How to File a Mechanic's Lien in North Carolina

Under North Carolina law, an individual should file a mechanic’s lien with the clerk of superior court in the county where the property is located. A person who files a mechanic’s lien on real property should be one who performs labor, professional design or surveying services, or furnishes materials or rental equipment with an owner of real property with the goal of improving the real property.

The individual who files a mechanic’s lien may be a general contractor, but can also be one or more subcontractors.

An individual should perfect a claim of lien on real property, or establish their priority right to be paid, by personally delivering a copy of the claim of the lien upon the recipient or depositing a copy in a postpaid, properly addressed envelope at the post office or a mailbox under the exclusive care and custody of the U.S. Postal Service.

Service of the claim does not require proof of actual receipt. The envelope addressed to the party is deemed properly addressed if it uses one of these addresses:

• Party to be served who is listed on the permit issued for the improvement.
• Party to be served who is listed with the tax rolls for any county in North Carolina.
• Registered agent for the party to be served who is listed with the North Carolina Secretary of State’s office.

An individual filing a claim of lien may do so within 120 days of the last time they performed work or provided materials. The court charges a filing fee, and costs vary by county. For example, in Dare County, the fee is $6.00 for the first page and $0.25 for each additional page.

The document that the lien claimant provides to the court should contain:

• Name and address of the lien claimant.
• Name and address of the record owner of the real property.
• Name of the contractor through which a subrogation is being asserted, if this is occurring.
• Description of the real property including street address, tax lot and block number, reference to recorded instrument or any other description that reasonably identifies what is described.
• Name and address of the person with whom the claimant contracted for the furnishing of labor or materials.
• Date upon which labor or materials were first furnished by the claimant.
• Date upon which labor or materials were last furnished by the claimant.
• General description of the labor performed or materials furnished. An itemized list of materials or detailed statement of labor performed is not needed.
  
• Amount claimed.

The claimant may file an additional copy of the claim with any receiver, referee in bankruptcy or assignee for benefit of creditors who obtains legal authority over the real property. A claimant may not amend the lien.

They or their authorized agent or attorney can cancel the lien and can substitute a new claim of lien within the time provided for the original filing, meaning within 120 days of the last time the claimant performed work or provided materials.

An agreement to waive the right to file a claim of lien is against public policy and is unenforceable. This rule does not prohibit the subordination of a lien, the placement in a lower class of a lien or the release of a lien.

According to the lien law, a claimant may enforce their lien rights in any county where venue is proper. The claimant may not commence an action or file a lawsuit later than 180 days after the last time they provided materials or made the improvement.

If title to the real property is vested in a receiver or subject to the control of the bankruptcy court, the claim of lien shall be enforced in accordance with the orders of the court with jurisdiction over the real property.

The filing of a proof of claim with a receiver or in bankruptcy and the filing of a notice of lis pendens – a pending legal action – in each county where the real property subject to the claim is located by the time required satisfies the requirement for commencement of a civil action.

A judgment enforcing a lien may be entered for the principal amount due. The judgment will direct a sale of the real property subject to the lien. In order for the sale to pass all title and interest of the property owner to the purchaser, a notice of lis pendens shall be filed in each county in which the real property is located except the county in which action is commenced.

The notice of lis pendens shall be filed within 180 days of the last provision of materials or work performed by the lien claimant. If neither an action nor a notice of lis pendens is filed, the judgment will not direct a sale of the real property nor be entitled to priority. The judgment will only be entitled to priorities accorded by law to money judgments.

A first-tier subcontractor who provided labor, materials or rental equipment at the site of the improvement has a lien upon funds owed to the contractor with whom that subcontractor dealt. The matter must have arisen out of the improvement on which the first-tier subcontractor worked or provided materials.

A second-tier contractor who provided labor, materials or rental equipment at the site of the improvement has a lien upon funds owed to the first-tier subcontractor with whom the second-tier subcontractor dealt. The second-tier subcontractor will be subrogated, or substituted, to the lien upon funds of the first-tier contractor.

The second-tier subcontractor should perfect their lien by service of the notice of claim of lien upon funds to the extent of the claim.

