ARE RETIREMENT ACCOUNTS PROTECTED FROM CREDITORS?

ARE RETIREMENT ACCOUNTS PROTECTED FROM CREDITORS?

By Kim K. Steffan, Attorney

 

            Job losses during difficult economic times caused some people who had always paid their bills to become delinquent on debts like credit cards and consumer loans.  In some cases, creditors got judgments against them, or threatened to.  A common question in those cases is whether their creditors can take their retirement accounts.  Many of those clients have put a little away each year for a long time, and would hate to lose this retirement nest egg.

            The good news is that retirement accounts which you fund while you are working are generally safe from most creditors.  N.C. General Statute section 1C-1601 covers what assets creditors can seize and sell to satisfy judgments – a topic which is entirely separate from filing bankruptcy, by the way.  Under that statute, money in your 401(k), traditional IRA, Roth IRA, and/or 403(b) is protected.  Whether you file bankruptcy or not, NC law applies to allow an unlimited dollar amount of protection for qualifying retirement accounts.  Your contributions to your employer’s pension plan (like the N.C. State Retirement System) are also safe, but for a different reason – because they are held by the pension plan and are not assets in your name. 

            In fact, if you see creditor problems coming up, you might choose to contribute as much as you can (subject to annual limitations by law, which depend in part on your age) to protect those dollars from creditors too.  If those same funds are left in your bank account or used to purchase an extra vehicle, for example, a creditor can easily take the funds or the vehicle to satisfy a judgment entered against you.

            The rule I’ve described governs consumer debt like credit cards, furniture store loans, deficiency judgments on vehicle loans, personal loans, etc.  As you might guess, there are some non-consumer creditors that can seize your retirement accounts – e.g., when the United States, North Carolina, or a County is the creditor, or when needed for paying alimony or child support.

            Some clients follow up with this question:  Didn’t I hear news about a U.S. Supreme Court case making retirement accounts fair game for creditors?  The Clark case in the summer of 2014 held that when you inherit an IRA from someone other than a spouse, your inherited IRA funds are not protected from your creditors.  Why treat IRAs inherited from someone other than a spouse differently than retirement accounts you have funded?  Those accounts are treated differently for tax purposes than the retirement accounts you fund for your retirement.  Inherited IRAs (from other than a spouse) don’t have to be left untouched until you retire.  In fact, the IRS requires that you take the money out of these inherited IRAs within a few years anyway (because they want to tax you on the income).  That makes these inherited IRAs more like money market accounts than like true retirement accounts.  A special rule still protects IRAs inherited from a spouse, because the law recognizes that most couples plan together for retirement using both spouses’ accounts.  A lot of news coverage that was just too summary made it sound like the USSC had held all retirement accounts were fair game for creditors, which is not accurate. 

            So, if you’ve fallen into trouble with consumer debt, you can usually rest easy that your retirement accounts you’ve worked hard to put away for your future are safe.  They will withstand consumer creditor claims and still be there to help support you and your spouse during retirement.

 

PATERNITY QUESTIONS TAKE MANY FORMS

Paternity and legitimation questions come in many forms. Who decides what father’s name is on a birth certificate?  What rights and responsibilities go with paternity?  Can illegitimate children inherit from their father?

First, who gets on a birth certificate, and how?  If the mother is married (even if she is separated), her husband is listed as the child’s father on the birth certificate, no matter whom she identifies as the father. That may seem odd, but a statute requires this because there is a starting presumption that her husband is the father.  If her husband is not the father, then there will have to be additional legal steps taken (and DNA testing) to establish paternity.

If the mother is not married, hospital staff will ask the father’s name.  The father may be there to provide the information himself, which makes things easier. If the father isn’t present and the mother says she does not know who the father is, no father is listed on the birth certificate.  If she supplies a name for the father, that name is listed.

You can see how people might have different ideas about who is or may be the father, and how paperwork at the hospital may create problems.  If a mother lists a father’s name but he denies it, he will need to get a DNA test.  Fortunately, now DNA testing is done by swabbing the inside of baby’s and Dad’s cheeks.  It used to require a blood draw.  A court will enter an order based on the DNA test either confirming paternity or not (and taking the father’s name off the birth certificate if appropriate).

