I have a subcontractor who has refused to complete his scope of work. He has notified the lien agent. He has not filed a formal lien. Is the owner still obligated ? How can I bond this off if no formal lien has been filed ?

5 months ago

I have a subcontractor who has refused to complete his scope of work. He has notified a lien agent but has not filed a formal lien. Can I bond off his notice so the owner is no longer responcible

Senior Legal Associate Levelset

I’m sorry to hear about that, and you raise a good question. Generally, there typically isn’t much a contractor can do to ward off a lien claim from their sub before the claim is actually filed. Rather, threatening to bond off a filed lien is typically the only “official” defense for a contractor against a sub’s potential lien (though, bonding off a lien isn’t necessarily a bad thing for lien claimants). However, North Carolina does appear to provide some partial protection against lien claims via bond before an actual lien is filed…

In North Carolina, when a sub-tier claimant sends a Notice of Claim of Lien Upon Funds (pursuant to § 44-A19 of the state’s lien statute), an owner or contractor can place a bond to protect the property from the potential lien claim. Under 44-A20(e) and (f), filing a copy of the prospective claimant’s Notice of Claim of Lien Upon Funds along with a proper bond will discharge any potential claim of lien against the project property. Rather, recovery for a claim would come against the bond instead (just as if a lien had been filed and then bonded off). So, a contractor might not have to wait until an actual lien is filed against the property in North Carolina. However, they may have to wait until a Notice of Claim of Lien Upon Funds is sent (which effectively acts a lot like a Notice of Intent to Lien and can stop the flow of project funds).

Beyond that, it might be helpful to try and resolve the dispute with the sub before it escalates to the point where a lien might be filed. If a lien filing does take place, or even if a bond is secured prior to a lien filing, the cost of dealing with the dispute will be burdensome and the whole issue can put create problems in proceeding with the project. So, trying to nip a dispute in the bud, or at least agreeing to push disputes down the line, is generally worthwhile.

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