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In most states, there are few options for a party unpaid on a construction project.  Simplified, that party can generally 1) file a mechanic’s lien, or 2) sue the non-paying party for breach of contract.  That’s pretty much it.  Obviously that is not the case in all situations, in some states for example, another possibility would be to file a stop notice.

North Carolina, however, has rules and convoluted situations that can be frustrating to anybody, especially regarding subcontractor’s rights.  For answers to some frequently asked questions about liens and notices in North Carolina, you can go here.  To begin, here’s a list of the potential claims a subcontractor may be able to make in North Carolina: 1) a lien on the construction funds themselves, 2) a subrogation lien; 3) a claim on the personal obligation o fthe property owner; and 4) a lien against the real property.  The last option, a lien agains the real property is what one would generally think of as the archetypal mechanic’s lien.  And, somewhat confusingly, it is the remedy that a subcontractor in North Carolina is probably the least likely to be able to take advantage of.

In most cases in North Carolina, a subcontractor does not have the right to claim a lien against the real property.  Why is that?  In broad terms, the state wanted to provide protection to the subcontractor performing work, but not at the expense of the property owner’s title to the property.  In practical terms, the subcontractor is provided a right against the construction funds rather than against the property itself (like a stop notice) if the certain notices are given.  The subcontractor may have a lien against the property only if the notice requirements are not complied with.

That is not the whole story, however.  Even if the notices are complied with, a subcontractor may be entitled to a “subrogation lien”.  That means that the subcontractor will be able to hitch a ride on the general contractor’s lien, and claim the unpaid amount.  If this sounds confusing, it is.  A subcontractor is entitled to a lien on the real property either by  himself or through the general contractor as follows: 1) a 1st tier subcontractor is entitled to enforce the general contractor’s lien provided he follows the proper steps; 2) 1st, 2nd, and 3rd tier subcontractors are allowed to file a lien on the real property when they a) follow the steps to bring a claim against the construction funds, and b) the owner pays the general or sub anyway, without withholding the liened amount; 3) 2nd and 3rd tier subcontractors may enforce the the general contract’s lien unless the general contractor files and posts a notice of contract and the sub doesn’t send a notice of subcontract, or unless both notices are given and the general contractor serves written notice of payment within 5 days of receiving each payment.

Like always, mechanic’s lien law is convoluted and confusing.  We are hopeful this blog provides some help.

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