The other side of that coin is when the mother lists no father on the birth certificate, but a man who feels sure he is the father wants to have the legal rights of a father.  He can file a legitimation action (which also involves a DNA test).  If the test shows a match, the court will enter an order recognizing him as the father, determining the child to be legitimate as defined by statute, and adding the father to the birth certificate.

Paternity matters for custody rights and for support responsibilities. Legal recognition as a father includes the right to participate in making decisions about the child, and the ability to ask the court to grant the father visitation or (in the proper circumstances) physical custody. By law, both parents have the responsibility to provide reasonable financial support for their child.  If either parent is under age 18, that parent’s parents (the baby’s grandparents) are required to provide support on his/her behalf until he/she reaches age 18. Once the parent reaches age 18, the responsibility of support for the baby is his/hers; grandparents may choose to help, but aren’t legally required to do so.  If the child’s mother needs help from the county Child Support Enforcement Office to establish and collect child support, that office will also assist with the paperwork necessary to establish paternity.  Establishing paternity is a critical part of establishing a child support obligation.

Legitimation or a legally sufficient acknowledgment of paternity (both of which require taking legal steps) matters for inheritance.  Without that, illegitimate children do not inherit from fathers in NC except through a will.  If a man dies without a will, survived by two children by his late wife and one outside the marriage whom he treated like his own but never legally acknowledged or legitimated, his estate will go to his two legitimate children, excluding the other child.  Without legitimating the child, he could still arrange for the child to inherit from him by having a will that includes all three children.  A will doesn’t solve all the legal problems that arise from having an illegitimate child, but it does solve one.

 

HOW TO MAKE VEHICLE TRANSFER EASIER WHEN SOMEONE DIES

HOW TO MAKE VEHICLE TRANSFER EASIER WHEN SOMEONE DIES

By Kim K. Steffan, Attorney

 

            If you are married or in a long-term relationship, consider having all your vehicles titled as “joint with right of survivorship.”  When one partner dies, the other partner will own 100% of the vehicle.  The survivor can transfer the title the easiest way – by bringing the title and death certificate to the DMV office.  No Clerk of Court or estate paperwork is necessary at all.  This saves time, money, and trouble.

            Titling a vehicle this way requires taking particular steps.  The initials “JWROS,” which stand for “joint with right of survivorship” must appear after both owners’ names on the title.  It looks like this:  “John Smith and Mary Smith, JWROS.” Just having both names (like “John Smith and Mary Smith”) without the initials “JWROS” will not give you the benefit of survivorship.  If it’s titled in both names without “JWROS,” half the value of the vehicle will be in the estate of either partner when he/she dies; it does not mean that the survivor will own 100% of the vehicle.

            Because titling vehicles JWROS is not well known, many DMV title clerks and car dealers’ staff are not familiar with it, and don’t think it can be done.  It can. NC law allows it.  I keep at my office to share with clients the section of the DMV Title Manual that permits it.  If you would like a copy at no charge, please contact my office.  It helps to take this with you to the car dealer when you purchase your vehicle or when you visit DMV to get your new title.  (The DMV Title Manual is a handy reference for a lot of things.  It tells you how DMV handles many transactions, what paperwork you need, what fees are charged, etc.  To find it, go to: https://connect.ncdot.gov/business/dmv/dmv%20documents/nc%20title%20manual.pdf.)

            Some clients who aren’t married or with a long-term partner ask me if they should title a vehicle JWROS with their adult child to transfer title automatically after they pass.  I usually discourage that, because it means giving a half interest in your car to your child.  If you decide to sell your car, both your child and you would have to sign.  Your child (as well as you) would have liability as an owner in the event of a wreck.  If your child has unpaid creditors who get a judgment against him or her, the creditor could force the sale of your car. 

