The construction industry in the Tar Heel State has faced tough times since the Great Recession. With some owners trying to reduce costs, contractors and subcontractors occasionally face the unfortunate scenario of being stiffed for their materials, labor, and services.
Imagine that your company performs flooring work on a residential home in Durham, but then the homeowner who hired you refuses to pay all the monies owed at the conclusion of your work. Fortunately, North Carolina law gives you a powerful mechanism to put pressure on the owner and obtain the payment to which you are entitled: mechanic’s liens.
What are mechanic’s liens, and how do they work in North Carolina?
If a property owner fails to pay you, you will rightfully feel angry. But before you run to file a mechanic’s lien or a lawsuit, remember that persistence and negotiation might actually be more cost-effective ways to approach the issue.
In addition to mailing additional copies of your final invoice and/or statements, telephone the owner. Send an email with a reminder about the contract balance. Try writing a formal demand letter on your company’s letterhead. More often than not, these persistent attempts at collection will work, saving you the time and money associated with legal action.
If these initial steps do not work, however, consider hiring a lawyer to write a demand letter on law firm letterhead, which will sometimes prompt a response more quickly. A lawyer will typically be willing to write a demand letter for a reasonable amount of money, and it will show the owner that you are serious about guarding your rights. For more on retaining a lawyer, check out Guide to Finding an Excellent Attorney.
While the above strategies may work in many cases, there will still be situations where owners will refuse to pay your company the monies that are owed. Of course, North Carolina law allows you to simply sue for simple breach of contract, or another related cause of action (such as what's known as quantum meruit).
But the state also allows you to file a mechanic’s lien, which can be a faster tool with which to pressure the owner to pay. A lien is publicly filed in the county clerk’s office in the county in which the property is located. These offices are located in the local Office of the Clerk of Superior Court.
The lien becomes a cloud on the owner’s title, meaning that the title is subject to your company’s interest in it. For example, if you put a $10,000 lien on the Durham home in the example above, a buyer of that property would purchase it subject to owing you that $10,000. This will make it difficult for the current homeowner to sell the property (or to refinance it through a bank or other institutional lender), since no one would want to take property that is subject to your claim. In other words, the lien can incentivize the owner to settle with you in order to get you to clear the title.
A North Carolina mechanic’s lien is a relatively short document, generally just a few pages. Although there is no single required form in North Carolina, you can find model forms pretty easily online, or by asking a local construction attorney.
Under the statute, the lien must include your company’s name, the owner’s name, the location of the property, and the amount of money still due, among other pieces of information. You must also describe the labor or material you provided (in other words, how did you improve the property?).
If you are a subcontractor or supplier and worked for a general contractor that failed to pay you, you must list the primary contractor's name and address too. You will see that your signature needs to be notarized.
Liens are the product of a statute, which can be found at N.C. Gen. Stat. § 44A – 7, et. seq. Unfortunately, much of the legislative language is somewhat dense. As with most states’ lien statutes, North Carolina’s lien law contains many rules and exceptions, depending on the type of property involved and the work performed. But there are some general important concepts to remember as you consider filing a lien on behalf of your construction company:
As you can see, the timing of the filing is perhaps the most critical aspect of a successful lien. North Carolina’s legislature is clearly trying to incentivize potential lienors to make their claims quickly, and not allow liens to be filed years after a construction project is completed. While this gives owners some comfort in knowing that lien periods have expired, it means that you must act quickly to ensure that you do not lose any lien rights.
If you file a lien with the North Carolina county clerk and serve the property owner with a copy of that lien, your action is likely to be perceived as aggressive. Taking this step might put the owner on the defensive and cause him or her to get lawyers involved, or otherwise retaliate by publicly claiming that you did shoddy work.
Perhaps filing a lien is is the adversarial direction that you need to take, unfortunately, if the owner is refusing to pay. But regardless, you should be prepared for this sort of antagonism once the filing is complete.
Also remember that liens and the laws surrounding them in North Carolina can be highly technical. Some parts of the statute were recently revised (in 2013), while other aspects of the statute are much older. If you are owed a substantial sum of money, it is likely worth your investment in a consultation meeting with an experienced construction or real estate attorney who can advise you of your rights.