Legislature Passes Two Bills Overhauling North Carolina Lien Laws

The legislature recently passed two bills which will have a significant impact on mechanics’ lien law in North Carolina. House Bill 1052 (Mechanics Liens/Payment Bond Reforms), makes a number of technical and substantive changes to the law governing lien and payment bond claims such as requiring persons working on a public construction project who did not contract directly with the contractor to give the contractor notice of their involvement in the project in order to preserve claims under the payment bond in excess of $20,000.  The bill also increases a contractor’s liability for making a false written statement of the amounts due for work and the sums due for improvements to property.  It clarifies when certain subcontractor lien claims arise to prevent loss of subcontractor lien rights.  Finally, the bill, also clarifies the circumstances under which owners or their lenders are not the proper parties to an action to enforce a claim of lien on the improved property.  The bill requires claimants who did not contract directly with the contractor to give notice of their involvement in the project, and prohibits claims under the payment bond for work or materials provided more than 75 days before the notice is given.  This will not apply to claims of $20,000 or less, nor will it apply if the contractor fails to furnish copy of the payment bond within 7 days of receiving a request for it from a claimant.  The legislation takes effect on January 1, 2013.  In addition, legislature passed Senate Bill 42 which makes a number of changes to the lien laws in North Carolina primarily aimed at benefiting title insurers and lenders and addressing the issue of “hidden liens.”  The bill requires persons furnishing labor or materials for improvements to real property costing at least $30,000 give notice to a lien agent designated by the owner either before recording deed of trust or within 15 days of their first furnishing of labor or materials, in order to preserve their lien claims.  Most importantly for subcontractors, it provides that a subcontractor’s rights cannot be prejudiced by a contractor’s actions once the subcontractor gives notice to the lien agent and serves the owner with a notice of claim of lien on funds with a copy delivered to the lien agent.  The bill becomes effective April 1, 2013 and may be addressed again in 2013 before the effective date of the legislation.

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