            Sometimes a person dies owning a vehicle, and that is the only asset in his estate.  In that case, there is a shortcut so you do not have to probate the estate to free up that asset.  You can take the death certificate, will, and car title to Clerk’s Estates Office. You’ll fill out DMV Form 317 Assignment of Title, which the Clerk will certify for a nominal fee; then, take it to DMV to transfer the title.  If there’s no will, or if the person getting the vehicle by agreement is someone other than whom the will says, all family members must sign the Form. 

            Finally, if a vehicle is titled in the name of a deceased spouse (or is jointly owned but without JWROS), a surviving spouse can list the vehicle on a Years’ Allowance form with the Clerk. Take this form and the title to DMV to transfer the title to the spouse. The Clerk’s fee is nominal.  This option is only available to spouses.

            These are some ways to make it easier to transfer a vehicle title after someone dies without probating a full estate. Which one works best for you depends on your circumstances.

 

 

NC DRONE LAW

NC DRONE LAW
In recent years, more uses for drones (technically “unmanned aircraft”) have been developed. Farmers want them to identify where water or fertilizers are needed. Law enforcement envisions using them in criminal investigations. Private investigators could use them in surveillance. News organizations want to have them photograph dangerous places, like storm aftermath or riots. Amazon would like them to deliver packages to your house. A new state law took effect October 1, 2014 limiting the use of drones.
Note that the Federal Aviation Administration (FAA) has its own rules about drone use. The FAA is still developing rules, but basically a drone cannot be used for commercial or business purposes without an FAA permit. Under both federal and state laws, it is generally lawful for anyone to use model aircraft under 55 pounds in the sight of the operator on property where he has permission, away from manned aircraft, for recreational purposes.
The rest of this article assumes that the drone operator has an FAA permit, and assumes that the operator seeks to use the drone for something other than recreational purposes. A NC Department of Transportation license must be obtained before using a drone for commercial purposes. Under the new law, a person, company, or government agency may use a drone to conduct surveillance of any person, dwelling, or land only with the consent of the person or of the owner of the dwelling or land. Permission of the landowner is required to launch or retrieve a drone from their property. Without permission, no one may use a drone to photograph any individual for the purpose of publishing or disseminating the image. There is an exception for news agencies photographing newsworthy events or places where the public is generally invited.
Special rules for law enforcement attempt to apply existing laws about warrants to drones. If officers get a warrant based on probable cause, they don’t have to rely on these exceptions. Just as a police officer can search in plain sight (e.g., in an open front yard) without a warrant, an officer’s drone can view and photograph in plain sight. Since warrants aren’t required when an officer has a “reasonable suspicion” that quick action is needed to swift action is needed to prevent imminent danger to life or serious damage to property, to prevent the imminent escape of a suspect or the destruction of evidence, to conduct pursuit of an escapee or suspect, or to facilitate the search for a missing person, a drone can also be used without a warrant for these purposes.
Some privacy advocates worry about police using drones to photograph protestors. The new law allows officers to use drones to photograph gatherings to which the general public is invited on public or private land (e.g., if the protestors are gathered on a public street). If the protestors hold a closed meeting at someone’s home in order to plan an upcoming gathering, drones cannot lawfully take those photos without consent. However, consistent with federal law, police may use drones without a warrant to counter a high risk of a terrorist attack by a specific individual or organization if the US Secretary of Homeland Security or the Secretary of the NC Department of Public Safety determines that credible intelligence indicates that such a risk exists. If police gather evidence in violation of the statute, it is not admissible in criminal court unless the court determines that it was “obtained or collected under the objectively reasonable, good-faith belief that the actions were lawful.”
The new law makes it a criminal offense to use a drone to disrupt a manned aircraft, or to disrupt someone who is lawfully hunting or fishing. It is also a criminal offense to distribute images taken by a drone without the consent of the person photographed or the owner of the property photographed. If you are the victim of unlawful surveillance or photography, you may seek a Court injunction to stop it. You may also sue in civil court for actual damages. If the case involves disseminating photos, you may choose to sue for $5,000 per image instead of proving damages. Because technology changes rapidly, we should expect to see further development in federal and state laws concerning drones.

