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 Great 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 law changed in 2013 to create 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 nominal 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.
Kim K. Steffan is an attorney with Steffan & Associates, P.C. in Hillsborough, NC. She can be reached at 919-732-7300 or firstname.lastname@example.org.
This article was last updated in January 2020.