A third-tier subcontractor who provided labor, materials or rental equipment at the site of the improvement has a lien upon funds owed to the second-tier subcontractor with whom the third-tier subcontractor dealt. That subcontractor will be subrogated to the lien upon funds of the second-tier contractor with whom they dealt and upon funds of the first-tier subcontractor with whom the second-tier contractor dealt to the extent the second-tier subcontractor is subrogated.

The third-tier contractor should perfect their lien by service of the notice of claim of lien upon funds to the extent of the claim.

Subcontractors more remote than the third tier have a lien upon funds owed to the person with whom they dealt. Remote tier subcontractors are not entitled to subrogation to the rights of other persons. Liens will include interest at the legal rate. This means at the interest stated in the contract between the parties. If no interest rate is stated in the contract, the legal rate is 8 percent.

The liens upon the funds secures amounts earned by the lien claimant whether or not these amounts are due and whether or not performance or delivery is complete. If there are insufficient funds to satisfy all lien claimants, subcontractor lien claimants may recover the interest due on a pro rata, or proportional, basis.

In no event will the interest increase the liability of the obligor, or the person who owes the debt. A lien is effective upon the first furnishing of labor, materials or rental equipment at the site of the improvement by a subcontractor.

A lien upon funds is perfected by giving notice of claim of lien upon funds in writing to the obligor, or person who owes payment. Until a lien claimant gives notice of a claim in writing to the obligor, any owner, contractor or subcontractor may make, receive, use or collect payments on the lien. They may use the proceeds of the lien in the ordinary course of their business.

A notice of claim of lien should provide:

• Name and address of the person claiming the lien.
• General description of the real property improved.
• Name and address of the person with whom the lien claimant contracted to improve real property.
• Name and address of each person against or through whom subrogation rights are claimed.
• General description of the contract and the person against whose interest the lien upon funds is claimed.
  
• Amount of the lien upon funds claimed by the lien claimant under the contract.

Mechanic's liens have priority over all other interests or claims previously or subsequently created. These include liens arising from garnishment, attachment, levy, judgment, assignments, security interests and other types of transfers, whether voluntary or involuntary.

A person who receives payment from an obligor in bad faith with knowledge of a lien upon funds will take the payment subject to the lien upon funds.

A lien claimant can discharge a lien by:

• Acknowledging or having their agent or attorney acknowledge satisfaction of the claim of lien on real property. After that, the clerk of superior court will record an entry of the acknowledgment of satisfaction. This entry will be signed by the lien claimant of record or their agent or attorney and witnessed by the clerk of superior court.

• Exhibiting an instrument of satisfaction signed and acknowledged by the lien claimant. The instrument should state that the claim has been paid or satisfied. Then the clerk of superior court will cancel the claim of lien by entry of satisfaction on the record.

• Failure to enforce the claim of lien within the time prescribed.

• Filing in the office of the clerk of superior court the original or certified copy of a judgment or decree of a court showing the action by the claimant to enforce the claim has been dismissed or finally determined adversely to the claimant. “Finally determined adversely” means the decision is final and there is no pending appeal of the decision.

• Depositing a sum equal to the amount of the claim with the clerk of court to be applied to the payment finally determined to be due. Then the clerk of superior court will cancel the claim.

• Depositing with the clerk of the court a corporate surety bond in a sum equal to one and one-fourth times the amount of the claim finally determined to be due. Then the clerk of superior court will cancel the claim.

The clerk may release funds held or a corporate surety bond if they receive written agreement of the parties, a final judgment of a court, or a consent order. A consent order is a voluntary agreement worked out between multiple parties which can be enforced by the court.

For improvements performed in conjunction with a development contract, a claim or claims may also be discharged by the private developer and the surety, a person who agrees to pay the debt of another, on a payment bond.

The claim of lien may be discharged by the private developer and surety jointly filing with the clerk of superior court a copy of the payment bond and an affidavit executed by the surety.

The penal sum is the maximum amount set forth which the surety must pay in case the principal defaults. When an individual’s lien claim is discharged, the claimant will have one year from the date of being served with the payment bond and affidavit to file suit on the payment bond.

As of the date of the filing of the payment bond with the clerk of superior court, the affidavit will state the amount of the penal sum, minus amounts paid in good faith to other claimants on the project and minus the amount of all other claims of lien on the real property improved by the project exceeds the amount claimed by the lien claim being discharged by at least 125 percent.