HOMEOWNER LIABILITY

Falling trees? Holes in the ground? Playground equipment? Have you ever thought about the liability issues you might face as a homeowner? There are many. Insurance helps in some cases, but not all.
A tree on your property falls into the middle of your neighbor’s house. Are you liable? It depends (which is the lawyer’s favorite answer). If the tree was healthy and came down unexpectedly, like by a lightning strike, no, you are not responsible for the damages. You weren’t negligent, and you haven’t done anything wrong. On the other hand, if you knew or should have known that the tree trunk had rotted, you would have had an opportunity to fix the problem. In that case, you would be liable because you have been negligent. Many insurance policies would cover this type of liability. If you see a neighbor’s tree is becoming dangerous, it is best to alert our neighbor politely. Preventing the problem is better than figuring out who must pay for the damage.
What if your friend has a two foot wide hole dug in her yard as part of a landscaping project, and you fall into it, tearing ligaments in your leg? Is your friend liable for your damages? If the hole was clearly visible, then no, because the law says you should have seen the danger and avoided it. If the hole was concealed or hidden, so you reasonably would not have seen it, then your friend was negligent, making her liable. Even if the fall was your fault, there may be a little bit of help for you. Your friend’s homeowner’s insurance may have what’s called “medical payments” or “medpay” coverage. Medpay is a small medical benefit payable to anyone who has medical bills from being injured on your property, no matter whose fault it was. Medpay is usually limited to about $1,000 in reimbursement paid when the injured person submits medical bills to the insurance company.
Your child’s friend comes over to play on your playground set, and takes a fall. If you have kept the playground equipment in a reasonably safe condition and if you are supervising play appropriately for the children’s ages, you aren’t legally responsible.
Intentional acts are usually not covered by insurance. If your college age teen has friends over and a fight breaks out in which he slugs his now-former friend, this is an assault. Other than medpay, your homeowners’ insurance isn’t likely to pay for the damages. If the injuries are serious, the damages may be substantial, and your teen is legally liable for them without any real help from insurance.
Do you have homeowners’ insurance? Sometimes I hear a client say that she plans to cancel her homeowners’ insurance policy to save money now that her mortgage is paid off. Mortgage lenders always require homeowners’ insurance to protect their loan investment in the property. Upon further thought, the client may realize that homeowners’ insurance is still important to protect her own investment in the home even though there is no lender to require it. The policy protects her if someone is hurt on the property, and pays to rebuild in the event of a fire or catastrophic storm. Good insurance coverage can help a homeowner sleep better at night.

Domestic Violence Resources in Orange County

            By government statistics, 1 in 4 women and 1 in 7 men in the U.S. will, sometime in their lifetime, suffer physical violence at the hands of an intimate partner. 

            Orange County is a leader in addressing domestic violence.  Under Sheriff Pendergrass, Orange County became the first county in the state (and still one of a few) to have a special unit to assist domestic violence victims.  Social workers within the Department make victims more informed so they can make better decisions; they also focus on the practical needs of the families involved.  Their office serves over 1100 people annually. Yearly training for deputies includes updates on domestic violence issues.  Officers must know how to handle these potentially explosive situations.  In addition to arresting offenders, responding officers can help victims with transport to medical care or shelter, and with securing basic items needed for themselves or their children if they wish to leave the home. 

            Legal tools to address domestic violence include civil 50B orders (also known as DVPOs, which stands for Domestic Violence Prevention Order) and criminal charges.  About 75% of the time, when a DVPO is entered, there are also criminal charges (most commonly assault or communicating threats).

            A DVPO can be obtained when the defendant has caused or attempted to cause bodily injury, or places the plaintiff (or plaintiff’s family/household member) in fear of immediate serious bodily injury or subjects her/them to continued harassment.  In this instance, “continued harassment” means something serious that is beyond annoyance, such as stalking.  DVPOs are available against a spouse, former spouse, current or former dating partner of the opposite sex, member of the opposite sex with whom the victim lives or lived, or a person with whom there is a child in common. 

