Jude “Liens” on Forms Guy

Dear Forms Guy: I just overheard this really smart broker say that they’ve changed all the laws about how to get a lien on someone’s property if they don’t pay for labor or materials provided to the property. It kind of freaked me out. Is she right?

Sincerely, Jude

Dear Jude: Yes, that’s right. Effective April 1st, a significant change to North Carolina’s mechanics’ lien law took effect.

Sincerely, Forms Guy

Jude: So am I going to have to learn all about all the new lien law? It sounds so complicated. OMG! Help!

Forms Guy: Hey Jude, don’t be afraid. A real estate agent should become generally familiar with the new law; however, the identification and proper handling of potential liens on property that is the subject of a real estate transaction has been and will continue to be the responsibility of the closing attorney.

Jude: Whew! That’s good to hear. Can you give me a general idea of how the new law will work?

Forms Guy: Sure. As a short refresher, the mechanics’ lien laws that were in effect prior to April 1st permitted persons who supplied labor, materials or certain services to property that was being improved to file a claim of lien on the property to secure payment of what was owed to them. These liens could be filed after a property was transferred and yet “relate back” to a date before the transfer that the labor, materials or services were first provided. Such “hidden” liens would not show up on a title search. As a result, a seller was required to furnish at settlement an affidavit verifying that any person entitled to claim the benefit of such a lien had been paid in full.

Jude: Those kind of claims were covered by the buyer’s title insurance policy, right?

Forms Guy: Title insurance policies typically provided coverage against such liens, and for many years the title companies paid off occasional mechanics’ liens as a cost of business. However, when the recession hit the construction industry, title insurers experienced a significant increase in title insurance claims resulting from hidden liens. As a result, the title insurance industry successfully lobbied for changes to the lien law.

Jude: So does this new law replace the existing lien law?

Forms Guy: The new lien law applies to projects to improve real property for which the anticipated cost of the project at the time the building permit is issued is $30,000.00 or more. However, the new law will not apply to improvements to an existing single-family residential dwelling unit that is used by the owner as a residence. The lien law that existed prior to April 1st will still apply to projects that aren’t subject to the new law.

Jude: So how is the new law going to work?

Forms Guy: The new law is designed to protect buyers and title insurance companies from liens filed after a title policy is issued and the property is transferred by requiring potential lien claimants to provide notice of their involvement on a project before the property is transferred. Notice must be given to a “lien agent” who the owner of the property being improved will be required to designate. The lien agent will be a title insurance company chosen from among a list of registered lien agents that will be maintained by the Department of Insurance.

Jude: How will the designation process work and how will potential lien claimants know who to notify?

Forms Guy: The title insurance industry in North Carolina has collaborated on the development of a web site at www. liensnc.com which will enable a lien agent to be designated online. The owner will be required to give notice of the lien agent’s contact information, either by posting the information on the project site or by providing the information to a potential lien claimant on request. Lien claimants will be able to use the web site to notify the lien agent of their claims. The attorney closing a transaction subject to the new law will be able to search the web site to get the names of any persons who have notified the lien agent of their potential lien. The attorney will require all such persons to sign a lien waiver confirming that they have been paid in full. The claim of any potential lien claimant who refuses to sign a lien waiver will need to be addressed before the closing can take place.

Jude: You said that the new law won’t apply to improve- ments to an existing single-family residential dwelling unit that is used by the owner as a residence. When will it apply?

Forms Guy: The great majority of real estate transactions that will be subject to the new law will involve sales of new construction and sales by investors who have purchased and made significant improvements to the property being sold. It is important to understand, as I mentioned before, that the existing lien law will continue to apply to the sale of an existing single-family residential dwelling unit used by the owner as a residence.

Jude: Will real estate agents be expected to figure out whether the new lien law will apply to a property being sold?

Forms Guy: As I said at the beginning of our conversation, a real estate agent should become generally familiar with the new law. In most instances, it will be very clear whether the new or existing lien law will apply and whether a lien agent should or should not be designated. In some instances, it may not be so clear. In those situations, questions about whether the law will apply and if so, how it will work, should be answered by a North Carolina real property lawyer.

Jude: Are there going to be changes to NCAR’s forms because of the new law?

Forms Guy: Work is currently underway to identify and address any changes that may need to be made to NCAR’s standard forms as a result of the new law. Any changes likely will become effective this coming July 1st. Additional information will be made available on any changes that may be approved as soon as possible.

Jude: Thanks, Forms Guy. I was sad but you’ve made it better.

Forms Guy: Guy: Sure, Jude. Don’t carry the world on your shoulders. Call me anytime! v person’s first initial and last name@ncrealtors.org. Our fax number is 336-299-7872.

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