Recent Changes to North Carolina’s Mechanic’s Lien Statutes and Introduction to the On-Line Filing System for Notices to Lien Agents David P. Ferrell, Esq. Vandeventer Black LLP March 26, 2014

Your PENC Presenter 2

Overview Mechanics’ Lien statute – basics Intro to forms applicable, depending on circumstances Lien Agents – – applicability – design professionals LiensNC 3

Lien Lien Law Basics 4

N.C. Constitution Article X, Section 3 – “The General Assembly shall provide by proper legislation for giving to mechanics and laborers an adequate lien on the subject-matter of their labor” 5

N.C.G.S. Chapter 44A Article 2 – Liens & Lien Agents – Part One—Liens by Persons who Deal with Owner – Part Two—Liens by Persons who Deal with Someone other than Owner Article 3 – Public Projects – “Little Miller Act” – Model Payment and Performance Bonds – NO LIENS OR LIEN AGENTS 6

Mechanic’s Lien Law Design professional, contractor, subcontractor, or material supplier may file a claim of lien on real property within 120 days of completion of work Priority of the claim of lien relates back to the first furnishing of labor, services or material Even if date is several YEARS after innocent purchaser for value or lender acquires interest 7

Mechanic’s Lien Law No requirement that lien or any notice whatsoever be of record prior to the transfer of the property in order to have priority over purchasers or lenders Lien takes priority over the lender’s deed of trust and the innocent purchaser’s interest in the property 8

Mechanic’s Lien Law Work may not be “visible” – Design documents Work or materials may be incorporated into complex construction Almost anything can constitute “work” or “materials” 9

Result: Hidden Mechanic’s Liens Lien has priority Has resulted in prolonged litigation against hundreds of purchasers, lenders and their title insurance companies Millions of dollars lost/paid in claims 10

“Hidden Lien” “Claim” relates back to first furnishing “Claim of lien” does not have to be filed until 120 days after last furnishing Buyers, Lenders and even lien claimants could not be protected when the money was on the table! 11

Owner A person who has an interest in the real property improved and for whom an improvement is made and who ordered the improvement to be made. includes successors in interest of the owner and agents of the owner acting within their authority. G.S. 44A-7(6) Includes “contract purchaser” who is planning construction – purchase/construction loan Dalton Moran Shook vs. Pitt Dev. Co. (1992) 12

“Contractor” Contractor – A person who contracts with an owner to improve real property §44A-7(3) Has nothing to do with whether they are a “general contractor” or licensed under Ch. 87!! NOT THE OWNER! 13

“Design Professionals” – classic “first furnishers”, starting the project Architects, engineers, surveyors – Owner must provide name and contact info of MLA to design professional within 15 days of appointment of lien agent – May designate lien agent in contract with design professional 14

Mechanics’ Lien Agent Law Effective April 1, 2013 Projects: First contracted after April 1, 2013 Over $30,000 Residential or commercial NOT renovation to property used by Owner as a residence (no matter price) Whether or not a building permit is needed 15

Mechanics’ Lien Agent Law Owner must: appoint lien agent post at job site Provide info to contractors & subs Lien Agent must be a title insurance underwriter or agent registered with NC Dept. of Insurance 16

Preserving priority of potential lien claimant’s lien rights: Notice to Lien Agent must be filed with MLA before: deed or deed of trust recording (or) within 15 days of first furnishing labor or materials at the site By filing traditional Claim of Lien on Real Property prior to deed or deed of trust recording 17

Form of Notice to Lien Agent – Statutory Form NOTICE TO LIEN AGENT 1.Potential lien claimant's name, mailing address, telephone number, fax number (if available), and electronic mailing address (if available): 2. Name of the party with whom the potential lien claimant has contracted to improve the real property described below: 3.A description of the real property sufficient to identify the real property, such as the name of the project, if applicable, the physical address as shown on the building permit or notice received from the owner: 4.I give notice of my right subsequently to pursue a claim of lien for improvements to the real property described in this notice. Dated:___________________ _________________________ Potential Lien Claimant 18

Lien Agent must be a title insurance underwriter or agent registered with NC Dept. of Insurance ALL registered lien agents operate exclusively through LiensNC.com ! 19