            The process usually starts with an emergency ex parte order, signed by a judge based on the plaintiff’s written application, followed by a hearing within 10 days.  Defendants should understand that, just because a judge has signed an emergency 50B based on the plaintiff’s paperwork, it does not mean he/she has prejudged the case.  After presentation of the evidence at the 10-day hearing, a judge may continue the order in effect, modify it, or dismiss it entirely.  Judges do not look favorably on anyone who misuses the 50B process to gain an advantage in an ordinary custody or property division case when there is no real fear of violence.

A 50B Order requires the defendant to stay away from the plaintiff (and sometimes the children, depending on whether their safety or well-being is at risk), not to communicate with the plaintiff (and sometimes the children) except as the Order allows, not to threaten the plaintiff directly or through other persons, and to surrender firearms.  Depending on the case, the DVPO can also grant temporary possession of the residence and/or a vehicle, award temporary child custody and/or support, order the defendant to stay away from the children’s school, and provide for the safety of pets. 

DVPOs last for one year.  They can be renewed for an additional year, but custody provisions cannot be renewed.  So, if you have a 50B Order entered with custody provisions, you should plan to do something else to secure custody rights before that first year ends.

A 50B Order is not a bulletproof vest and is not the best solution for everyone.  The Sheriff’s Office social workers can help sort out these issues.  For example, severe mental illness may make an offender unwilling or unable to obey an order, and getting served with one may just push him or her over the edge.  In other cases, a 50B Order or criminal charges may jeopardize the defendant’s job, which could cause a loss of income and benefits for the entire family.

As of writing this article in 2013, Orange County does not have a domestic violence shelter.  Compass Center in Chapel Hill assists domestic violence victims with emergency shelter at hotels or in shelters in nearby counties.  Visitation supervision may be needed to let the defendant see his or her children safely, but Orange County also does not have a supervised visitation center.  The Family Visitation Center in Pittsboro is the closest one, but suitable friends or family members may enable the defendant to keep up his or her relationship with the children in a safe setting.

Resources to help with domestic violence include Orange County Sheriff’s Department (919-644-3050, or 911 anytime) and Compass Center’s 24 hour hotline (919-929-7122).  Many thanks to the Orange County Sheriff’s Office for their assistance with this article.

Ask The Lawyer: Don’t Let Facebook Sink Your Case

More often than you might think, I’ve seen someone do serious damage to their legal case thanks to Facebook, Twitter, or other online posts.  Many people think of their social media lives as a vital part of their real lives.  They post like they always have, without thinking about the harm they do to their legal case.  Problems are most common in injury cases and in family law cases.  Here’s what to watch out for.

            Social media seems to encourage many people to boast or exaggerate.  This can harm people with legitimate personal injury claims.  Consider what happens if you post a photo that makes it look like you aren’t hurt as badly as your case claims.  Maybe you post a photo that looks like you are playing with your church softball team.  You may have just posed for one still photo at home plate because your leg injury is too painful to play yet.  When the insurance company defending the claim puts the photo into evidence, how will the jurors know the truth?  As another example, suppose you upload your photo with friends sitting on a boat, and you write, “having a great time – water skiing, wings, and good friends.”  With your back injury, you may be the only one not water skiing, but the insurance company will use the post to argue that’s exactly what you were doing. 

            Social media posts and even passwords are fair game in discovery in court cases.  If you’ve posted it or your friends have commented on it, the insurance company can likely find out about it. 

            Online posts can also hurt your separation and divorce case.  Many a cheating spouse has accidentally proven his or her own affair this way.  Some people can’t resist posting photos taken with their new love interest.  Although your accounts may be set as private, it is not uncommon for one of your Facebook friends to share your posts with your ex.  If you aren’t yet separated, a web page or email left open on a home computer can reveal an affair. 

            Custody cases can also be complicated by social media.  Even if you aren’t really a party animal, will your exaggerated posts make it look like you are given to alcohol, drugs, or staying out all night?

