Lien agents aren’t discussed too often on our Construction Payment Blog, but we do get questions on them from time to time. They are required only in a small minority of states, but they’ve recently been considered in proposed legislation in several others. In fact, the most recent attempt at revamping the Texas lien laws included lien agent requirements.
But before we talk about lien agent requirements, let’s first answer the question, “what is a lien agent?”
What Is A Lien Agent?
Personally, when I think “agent” my mind goes straight to James Bond. (Of course, folks in the construction industry must be careful not to confuse 007 with a payment bond!)
Well, unlike James Bond, there’s nothing secret about a lien agent. Quite the contrary, the intention of a lien agent requirement is the exact opposite of keeping secrets – a lien agent is meant to protect project and property owners against hidden liens.
Typically, by the time a mechanics lien is filed on a project, some form of notice has already been provided to the relevant parties which generally includes the project owner and sometimes includes other parties such as the general contractor on the project. In fact, in the majority of states, preliminary notice is required prior to filing a mechanics lien. But despite this requirement, communication in the construction industry remains lackluster at best. It’s not uncommon for some subcontractors or suppliers on a project to perform work without the owner’s knowledge.
Not Just for Owners
Lien agents aren’t just for owners, though. For parties down the chain, finding a property owner on a project is no easy task. Lien agents are made highly visible, and they provide an obvious destination for subs and suppliers to send notice and/or claims.
For instance, in North Carolina, non-GC claimants on projects where a lien agent is required must send preliminary notice to the lien agent to preserve their rights. On residential projects in Virginia, subs and suppliers must also send a notice to the mechanics lien agent to preserve lien rights. In both states the information for these lien agents is contained on the building permits for these projects, but obtaining this information can still be a challenge. Plus, notice to the lien agent stands as one more barrier between a claimant and perfecting a lien claim.
Who Are These “Agents?”
In Virginia, a mechanics lien agent will be a Virginia attorney, a title insurance company, a title instance agent, or certain banking or savings institutions or service corporations. An owner can’t just pick one at random though – the lien agent must consent to act as an agent of the owner and must designate the relationship in writing. North Carolina takes a different route- lien agents may only be a title insurance company or title insurance agency and must be chosen from a list of registered lien agents. The proposed Texas changes are similar to the current system in North Carolina.
It’s important to note that title insurance companies and agencies are among the strongest proponents of legislation like this. It’s also important to note that these companies would be having their cake and eating it too – the dangers of “hidden liens” disappear and they get paid (by the property owner) for this convenience. The cost of a lien agent might not be much, but the point stands.
A Trend or Isolated States?
The idea of a designated mechanics lien agent is a fairly new concept. Virginia’s requirement for a lien agent has been around for more than a decade, and North Carolina’s went into effect in 2013. That may not sound like a small amount of time, but mechanics lien laws have been around for a while, and change typically happens at a glacial pace.
Texas has flirted with the idea of revising lien laws and including lien agents in the new regulations, but such revisions to Texas lien law have not gained traction thus far. Ultimately, only time will tell if the move toward requiring lien agents will become a trend or just some isolated legislation.