Many creditors secure payment by making property claims known as liens. If the property owner defaults on a mortgage, stops making car payments, or fails to pay taxes, the relevant creditor can exercise their legal rights to the collateral.
Contractor’s liens, also known as construction liens or mechanic’s liens, provide a way for contractors to secure payment for their services. This post covers what you need to know about North Carolina construction/mechanic’s liens, including how they work, how they are enforced, and how to file one.
If you are looking for a construction lawyer in North Carolina, the team at Anderson Jones is here to help.
How Mechanic’s Liens Work
Contractors make all sorts of property improvements, such as installing furnaces, building patios, and designing new landscaping. When a client refuses to pay, the contractor may file a lien on the real property where such improvements were constructed.
Real property with a lien attached is difficult to sell, and potential buyers can typically discover the mechanic’s lien when conducting a title search.
If the client fails to pay despite the lien, in some cases the contractor may be able to foreclose on the property and collect the amount the homeowner owes them.
The North Carolina Construction Lien Process
If a client does not pay a contractor for the work completed by the contractor, North Carolina contractors may file a lien subject to the following requirements:
- Deadline: The contractor must file the claim of lien on property within 120 days of the last day the contractor furnished labor or materials to the project. If the claim of lien does not result in payment of the amount owed to the contractor, and a lawsuit must be filed, the lawsuit must be filed within 180 days of the last day the contractor furnished labor or materials to the project.
- Venue: The claim of lien on property must be filed in the Office of the Clerk of the Superior Court in each county where the property subject to the claim of lien on property is located.
- Notice: The claim of lien on real property must be served on the record owner of the property that is subject to the claim of lien and may be required to be served on other interested parties such as other contractors, subcontractors, suppliers, and/or lenders.
Construction lien claims may be unenforceable if contractors don’t meet these requirements. In some scenarios a lien agent may be required to be designated and be required to receive certain notices related to a claim of lien on real property. North Carolina lien statutes are very particular and complex, so it is important to confer with legal counsel to ensure you are taking the proper steps to perfect your claim of lien.
Enforcement of Construction/Mechanic’s Liens
Often, filing a lien is enough to convince a homeowner to pay. However, if the amount owed to the contractor is not paid, the contractor can proceed with filing a lawsuit to enforce the lien. In order for the contractor to preserve its lien enforcement rights, this lawsuit must be filed within 180 days of the date the contractor last furnished labor or materials to the project.
If all procedures have been followed for properly perfecting the lien and the contractor timely files and serves a lawsuit to enforce the claim of lien on real property, the Court may order that the property be sold, and proceeds applied to the lien claim amount.
How Mechanic’s Liens Differ From Other Liens
Although all liens help creditors secure payment, mechanic’s liens differ from other liens in several important ways:
- Type: Mechanic’s liens can be specific to construction projects.
- Debt: While many liens secure loan repayment, mechanic’s liens secure payment for services rendered. The contractor collecting money from a lien may use those funds to pay someone else, like a supplier or subcontractor.
- Timing: Mortgage liens are often filed at the time of purchase, but mechanic’s liens aren’t typically filed until after project completion.
The Limitations of Construction/Mechanic’s Liens
As a contractor, filing a mechanic’s lien may be the best option to recoup your expenses. However, there are some limitations:
- Legal requirements: Failure to comply with strict lien filing deadlines and notice requirements can invalidate the lien.
- Priority conflicts: Other liens, like mortgages and tax liens, may take priority over mechanic’s liens.
- Enforcement challenges: Enforcing a mechanic’s lien requires legal action, which can be complicated and time-consuming.
- Limited recovery: Even if your legal claim is successful, there may not be sufficient funds to pay the entire outstanding amount.
Alternatives to Construction/Mechanic’s Liens
If you’ve missed the deadline or are seeking alternatives to a mechanic’s lien, you may consider the following:
- Small claims court case: For debts less than $10,000, you may file a case in small claims court.
- Other claims: If a contractor misses their deadline to file a claim of lien on real property, they may be able to bring other claims against the property owner or other contractors, such as, breach of contract, violation of the NC Prompt Pay Act, and/or unjust enrichment.
Need Help Resolving a Legal Construction Dispute?
For more information about North Carolina construction/mechanic’s liens, contact Anderson Jones, PLLC. We have extensive experience with mechanic’s lien rights, resolving construction disputes, and providing legal assistance to contractors statewide.
Call us at (919) 289-5580 or contact us online today to schedule a consultation with a knowledgeable construction law attorney.