Understanding Mechanic’s Liens: How and Why You Should File
When a contractor or subcontractor provides services, it expects compensation when the work is completed. Unfortunately, for one reason or another not every client pays in a timely manner. Because of this, states allow contractors to file a mechanic’s (or construction) lien against a client’s property to secure payment.
For example, if a contractor completes a new garage for a client, but the client neglects to pay, then the contractor may file a lien on real property to entice the customer to pay. Eventually, if the account remains unpaid, the contractor may foreclose against the property and collect the amount due.
Mechanic’s and construction liens are created by complex state statutes. Someone filing a lien must strictly comply with the statutes’ requirements or risk having a legally unenforceable lien.
Because of the complexities involved, it is advisable to speak with an experienced collections or construction law attorney who can serve as a guide throughout the process.
Requirements for Filing a Mechanic’s or Construction Lien
A customer’s obligation to pay matures upon completion of the project. The time limit for filing a lien is dictated by the state where the work was done. Most states have a 90 day filing deadline, while North Carolina’s is 120 days, measured from the last substantial furnishing of labor and/or materials on the property. Any lien filed after this deadline will not be enforceable against the property.
Next, the lien must be filed in the county where the property upon which work was performed is located. A lien will again be unenforceable if filed in an improper venue.
Additionally, states have varying notice requirements about how to inform interested parties about the lien. Interested parties often include the client, the general contractor, subcontractors, suppliers and often lending institutions. Giving proper notice is extremely important and is aimed at preventing future surprises or obstacles.
Finally, in North Carolina, a lien on real property must also be perfected by filing a lawsuit in the county where the property upon which work was performed is located. The lawsuit must be filed within 180 days from the date of last substantial furnishing of labor and/or materials on the property. If the lawsuit is not filed in a timely manner, the claim of lien will no longer be valid. It is important that a qualified collections or construction law attorney prepare and file the lawsuit because of the procedural complexities involved.
Foreclosure and Receiving Payment
Hopefully, after a lien is properly filed, the mere threat of foreclosure will persuade a customer to pay their creditor. In the instances where a customer still cannot, or will not, pay, then the creditor must file the lien perfection lawsuit and ultimately, foreclose on the property and collect payment in an amount equal to their claim.
Please note that this article greatly condenses lien law and an experienced lien attorney should be consulted to ensure this complicated set of procedures is followed precisely.