NCBA section takes on ‘arduous task’ of updating lien laws

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 By SYLVIA ADCOCK, Staff Writer

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Engineers, contractors, subcontractors, suppliers, lenders, builders, title insurers and equipment rental suppliers.

Those are just a few of the constituencies in construction law – probably one of the broadest practice areas in terms of a client base. And with so many diverse and competing interests, it’s been difficult to get a consensus on how to do something everyone agrees must be done: Change the state’s lien laws.

It’s been nearly 40 years since the statutes – G.S. § 44A, articles 2 and 3 – have had any substantial revision, and many say it’s long overdue.

Nan E. Hannah, head of the N.C. Bar Association’s Construction Law Section, said recent bankruptcy decisions, economic factors, concerns in the title industry and other issues led the section to “take a really hard look at the lien law” this year.

 “In 1968 my parents built a house,” she said. “They bought a lot, hired an architect and a contractor, and mom and dad owned the dirt. … Today we have tract builders, multi-use projects, public/private projects. The world has changed.”

The NCBA’s Construction Law Section council, representing 577 members, has come up with proposed revisions to the statutes, but last week the specifics were still being discussed.

Hannah, of Vann & Sheridan’s Raleigh office, said she wants a “clear majority” from the council in support of any proposal before taking the next step and approaching the legislature. The council was scheduled to meet last week in Charlotte.

Stakeholders in the process sometimes have competing interests. “Trying to build consensus has been rough,” Hannah said. “You try to change one little thing, and everybody else lines up against it.”

One provision is of particular importance to general contractors, who have fought hard to do away with a system that allows “double payments.” This occurs when a contractor hires a subcontractor, and the sub then fails to pay its subcontractors or suppliers. The contractor pays its sub, but then the suppliers and subcontractors downstream who were never paid can put a claim on the contractor’s bond – meaning the general contractor is paying twice for the same work.

The solution under the proposal being considered by the NCBA is to require any potential bond claimants to give the general contractor written notice that they are working on the project, and the contractors can then make sure the downstream subs are being paid.

“There is a huge problem in North Carolina with building contractors who are having to pay twice for the same thing,” said Dave Simpson, a lobbyist for the Carolinas Association of General Contractors. “They’re paying a sub who is in turn not paying a supplier, and the lower tier is coming back on the contractor.”

Some subcontractors are not happy with that change because it will create more paperwork. But others feel that it will improve chances of getting paid without having to file a lien.

Another concern that would be addressed in the proposal is what the title insurance industry has characterized as “hidden liens.” For example, under current law, after closing, if a subcontractor hasn’t been paid by the contractor, the sub has 120 days from the time the work is completed to file a lien on the real property. The homeowner can then file a claim against the title insurer.

Under the draft proposal, the owner or the general contractor would be required to file a notice of commencement in the county clerk’s office before work begins, and the priority of claims of lien on real property would relate back to the date and time of the filing of the notice of commencement.

Ken Fromknecht of Franklin, the chairman of the section’s drafting subcommittee, who also represents some title insurance clients, said the provision would help the title searcher know with certainty when the title is clear.

Fromknecht said he believes the draft proposal is a good one. “There’s something in here for everyone,” he said. “There are some things that I don’t think hurt you but require you to be diligent.”

“We’re not going to make it so that it’s risk-free – but everybody has to do their job,” Hannah said.

Along with trying to get consensus, Hannah and her group have tried not to forget about the “dashboard contractor” with an office on the kitchen table and a “desk” on the truck’s dashboard. “If you create a process with too much paperwork, that might hurt them,” she said.

“The reality is that our section is made up of a broad cross-section of the bar with diverse views and this is very controversial issue within the section,” Hannah wrote in message to section members last month, saying that putting together a proposal has been an “arduous task.”