly called a “Notice of Claim of Lien”). The new law preserves a contractor’s direct claim against real property and subcontractors’ and suppliers’ subrogation claims against real property.

The new law clarifies when each claim and form applies, and now permits a party to bond off not only Claims of Lien on Real Property, but also Claims of Lien Upon Funds. Also, the new law provides that bonding off a Claim of Lien Upon Funds effectively discharges Claims of Lien on Real Property filed by the same lien claimant. Also discharged are Claims of Lien Upon Funds or Claims of Lien on Real Property asserted by lower tier subcontractors.

Venue and Preservation of Claims
Actions to enforce a lien can be brought in any county where venue is otherwise proper. If an action is brought outside the county where the real property subject to lien is located, filing a written notice of a pending suit in the county where the real property is located is necessary to preserve the lien. Also, filing a proof of claim with a receiver or in bankruptcy satisfies the requirement for commencement of a civil action so long as timely notice of a pending suit is filed in each county where the real property subject to the claim of lien is located.

Service of Process and Balance of Substantive Changes

• Service of a Claim of Lien Upon Funds may be achieved by personal delivery or in any manner authorized by Rule 4 of the North Carolina Rules of Civil Procedure.
• Subcontractors with Claims of Lien Upon Funds will share pro rata with subcontractors who have filed Claims of Lien on Real Property. Interest at the prevailing legal rate will be included in the calculation of any such distributions.
• Lower tier subcontractors must timely serve the contractor with a signed Notice of Subcontract to preserve their rights to subrogation claims against real property. 

Please give us a call if we can assist you in applying this new lien law in your business.
Karen Carey (336)721-3536
Laura Luger
Ken Michael (336) 721-3644
Liz Riley (919) 755-2114

Womble Carlyle client alerts are intended to provide general information about significant legal developments and should not be construed as legal advice on any specific facts and circumstances, nor should they be construed as advertisements for legal services.