Imagine that you bought a house in Raleigh last year. You decide that the old bathroom needs a major upgrade. After some research, you find a seemingly reputable contractor to retile the floor, install a new sink, and replace the pipes. You and the contractor agree to a total price of $10,000. But after months of work, the contractor says she has spent all of the money and then some, and is somehow still not finished. To cover her expenses so far, and take the job to completion, the contractor says she will need another $5,000.
Of course, you become upset. You had an agreement, after all. When you refuse to pay, the contractor walks out of the house, never to return. Shortly thereafter, you open your mail to find notice of a mechanic’s lien for $3,000, which is the amount of money she says she’s owed based on additional work already performed. How can the contractor do this? If anything, you think, she owes you money for walking off the half-finished job. What is this mechanic’s lien document, and what can you do about it under North Carolina law?
You may be surprised when you receive a mechanic’s lien in the mail. Most North Carolina homeowners have likely never seen or heard of this document. Unlike lawsuits, liens are relatively obscure and do not garner much media attention.
In literal terms, a lien is a document that is publicly filed in the county clerk’s office in the county in which your property is located. These offices are located in the local Office of the Clerk of Superior Court in your county. The lien becomes a cloud on a homeowner’s title, meaning that the title is subject to the contractor’s stated financial interest in it.
If the contractor puts a lien on your home in the amount of $3,000, as in the example above, anyone who buys your property would buy it subject to owing the contractor that sum. This will make it difficult for you to sell the property (or to refinance it through a bank or other institutional lender). Contractors therefore use liens as a means of incentivizing property owners like you to settle with them.
You may wonder what a lien looks like, if your contractor has threatened to file one. A mechanic’s lien is a short document, generally just a few pages long. You can see a model example of the form online. The form must, among other bits of information, include the contractor’s name, the homeowner’s name, the location of the property, and the amount of money still allegedly due. The contractor must also describe the labor or material that was provided (in other words, how did the contractor improve your property?).
Negotiation should always be your first step when faced with a payment dispute. Put yourself in your contractor’s shoes for a moment. If you thought you were owed money, you would probably not want to immediately file a lawsuit. More likely, you would instead try to obtain payment without resorting to lawyers and courts. Most contractors will approach problems in the same way. Rather than simply filing a lien on your property out of nowhere, they ordinarily start by making repeated requests for payment.
Only if these requests are ignored or rejected will they be provoked into filing a lien or a lawsuit. In other words, when a payment dispute arises, think about the big picture; the best way to fight a lien filing is to avoid it altogether.
Simply put, this requires you to negotiate with a contractor prior to the filing. If your North Carolina contractor asserts that he or she is owed an extra sum of money, do not just ignore the phone calls or invoices. This might be viewed as a sign of disrespect, as well as a sign that you have no intention of speaking in good faith. While you might think that this tough stance will convince your contractor to simply go away, the contractor is just as likely to become defensive by filing a lien, a lawsuit, or both.
You and the contractor may have a good faith disagreement about whether certain work was part of his contract, or about the quality of that work. Rather than ignoring the disagreement, have a frank discussion about it, or consider going to mediation.
In mediation, a third-party neutral (often an attorney or individual with experience in the construction industry) can help you and your North Carolina contractor negotiate a fair settlement. In both negotiation and mediation, you should be open to clever settlement strategies. Rather than paying a lump sum, perhaps payments could be made over time. Rather than a monetary settlement, maybe you could offer the contractor a public endorsement or reference. Rather than fighting in court, you could offer the contractor discounted payment in exchange for a limited scope of ongoing work. The creative possibilities are up to you.
In short, you are likely to save both time and money if you find a way to settle the payment dispute with the contractor. This does not mean you need to give into all of the contractor’s demands, but it does mean that you should keep in mind the costs of legal action to fight a lien. It is likely in both your and the contractor’s interests for the payment dispute to be resolved quickly, without the need for attorneys.
If a lien is filed on your home in the Tar Heel State, you may find it useful to actually understand North Carolina’s laws governing liens. The state’s lien laws 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 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.
For example, you should be aware that many different types of entities can file a lien on your home. According to N.C. Gen. Stat. § 44A-8, “Any person who performs or furnishes labor or professional design or surveying services or furnishes materials or furnishes rental equipment pursuant to a contract… shall, upon complying with the provisions of this Article, have a right to file a claim of lien on real property… to secure payment of all debts owing…” As you can imagine, this broad statute could include contractors, subcontractors, design professionals, engineers, or even laborers.
As discussed above, a mechanic’s lien can create problems for North Carolina homeowners. There are several strategies to get the lien removed. The first, as mentioned, is to negotiate a resolution with your contractor.
A second option is to obtain what is known as a “lien bond” through a surety company. The bond essentially guarantees payment to the contractor in the amount of the lien, if the contractor is ultimately successful on the legal claims, but also removes the lien from your property record in the meantime.
Third, you can petition a court (specifically, the North Carolina Superior Court in your county) to remove the lien. Your grounds for removing the lien might include that the contractor never did the work that the lien claims, or that the work was already compensated.
You can also attack legal deficiencies in the lien. One of the single most common legal deficiencies in a North Carolina lien is that it is filed too late. A lienor has exactly 120 days to file the lien from the date that materials were last provided or that work was last performed on the property. Moreover, per the terms of N.C. Gen. Stat. § 44A-11, the owner of the property must be simultaneously served with the lien in order for it to be valid. If the lienor worked as a subcontractor to a general contractor, the general contractor must also be served in addition to the owner. North Carolina courts will strictly enforce the deadline and service requirements.
In other words, a contractor would have about three months in which to file a lien on your property, starting from the date that work was last done on the project. If the contractor waits longer than that—and many might forget the deadline—then you can petition to have the lien stricken from the property record. Ditto if the contractor forgets to formally serve you (and the general contractor, if any) with a copy of the lien.
Being served with a lien can be frightening. You thought that your home renovation project would be simple, and now you find yourself defending the title to your home.
Remain calm. Remember, very few North Carolina contractors are excited about the idea of prolonged, expensive litigation. To the contrary, most would prefer to settle the dispute quickly and move to other construction projects. Business owners know that litigation can be a tremendous distraction. Consequently, you are in a strong position to settle with the contractor so that he or she can move on with business and you can move on with your life.
But if there is no hope of coming to a reasonable middle ground between your position and the contractor’s, North Carolina law gives you a number of legal tools with which to remove the lien from your property record. It might be worth consulting a real estate or construction attorney with experience in the region. For more on retaining a lawyer, check out Guide to Finding an Excellent Attorney.