            The best advice if you are involved in an injury case or a separation/divorce case is simply not to post to social media sites at all, and never to put photos or videos online until your case is over.  As the old saying goes, an ounce of prevention is worth a pound of cure.  If you find that impossible, be very careful.  Evaluate everything you write and every photo you upload as if the person or company on the other side of your case sees it and draws the worst possible conclusion.  If that worst conclusion is still all right, then you may be safe. Also, don’t post or reply when you are angry, hurried, or tired.  You may not be as careful then as you would under better circumstances.  If you are involved in a case, talk to your attorney about protecting your case from social media disaster.

LEGAL TIPS FOR YOUTH SEEKING SUMMER JOBS

When the school year winds down, many under-18 youths want summer jobs.  What are the rules these teens and employers need to know?  Let’s focus on jobs that are not agricultural and not in a business owned by the child’s family, as those rules are different.  Summer jobs teach young employees valuable workplace skills and provide income.  At the same time, the law wants those experiences to be safe.  According to the National Institute for Occupational Safety and Health, over 210,000 American children suffer occupational injuries each year, with over 70,000 of them requiring emergency room care.  Both federal law (Fair Labor Standards Act) and state law (NC Wage & Hour Act) apply to youth employment.

            Youth under 18 must have a Youth Employment Certification (YEC), also known as a work permit.  It must be completed and signed by the teen, a parent, and the employer.  An easy place to apply for a YEC is at the N.C. Department of Labor’s website at http://www.nclabor.com/wh/youth_instructions.htm. 

            Jobs considered by law to be hazardous or detrimental are off-limits for youth under 18.  These include logging, power-driven woodworking or punching machines, meat slicing machines, roofing, trenching, electrician’s helper, and more.

            Teens who are 14 and 15 have other special limits that apply in the summer (stricter standards apply during school).  They cannot work more than 8 hours a day or more than 40 hours per week.  They cannot work past 9 p.m.  Employers must give 14 and 15 year old employees at least a 30-minute break after five consecutive work hours.  Teens who are 14 and 15 are restricted from some types of work, like using deep fat fryers, baking, or working in any place where goods are manufactured.  Fourteen and fifteen year olds may not operate machinery, including lawn mowers and trimmers (never mind that they probably mow the lawn at home).  They may operate most office machines and many types of equipment found in food service establishments (like cash registers, toasters, dishwashers, etc.).  These teens may not work inside an establishment that has an ABC on-premises permit. 

Although drug tests may be required of applicant who is under 18, many employers who require tests find the better practice is to obtain parental consent.  However, if a drug test comes back positive, the employer is not legally permitted to tell the parent, even if the parent consented to the drug test.

Private businesses are not legally permitted to do unpaid internships for minors or adults in most instances.  Unpaid internships are usually legal only when the intern’s sole mission is to observe and learn, not to do actual work that the employer’s employees would otherwise be doing.  Government agencies can do unpaid internships legally, and non-profits can always accept volunteers.  Some private businesses choose to have unpaid interns doing actual work, and some young people find the experience to be worth much more than a paycheck, so both parties benefit; however, employers should be cautious, as it does expose them to the risk of a Fair Labor Standards Act complaint.

Excellent resources for more information on youth employment are the U.S. Department of Labor (1-866-4-USA-DOL ) and the N.C. Department of Labor (1-800-NC-LABOR).  Whether you hire teens or you are a teen employee, knowing the rules makes for a better summer employment experience.

MEDICARE DECISIONS AS YOU GET READY TO RETIRE

MEDICARE DECISIONS AS YOU GET READY TO RETIRE

            Health insurance decisions become more complicated as baby-boomers approach retirement age.  Many people want to know when to apply for Medicare, and how it works with their employer or retiree health insurance plans.  Here are some rules to keep in mind for persons without disabilities; rules for disabled persons are different.

            You will be eligible for Medicare when you reach age 65.  This may be different than when you begin receiving Social Security retirement (which could be as soon as age 62 for early retirement or as late as age 70).  About 3 months before you turn age 65, you should receive a letter from Medicare requesting that you start the process of deciding when to sign up for Medicare.  If you do not receive this letter, you should contact Medicare yourself about this time.  If you would like, you can sign up for Medicare as early as 3 months before you reach age 65. 

