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North Carolina’s lien agent statute, which went into effect on April 1 last year, celebrated its first birthday yesterday.
Didn’t join the party? I can’t say I’m surprised.
UPDATE 3/11/14 7:00 p.m. I just received word that the N.C. Land Title Association believes it needs more time to explain to other construction industry stakeholders the concerns giving rise to its legislative proposals. As a result, NCLTA has decided not to pursue its current proposals as part of the legislative study committee’s recommendations for legislation during the upcoming short session. NCLTA will seek to discuss its concerns with interested stakeholders over the next few months in the hope of reaching a consensus on solutions that can be recommended as legislation during the 2015 long session. In the interim, I am leaving this post up for informational purposes only.
With apologies to Yogi Berra, it’s déjà vu all over again.
Like in 2012, when the N.C. Land Title Association (“NCLTA”) successfully guided lien agent legislation through the North Carolina General Assembly’s short session, the organization is once again promoting a policy proposal widely opposed by the contracting community in advance of the Legislature’s May reconvening for its abbreviated 2014 get-together.
This time, the NCLTA has the Claim of Lien Upon Funds in its sights.
Here’s what you need to know:
A couple of weeks ago, I posted my thoughts about the N.C. Court of Appeals’ recent decision in Ramey Kemp & Associates, Inc. v. Richmond Hills Residential Partners, LLC et al., which held that an engineer’s preparation of a project status update letter constituted what I call a “lienable activity,” i.e., an event sufficient to trigger the 120-day deadline for filing a mechanics’ lien under N.C. Gen. Stat. § 44A-12(b). In light of the Ramey Kemp decision, general contractors might well ask themselves, “Gee, if an engineer’s project status letter is a lienable activity on a construction project, how about the close-out paperwork I’ve gotta provide under my contract, particularly as-builts?” Good question. Continue reading
Ever since its passage last summer, North Carolina’s so-called “lien agent statute” has caused much consternation throughout the commercial construction industry, with many contractors, subs and suppliers worried that it will be inconvenient and expensive for them to comply with the statute’s various requirements (which I’ll be discussing in detail as my “Lien & Bond Law Revolution” series continues in the weeks ahead). The title insurance industry, however, has tried to assure leery potential lien claimants that an online application will make filing preliminary lien notices convenient and inexpensive.This week, we’ll get down to where the rubber meets the road on that assurance. Continue reading
This afternoon I attended the first lien law “Stakeholders’ Meeting” of the North Carolina General Assembly’s 2013 Regular Session. The purpose of today’s meeting was to give folks in support of and opposition to proposed legislation that would limit the state’s new lien agent notice requirements to one- and two-family dwelling units 30 minutes per side to argue their respective cases.
I spent just under ten minutes of the “pro” side’s time making an argument that I’ve memorialized in the letter attached, below. To read a larger version of the letter, click the expand button in the lower right-hand corner of the Scribd application.
This issue is still very much ripe for discussion, and so I invite and value your comments.
In a controversial 2-1 decision released October 2, 2012, the North Carolina Court of Appeals (“COA”) affirmed a trial court’s dismissal of a mechanic’s lien claim asserted by contractors who did not have a contract with the “Owner” of the improved real property as of the date of first furnishing — even though the “Owner” ultimately acquired title to the land during the course of the contractors’ performance.
The John Conner Construction, Inc. v. Grandfather Holding Co., Inc. decision is significant to the construction industry because it limits the reach of the term “Owner” as that term is used in North Carolina’s mechanic’s lien statutes. Since there was one dissenting vote from the three-judge panel, however, the case is likely to be reviewed by the N.C. Supreme Court, which could elect to expand who qualifies as an “Owner” for the purposes of the lien law.
A full exploration of the facts, holding, dissent and practical implications of the John Conner Construction decision follows:
Here’s a fact pattern worthy of a bar exam question:
A Trust intends to convey to Developer a 100%, undivided fee simple interest in a tract of land (for the non-lawyers, Trust seeks to convey the whole kit-and-kaboodle to Developer). Unfortunately, whoever prepares the deed effectuating this transaction is a tad sloppy, and mistakenly describes the estate conveyed as a “one-half fee simple interest,” rather than the full, undivided interest actually intended by the parties.
Along comes Lender, apparently unaware of the scrivener’s error, who provides construction financing to Developer for planned improvements to the parcel. The loan is secured by a deed of trust, of course, which describes Lender’s collateral as Developer’s full, undivided interest in the parcel (which, unbeknownst to Lender, Developer does not actually have, at least not yet).
Contractor then begins making improvements to the parcel, under the belief that Lender has a first-position priority interest in the parcel that pre-dates Contractor’s commencement of work. Contractor, however, is completely unaware of the scrivener’s error in the deed from Trust to Developer.
In time, Trust and Developer realize the error and record a corrected deed. When Lender catches wind of what has occurred, it, too, heads to the Registry of Deeds, re-recording its original deed of trust on the parcel. Ultimately, Contractor alleges it’s been stiffed by Developer, files a claim of lien, and then files a civil action to enforce its mechanic’s lien rights. The action names Lender for the purpose of determining the relative priorities in the parcel, as Contractor seeks a judgment that its mechanic’s lien rights are superior to Lender’s deed of trust, at least with respect to the one-half undivided interest that was not originally conveyed from Trust to Developer. Which party stands higher on the priority ladder with respect to that one-half interest — Lender or Contractor?
Pens down, bar examinees!
Fall is here, and in four short weeks, daylight savings time will “fall back” to eastern standard time. Many of us will mark the occasion by checking the batteries in our smoke detectors, getting a much-deserved extra hour of sleep, and then awakening to the harsh reality that darkness will arrive an hour earlier than the day before, and will continue to descend earlier and earlier until Old Man Winter is finally upon us. After enduring that chilling thought, we’ll walk through our respective homes and make sure all of our clocks, appliances and VCR’s (yep, I still have one) are set back an hour, to the proper time.
Filing a mechanics’ lien is a little bit like setting the clock back each Fall. Sure, the date stamp applied by the clerk of court upon docketing a Claim of Lien bears the date of filing, but the contractor’s security interest in the property actually “falls back” to an earlier point in time — specifically, the date of the contractor’s first performance as recited in the Claim of Lien itself. It is that date — and not the date of filing — that will establish the contractor’s priority in the property that is the subject of the contractor’s improvement vis-à-vis all other competing interests.
Or so we all thought, before the Business Court ruled in April 2010 that every partial lien waiver executed by a contractor in exchange for periodic payment effectively resets the date of first furnishing. In all candor, many of my fellow construction law practitioners and I were shocked by that result. Fortunately, order was restored this past July, when the Court of Appeals reversed the Business Court and held that a partial lien waiver does not affect a contractor’s place in the priority line. Still, the Wachovia v. Superior Construction case discussed in this Case Law Spotlight article should serve as a “check-the-batteries-in-the-smoke-detector” moment for all contractors across the State: now would be a good time to make sure the partial lien waivers you execute every month aren’t too overbroad. Details and analysis follow after the jump.