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<\/figure><\/div>\n\n\n\nGenerally speaking, a lien is a security interest against a certain piece of property. If debts go unpaid, the lienholder has certain proprietary rights to collect against the property rather than relying on an owner\u2019s bank account, which might resemble something eerily similar to the bank account of a graduate student who has been eating instant ramen for the past week. One of the most common liens is a mortgage, where a lender provides a loan to purchase or improve property and the owner uses the property as collateral to secure payment of the loan.<\/p>\n\n\n\n
In the construction world, contractors, suppliers, and design professionals can record a \u201cmechanic\u2019s lien\u201d against the property they are improving if their bills go ignored. As an added bonus, you may recover any attorney\u2019s fees incurred as the result of recording and foreclosing on the lien (our next blog will detail foreclosing on liens). Nearly identical in theory to a mortgage, an owner is implicitly putting the property being improved as collateral for the labor and materials you provide.<\/p>\n\n\n\n
For general contractors, the net collateral amount may be diminished and put you in a monetary bind if you don\u2019t check all the necessary boxes at the very beginning of a construction project. A general contractor can furnish an optional Notice of Project Commencement (\u201cCommencement Notice\u201d). As the name implies, the general contractor files the Commencement Notice within 15 days of beginning the project with the Register of Deeds office in the county where the project is located. The Commencement Notice must include the name of the general contractor, address of the project, name of the owner, and an exact description of the project.<\/p>\n\n\n\n
The Commencement Notice lets everyone know that the general contractor is running this show. This is especially important because a general contractor\u2019s subcontractors tend to hire their own subcontractors (sub-subcontractors) or suppliers (\u201cSecond Tier Subs\u201d) to perform parts or all of the scope of work. But, sometimes, subcontractors \u201cforget to pay\u201d their Second Tier Subs, despite the general contractor already paying its subcontractors. If the general contractor properly files the Commencement Notice and a Second Tier Sub files its own lien on the project, the lien amount is limited to the amount the general contractor owes the first-tier subcontractor for the project. By limiting the claims of Second Tier Subs, the general contractor will be in a better position to collect more on its lien and not have to split as much of the payout with the Second Tier Subs.<\/p>\n\n\n\n
But, don\u2019t you worry, Second Tier Subs\u2014there is also a way to protect your interests and get the attention of the general contractor and project owner. The Notice of Furnishing Labor or Materials (\u201cNotice of Furnishing\u201d) can only be filed by remote claimants (i.e. Second Tier Subs). The Notice of Furnishing also must be filed with the Register of Deeds and should include the same type of information required in the Commencement Notice. But, unlike the Commencement Notice, the Notice of Furnishing must be served on the general contractor by certified mail, return receipt requested, to provide proper notice to the general contractor. Once general contractors receive it, they are on notice that there is another mouth to feed.<\/p>\n\n\n\n
It is critical to take the proper steps in filing and \u201cperfecting\u201d mechanic\u2019s liens. The owner\u2019s property can only be levied as collateral for a limited amount of time. Those laws protecting your right to payment can quickly vanish within a blink of an eye . . . well, 90 of them, that is.<\/p>\n\n\n\n
For instance, in South Carolina, if you do not record and perfect your mechanic\u2019s lien within 90 days of the last day that labor or materials were furnished on the project, then you lose your right to lien the property as your primary source of collateral. See S.C. Code Ann. \u00a7 29-5-90<\/a><\/span>. Further, the clock doesn\u2019t stop ticking if a different party performs work on the project. It is dependent on the party intending to record a lien. Also, warranty work and repair work typically do not restart the clock. In North Carolina, you have 120 days from the last date of furnishing to file your lien.<\/p>\n\n\n\n Perfecting a mechanic\u2019s lien requires some time, so it is best not to wait until the last minute to begin this process. In order to perfect your mechanic\u2019s lien, you will need to do the following:<\/p>\n\n\n\n 1. Record a \u201cNotice and Certificate of Mechanic\u2019s Lien\u201d with the Register of Deeds office in the county where the property is located;
2. Record a \u201cStatement of Account,\u201d where you swear under oath to the amount owed for the labor or materials;
3. Enclose a legal description of the property subject to the lien within the recordings (usually found in the property deed);
4. Provide a verification that all of the aforementioned materials are true and accurate; and
5. Serve all of these documents on the owner of the property.<\/span><\/p>\n\n\n\n