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Claims of Lien and Their Protection of Contractors

Claims of Lien and Their Protection of Contractors

In North Carolina, lien laws provide protection for general contractors and most sub-contractors who aren’t paid for the work they do on a construction project. Filing a lien if you’re not paid properly on a project ties up—or encumbers—the property until the debt is paid or discharged.  Two types of liens exist in North Carolina:  a claim of lien on real property and a claim of lien on funds.  Many individuals in the construction industry don’t know the importance of these two types of liens, or the strict timeframes within which they must be filed.

Claim of Lien on Real Property

A lien on real property ties up the property owner’s property, leaving them unable to effectively market the land for sale until the lien is paid or discharged.  For an unpaid contractor or subcontractor to file this type of lien, they must do so no later than 120 days after their last date of furnishing labor or materials.  Typically, filing a lien gets the parties talking again and moves them towards settling any payment issues.  If after filing the lien the parties are still unable to reach a settlement, the contractor or subcontractor must file suit to enforce the lien within 180 days after their last date of furnishing labor or materials.

These 120 and 180-day deadlines are strictly enforced by the courts, so all contractors and subcontractors must keep accurate records regarding labor and materials, or risk losing their right to file a lien all together.  If the filer of a lien ultimately prevails in their lawsuit, the court may order that the property lien be sold, and the proceeds from the sale be awarded to the contractor or subcontractor to satisfy their claim.

Claim of Lien on Funds

A lien on funds is a bit like a lien on real property, but it is specifically designed to protect subcontractors who were not paid by general contractors for their work on a project. For example, if a general contractor doesn’t pay a subcontractor, like an electrician, then the homeowner who ordered the work from the general contractor may be notified of a claim of lien on funds by the electrician.  The person receiving notice of a claim of lien on funds must hold on to any money that would have gone to the general contractor that is subject to the lien. If the homeowner pays the general contractor after receiving notice of the claim of lien on funds, he or she may be liable to pay the electrician directly for the amount owed by the general contractor to the electrician.

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