North Carolina Land Title Association Forms Forms 20

Mechanics’ Liens Pre-April 1 Start OR No Lien Agent Construction Loan – Form 3 – Owner ALL contractors Completed Construction – Form 2 – Owner ALL contractors Post-April 1 Start & Lien Agent Appointed Form 5 – Owner Construction Loan – Form 7 (or 6) Notice filers First furnishers in last 15 days Completed Construction – Form 6 Notice filers First furnishers in last 15 days 21

NCLTA Lien Forms NCLTA has adopted lien forms to address the MLA bill, approved March 19, 2013, being revised currently. 22

NCLTA Lien Forms NCLTA has adopted lien forms to address the MLA bill, approved March 19, 2013 being revised currently. 23

Coming soon … Revised NCLTA forms On-line at 24

LiensNC – Search & Report 25

LiensNC.com 26

Preparing for Closing Goal: locate hidden liens before closing Check public record Review Offer to Purchase and Contract Check LiensNC.com website Enter “Closing Notice” on the Appointment for this property to receive: – Related Filings Report – Notice of any future filings Consider 15-day window – Landscaping, cleaning, commissioning, seal coating, line painting, other painting – ‘Finish’ contractors REAL TIME ! 27

Registered Address for ALL Lien Agents:LiensNC 28

On-line assistance & information 29

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Three Things to Remember 1. LiensNC.com—Entry number 2. This is not the Register of Deeds 3. Closing attorney should check within 24 hours prior to recording/closing 31

Login to the app:

Search Period FROM: “FIRST CONTRACTING” Before the survey Before the plat (for developer) Before the architectural drawings (for new condo) Before the purchase (for acquisition/construction loan) THROUGH: “LAST 15 DAYS PRIOR TO CLOSING” (so search to date of closing & Form 5, 6 & 7 include latest providers) PLC’s can file 15 days after first furnishing, -- which may be post-closing if first furnishing is just before closing Remember: Work often “starts” before they own the property. See Pitt Dev. V. Dalton Moran Shook 33

Entry Number Best method to properly ID your subject property and project Entry Number appears on building permit, NCBA Offer to Purchase (newest version), other contract documents May be more than one Entry Number for project (Subdivision, Phase and Lot) 34

Entry Number search 35

No Entry Number? What next? This is NOT the Register of Deeds Database is based on property, not owner name Search any one of: – Appointment of Lien Agent – Potential Lien Claimant – Property Address – Other Legal Description 36

Search Tips No wild card Start simple and literal DO USE – Distinctive words (Owner, street name) – Connectors (ALL CAPS)  AND, OR, NOT – Quotation marks “ “ around multiple words that have to appear together precisely DO NOT USE – Common words (North or Smith) – Abbreviated words or initials Avoid: “St” or “Rd” or “Dr”) Avoid: “D.R.” or “DR” or “D R ” – Plurals: Builder vs. Builders – Remember: Work often “starts” before they own the property. See Pitt Dev. V. Dalton Moran Shook 37

Advanced Search Options 38

Search Example 39

Search Example 40

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Search Example 44

Related Filings Report ALL INFORMATION On-screen Download or Choose “Closing Notice” and it will be automatically ed to you as well as notice of any future filings on this Entry Number NO “DOCUMENTS” TO REVIEW!! Print or Download 45

Analyze Results Owner Contractor Design Professionals Potential Lien Claimants Pre-permit Workers (earlier filings) 46

Commenting Option 47

False Lien Waivers Still a Class 1 Misdemeanor Now jeopardizes contractor’s license 48

Future Changes Under Consideration 49

LLC Administrative Utility 50

Administrative Utility – Site Statistics 51

Administrative Utility – Improved Communications Login Page Welcome Message Notifications 52

User Data Collection – Account Signup 53

User Data Collection – User / Group Profiles 54

User Data Collection – Company Group Profiles & Permissions for Account Signup 55

Other Future Updates in the Works Additional Online Possibilities  Waivers/Revocations User Data Collection  Prepopulating Data  eWallet Static Website Improvements  Social Media  Mobile App 56

Questions? 57

David P. Ferrell, Esq Vandeventer Black LLP 434 Fayetteville Street Suite 2000 P.O. Box 2599 Raleigh, NC (919) (919) (fax) 58