In July 2013, the N.C. Association of Realtors and the N.C. Bar
Association released a new version of Standard Form 2-T Offer to
Purchase and Contract in which an ostensibly minor change to Paragraph
8(e) requires sellers, in certain circumstances, both to designate a
lien agent, and deliver a copy of the designation to the buyer.
This revision resulted from a significant re-writing of North
Carolina’s lien laws that became fully effective on April 1, 2013.
In this edition of A Legal Moment, I cover some of the basic rules of
the new lien law that might affect a standard residential closing and
provide some tips on how you, as brokers, might assist your clients with
lien issues.
Some background is necessary. Under prior law, a contractor, supplier
of materials, or design professional could file a lien for unpaid bills
within 120 days of completing work on a property. For priority purposes,
the filing of such a lien related back in time to the date the
contractor first worked on the property with the result that a
contractor might have a lien superior to a lender advancing funds at a
closing without the lender being aware of it. There was no requirement
for the contractor to file anything in the public records showing
potential liens. This situation, known as the problem of "hidden liens,"
was addressed by legislation passed in 2012.
Now, under the new law, an owner making improvements to real property
(new or remodel) costing $30,000 or more is required to appoint a lien
agent before a building permit is issued.
Notably, it is not necessary to appoint a lien agent when an owner is
undertaking improvements to the owner’s own primary single-family
residence, or for projects costing under $30,000.
When appointment of a lien agent is required, however, an owner must
designate in writing a lien agent (who him- or herself is registered
with the Department of Insurance), and deliver the written designation
to the lien agent.
Once the lien agent has been appointed, an owner is required to provide
all contractors, suppliers, and design professionals working on the
project the lien agent’s contact information. Those individuals,
in turn, can elect to file a Notice to Lien Agent of their involvement
in the project, and, by doing so, they preserve their right to file a
lien which relates back to the initial date they started working on the
project – just as under the old law.
Any contractor, supplier, or design professional working on
improvements who does not file a Notice with the lien agent of his or
her involvement in the project loses the right to file a lien after the
property is sold.
In practice, appointing a lien agent, and giving contractor notice to
that agent, is accomplished through a web portal: “LiensNC,” (www.liensnc.com). All subsequent communi-cations among owners, lien agents, and contractors can occur through this web portal.
Importantly, all such filings are searchable prior to closings; this
should therefore preclude the problem of “hidden liens.”
An additional rule requires an owner to give notice to the lien agent
on behalf of custom builders or design professionals.
Here is what I think is most crucial for you as brokers. First, if
there have been any improvements to the property (new or remodel)
exceeding $30,000 near the closing, you need to determine whether
appointment of a lien agent was necessary and, if so, actually
appointed. The need for such appointments will most likely arise in new
construction or improvements under the supervision of an architect.
Second, if working with sellers, get this information during the
listing interview. If working with buyers, get this information when you
are making your offer.
Third, be prepared to assist in getting signatures on lien affidavits
to release any potential lien claims before closing.
Finally, be sure to share anything you learn about the construction and
lien agent history of the property with the attorneys involved in the
closing.
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Please do not hesitate to contact me (lgregory@mrglawfirm.com) to
receive more information on this topic or to suggest topics for future
editions of 'A Legal Moment'.
You may not rely on this content as legal advice for any specific
situation, but should instead contact an attorney for specific advice.
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