What is a Lien Agent? What Does a Lien Agent Do? Is a Lien Agent Necessary?
Author: R. Lee Robertson, Jr., Managing Partner, Robertson & Associates
One of the most common—and confusing—questions about the North Carolina lien process is the role of the lien agent: what a lien agent is, what a lien agent does, and whether a lien agent is even necessary in the first place.
With fifty states, that’s fifty different processes for filing a lien (fifty-one, counting Washington, D.C.); it’s no wonder that contractors and subcontractors alike find themselves confused about where to start.
Frequently, the lien process begins well before a supplier delivers materials to a project, a contractor provides labor to a project, or an owner fails to pay for work to the owner’s property. In North Carolina it begins with notifying a lien agent of the potential lien claim.
This article reviews these questions generally, and then provides specific details about a lien agent’s roles and responsibilities in North Carolina.
Lien Agents, Generally
Generally, lien agents are designed to prevent the problem of “hidden” lien rights. Hidden lien rights, as the name implies, are lien rights that may exist without an owner, or more importantly, a subsequent owner, being aware. Often, the subject property may be sold to a new owner in between the time of first furnishing and the time a claim of lien is actually filed, irrespective of who owns the property at the time the claim of lien is asserted.
Let’s Review an Example
Consider, for example, an owner who elects to place their home on the market. Before doing so, the owner hires a general contractor to perform some small renovations to the property to make the home more appealing and marketable.
As a part of those renovations, the general contractor hires a painting subcontractor to paint the interior of the home. But, for a variety of reasons, the general contractor refuses to pay the painter after the painter finishes the work. The owner is unaware of the dispute between the general contractor and the painter, but thanks to the painter’s good work, can sell the home a week after its listed.
Two months later, after negotiations between the painter and the general contractor fail, the painter files a lien on the property. Only by then, the home no longer belongs to the owner who commissioned the work in the first place; it was sold shortly after the work was completed to another owner—an owner who has no idea that there is an unpaid contractor that did work and an unpaid painter who believes he has an interest in the new owner’s home. In these situations, it is often the case the new owner first learns about their interests because the new owner receives a claim of lien in the mail.
The Lien Agent System to the Rescue
This is precisely the problem the lien agent system is designed to prevent. Under the lien agent system, a contractor or subcontractor who contracts to perform work at the property, whether supplying materials or performing services, notifies the lien agent of that contractor or subcontractor’s potential lien claim.
To be clear: a potential lien claim is very different from an actual lien claim (a process which is often controlled by stringent technical requirements), but rather, a notice to lien agent simply alerts the owner and any subsequent purchasers that the contractor or subcontractor may have a lien right should that contractor or subcontractor not be paid for the work performed or the materials provided to the property.
By providing this notice, usually to a designated agency or database, any potential purchaser is on constructive notice that lien claims may be filed at some point after the purchaser purchases real property. By confirming with the central database or agency, a potential purchaser can satisfy themselves that the seller is providing clear title, or that the seller is providing title subject to any potential lien claims that may ripen to actual lien claims should these contractors or subcontractors not actually be paid. Usually, as a part of the closing process, the buyer will demand that the seller obtain lien waivers from all these potential lien claimants to ensure that the property is being conveyed free from any hidden liens.
To be clear: failing to serve a notice to lien agent may not necessarily be fatal to the contractor or subcontractor’s claim of lien insofar as that claim of lien is properly filed before the property changes hands. But, to the extent that the property changes hands before filing a claim of lien, failing to file a notice to lien agent may terminate the contractor or subcontractor’s lien rights. Whether the contractor or subcontractor may still have additional contractual rights against the former owner is another story, but the key is that in every instance, to preserve a contractor or subcontractor’s lien rights, that contractor or subcontractor should ensure a notice is properly served on the lien agent prior to delivering any materials or providing any services.
North Carolina Notice of Lien Agents
North Carolina created its lien agent process in 2013 to deal with the hidden lien problem. In North Carolina, a contractor or subcontractor has 120-days from the last date of furnishing of labor or materials to file and serve a claim of lien on the real property. As outlined above, property sometimes changes hands during this 120-day window, and often owners found themselves dealing with claims of liens from unknown contractors and subcontractors with whom they have no contract.
As a result, pursuant to North Carolina law, any owner who contracts for work of at least $30,000, must designate a lien agent to receive notice from potential lien claimants. A lien agent is a title insurance company, selected by the owner from a list of pre-approved title insurance companies by the North Carolina Department of Insurance, designated to receive notices to lien agent.
The owner must select a lien agent “no later than the time the owner first contracts with any person to improve the real property,” whether it be a design professional, a surveyor, a site contractor, or any other party.
The lien agent’s identity may be found:
- On the project’s building permit;
- By written request to the owner.
The Role of www.LiensNC.com
North Carolina, like several other states, created a specific online tool—www.LiensNC.com—which is designed to centralize both the selection of a lien agent and the delivery of these notices to that lien agent.
To select a lien agent, an owner (or contractor, depending on the relationship), simply selects a lien agent from the pre-approved list and describes the project and identifies the address. Therefore, any contractor or subcontractor who is required to serve a notice to lien agent can log in, locate the project, and provide the notice in an online form.
From start to finish, the process takes less than ten minutes. And, because North Carolina requires all real estate closings to be performed by an attorney, the closing attorney has the obligation of confirming, on behalf of the buyer, that the seller is delivering clear title by confirming with LiensNC that all potential liens have been waived or that the buyer is aware of the risks.
Importantly, even though North Carolina law requires filing a notice to lien agent, a contractor or subcontractor who fails to serve the notice will only lose their lien rights if the property is conveyed during the above-mentioned 120-day window.