            The initial enrollment period for Medicare begins 3 months before you reach age 65, and ends 3 months after you reach age 65.  Here’s a trap for the unwary.  If you do not enroll in Medicare during that time period (unless you have a qualified reason to delay your enrollment, like coverage under a current employer’s plan), when you enroll later you will face a penalty in the form of higher premiums and a delay in starting coverage.

            What if you have coverage at age 65 through your current employer’s (or your spouse’s current employer’s) group health insurance plan?  First, this means you can delay signing up for Medicare until that group coverage ends, if you wish.  If your group policy offers good coverage, you may not want to pay Medicare premiums also.  If your employer has 20 or more employees (or is in a multi-employer plan), the company must offer current employees 65 and older the same health benefits under the same conditions as it offers to younger workers.  If you have coverage under one of these larger employer plans and Medicare, the group plan will pay first, with Medicare paying second.  If your employer has less than 20 employees, your group plan may or may not offer coverage to employees who are eligible for Medicare.  If you have coverage through a smaller employer’s policy and Medicare, then Medicare pays first and the group policy second. 

            Do you have retiree health insurance from a job you or your spouse has retired from?  Once you are eligible for Medicare, many retiree policies reduce their benefits so that they only supplement what Medicare pays.  If your retiree policy does this, you will need to sign up for Medicare when you are eligible for it.

            There is much more to discuss about various Medicare topics, which will appear in later articles.  More information is available from 1-800-MEDICARE or online at www.medicare.gov, or through your employer’s human resources office.

NEW 2013 LIEN LAW SOLVES MANY PROBLEMS

NEW 2013 LIEN LAW SOLVES MANY PROBLEMS

            Imagine you are a homeowner who paid a contractor to build your house or to do a major renovation.  When the job is finished, all that is left is to enjoy your new place, right?  Then you learn that the contractor’s unpaid sub has filed a claim of lien against your home.  (You may know that contractors and some subcontractors who perform work on real estate but who don’t get paid can file a claim of lien against the property.)  Suddenly your dream has turned into a nightmare.  Worse yet, suppose you had planned to get an equity line loan based on the increased value of your home, or you did renovations in order to sell your home.  You learn the claim of lien interferes with your getting the new loan or selling the house.

            On the flip side, imagine you are a carpet installer or landscaper who has done work at a job site for a developer.  Before you have time to file a claim of lien, the developer sells the house. The contractor has been paid in full (meaning he got paid for your work), but he didn’t pay you. 

            Claims for these hidden liens became so expensive in the recession that they jeopardized the ability and willingness of title insurance companies to cover them.  Everyone wants title insurance to cover liens, but the title companies had to be able to manage the risk.  Some homeowners didn’t have title insurance, and had to bear this burden themselves.

            This has happened many times on projects large and small, commercial and residential.  The new law, effective April 1, 2013, creates a lien registry system to help stop these bad surprises.  When your project starts, register it with Liens NC (www.liensnc.com) and appoint a “lien agent.”  The lien agent is a title insurance company which, for a $25 fee, monitors possible lien claims on your project.  Contractors and subs must tell their subs and suppliers who the lien agent for the project is; also, the building permit lists the lien agent.  Anyone who works on the project must register on your Liens NC page before they can later file a claim of lien against your property.  Registering does not take the place of filing the actual claim of lien if a sub wants to enforce its lien rights.  However, registering puts the sub or supplier on the “radar screen” of the owner and the title insurance company.  The owner will be able to set up email alerts when new notices are filed on his project.  The owner and/or title company can contact these tradespeople before closing or final payment to determine if they have been paid.  Because the lien registry is public and because subs who aren’t worried about getting paid typically don’t register, if a sub sees a lot of new notices for a particular developer’s projects, it may be advance warning of the developer having financial problems.

            Registering with Liens NC is required for all construction projects EXCEPT when the project consists of improvements costing less than $30,000 to your own single-family residence.  However, you can use the system for any project, so you might want to use it voluntarily for projects that involve subs or suppliers to help avoid bad surprises.  This article addresses the basics; for more information, ask an attorney, go to www.liensnc.com, or read the new N.C.G.S. Chapter 44A.

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