Legislators Propose Making Major Changes To North Carolina Lien laws

A bill was introduced on Monday that would completely overhaul North Carolina’s lien law statutes.  House Bill 489 was introduced on March 28, 2011 by Representatives Pridgen, Stam and Martin and has been referred to the Judiciary Subcommittee.  Most importantly, the bill would effectively end the “relation back” doctrine in North Carolina by not allowing a subcontractor to have a lien that “relates back” to its first date of work without the subcontractor first filing a “Notice to Owner” with the Clerk of Court.  The new bill adds a new section – N.C.G.S. §44A-17.1 – which requires subcontractors to file a “Notice to Owner” within 30 days of starting work on a Project.  If the subcontractor does not file the “Notice to Owner” the Subcontractor can still file a lien, however, the lien cannot include the value of work performed more than 30 days prior to the filing and service of the “Notice to Owner” required in N.C.G.S. §44A-17.1.  The bill would also revise N.C.G.S. §44A-10 (dealing with the effective date of work) by stating that the lien shall relate to and take effect “for first, second or third tier subcontractors the date of filing its notice to owner…” 

The bill would also have a corresponding requirement for Owners to file a “Notice of Commencement” which would identify the name and addresses of the Owner and the Contractor for the Project.  N.C.G.S. §44A-10 would be further revised to state that if the “Notice of Commencement” is filed within 5 days of a bank’s deed of trust being recorded, all contractor’s liens would be conclusively presumed to be inferior in time and right to the deed of trust.  The bill would, in practice, prevent a subcontractor from ever having a superior lien over a bank’s deed of trust for a construction Project. 

The bill also amends Chapter 44A to include form lien waivers – both partial and final.  The bill also “fixes” the 2006 Supreme Court case of O & M Industries v. Smith Engineering Co., 624 S.E.2d 345 (N.C. 2006) by now allowing Owners to withhold sufficient monies from general contractors to satisfy liens on funds served by subcontractors and to contuinue to otherwise make payments in the ordinary course of business to general contractors without risking wrongful payment claims.  The bill would aslso officially make false lien waivers a violation of North Carolina’s Unfair and deceptive Trade Practices Act, giving way to claims for treble damages for those victimized by false lien waivers.

To read a copy of the bill click here.

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