North Carolina Mechanic’s Lien Requirements
Particular attention should be given when recording a mechanic’s lien in North Carolina. Although the forms and notices used in this state are relatively simple, the law to be applied and the various lien rights between the general and the subs is very complicated.
In fact, this is one of the more difficult states, as far as understanding the intricacies of lien law. Even experienced contractors have some difficulty in following the parameters. For this reason, it is crucial that you read and re-read this section to get a good handle on this law.
Subcontractors have four possible mechanic’s lien rights (most states only allow a single right–a mechanic’s lien on the owner’s property): 1) lien on construction funds; 2) subrogation lien; 3) personal obligation of the owner; and 4) lien against the real property. But in most cases, a subcontractor does not have lien rights against an owner’s property. Why? Because North Carolina has come up with an interesting theory in protecting the rights of a subcontractor: If the correct lien forms are filled out by the various parties, the subcontractor does not have a lien against the owner’s real property, but only a right to freeze the construction funds. This a good idea for both the owner and the contractors because it prevents the encumbrance of one’s title, and at the same time protects the persons performing work. After all, isn’t it better to have a lien against funds as opposed to the property? It gives you immediate relief and a stronger guarantee of being paid.
So, the subcontractor has a right to file a North Carolina mechanic’s lien against the owner’s property only if the owner fails to abide by the various notices. The only exception is a “subrogation lien” which means that even if all the notices are given by the parties, the subcontractor can “piggyback” and get a portion of the general contractor’s lien. The phrase “subrogation” is a fancy term for substituting part of your rights for that of another. So, if the general contractor has a $50,000 lien and you are owed $5,000, you are able to subrogate to the extent of the $5,000 in that overall claim.
As far as general contractors, their lien rights are much simpler in North Carolina, since they are only allowed: 1) to sue the owner personally for breach of contract; or 2) have a mechanic’s lien against the property. By definition, the general is not allowed a subrogation lien or a lien against funds.
So when recording your North Carolina mechanic’s lien, be careful of the strict statutory requirements. More information: North Carolina mechanic’s lien law summary.