SOUTH CAROLINA & NORTH CAROLINA, MECHANIC S LIEN AND PAYMENT BOND CLAIM MANUAL *

Transcription

1 SOUTH CAROLINA & NORTH CAROLINA, MECHANIC S LIEN AND PAYMENT BOND CLAIM MANUAL * * This manual is for general reference only and should not be used without consultation with an attorney

2 This manual is designed to provide general educational information only. Although this manual is prepared by professionals, it should not be used as a substitute for professional service. The material contained herein is time sensitive and may become outdated by changes in the statutory or case law of the States of South Carolina,and North Carolina,. If legal or other professional advice is required or legal action is anticipated, the services of a professional should be sought. All rights reserved. These materials may not be reproduced in any form without the written permission of the authors.

3 Dated Material: June 30, Mechanic s Lien In South Carolina A. A Contractor must file and serve a lien within 90 days of last furnishing labor or materials to a project for the purpose of completing the Contract requirements. This does include punch list work required to satisfy the Contract, but does not include warranty work or corrective work. The lien must include the contractor or subcontractor s license number from the SC Department of Labor Licensing and Registration. B. A Contractor must file a lis pendens and serve a lawsuit to foreclose on the lien within 6 months of last furnishing labor or materials to a project. (The 90 day period and the 6 month period must be counted from the same day.) Failure to do so will render the lien void. C. The Contractor s lien will be against the Owner s equity in the property. The Contractor s lien rights against any equity will depend on the date of recording, and will be subordinate to any prior recorded mortgages, liens, or encumbrances. In the case of multiple lien claimants, each claimant takes a pro-rate share. D. If you are a Subcontractor, you are subject to the Owner s full payment defense. Put another way, your lien can be defeated if the General Contractor has been paid in full prior to your filing and serving the lien. So, if you suspect a problem where full payment may occur, you must file your lien prior to the Owner making final payment to the General Contractor. E. SC Form 1 Contractor s Notice Of Project Commencement And Location Notice This notice must be recorded at the County Register of Deeds office (or Clerk of Court if the County does not have a Register of Deeds), and posted on the Project, all within 15 days of commencement of the work. Recording and posting this notice by the General Contractor, will help ensure that once you pay the first tier Subcontractor or Supplier, your obligations have been met. Without this notice, an unpaid second tier Subcontractor or Supplier can pursue the General Contractor for payment. This applies to public and private projects within the State of South Carolina (but not federal projects). F. SC Form 2 Sub-Subcontractor And/Or Supplier To Subcontractor s Notice Of Furnishing Labor Or Materials This notice by second or third tier Subcontractors or Suppliers is sent to the General Contractor via certified or registered mail, and eliminates the General Contractor s protection provided by the Contractors Notice Of Project Commencement. Once a Contractor receives this notice, he is responsible for verifying that the second tier Subcontractor or Supplier has been and will be paid. A failure to do so can subject the Contractor to double liability. Sub-Subcontractors and Suppliers to Subcontractors are advised to send this notice when first supplying labor, materials, or equipment to a project. 1

4 Dated Material: June 30, Payment Bond. SC Form 1 Contractor s Notice Of Project Commencement And Location Notice. As in case of a lien situation this notice must be filed and posted, all within 15 days of commencement of work. SC Form 2 Sub-Subcontractor And/Or Supplier To Subcontractor s Notice Of Furnishing Labor Or Materials. As in the case of a lien situation, this notice by second or third tier Subcontractors or Suppliers is sent to the General Contractor via certified or registered mail, and eliminates the General Contractor s protection provided by the Contractors Notice Of Project Commencement. Once a Contractor receives this notice, he is responsible for verifying that the second tier Subcontractor or Supplier has been and will be paid. A failure to do so can subject the Contractor to double liability. Sub-Subcontractors and Suppliers to Subcontractors are advised to send this notice when first supplying labor, materials, or equipment to a project. If you wish to make a payment bond claim, you must comply with the terms of the Payment Bond and applicable statutes. Generally speaking, if you are a Sub-Subcontractor or Supplier to a Subcontractor, you must send a written claim letter to the General Contractor and its Surety within 90 days of last supplying labor or materials to the Project. First tier subcontractors and more remote claimants must also generally file and serve a suit against the Payment Bond Surety within 1 year of last supplying labor or materials to the Project. 3. South Carolina Statutory Payment Demand Letters SC Form 3 - This is another way to attempt to collect attorney fees and interest at the current statutory judgment rate. Under S.C. Code , a letter must be sent by certified mail return receipt requested. The letter must state the amount owed and demand payment of the undisputed amount. The letter should be sent to the Owner, the General Contractor, the Surety, and our customer as the case may be. 4. Prompt Pay Act This Notice must be given at the time request for payment is made in order to recover interest under the Prompt Pay Act, S.C. Code Ann Notice is as follows: This invoice or application is subject to the South Carolina Prompt Pay Act, S.C. Code

5 SC FORM 1 CONTRACTOR S NOTICE OF PROJECT COMMENCEMENT AND LOCATION NOTICE Pursuant to Code of Laws of South Carolina Section as amended (2000) Name of Person, Corporation, etc. Filing Notice of Commencement: Name and Address of Owner or Developer: General Description of Improvement: Location of Project: Sworn to and subscribed in my presence this day of 200. Notary Public for South Carolina My Commission Expires: BY: ITS: LOCATION NOTICE Name and Address of Contractor: The Contractor on the project has filed a Notice of Project Commencement at the county courthouse and/or register of deeds. Sub-subcontractors and suppliers to subcontractors shall comply with S.C. Code Ann when filing liens in connection with this project (and/or shall comply with S.C. Code Ann , (2)(c), (b) and when filing payment bond claims in connection with this project). Instructions: This combined Notice of Project Commencement and Location Notice must be filed with the clerk of court or register of deeds in the county or counties where the real property is located, accompanied by a filing fee of $15.00, and a copy must be posted at the project, all within 15 days of commencement of work.

6 SC FORM 2 SUB-SUBCONTRACTOR AND/OR SUPPLIER TO SUBCONTRACTOR S NOTICE OF FURNISHING LABOR OR MATERIALS Pursuant to Code of Laws of South Carolina Section Name of Sub-Subcontractor or Supplier Who Claims Payment: Name of Person With Whom Claimant Contracted Or Was Employed: Description of Labor, Services, Or Materials Furnished And Price Or Value Thereof: Description Of The Project Sufficient For Identification: Date(s) When First And Last Item of Labor, Service, or Materials Was Actually Furnished Or Scheduled To Be Furnished: Amount Claimed To Be Due If Any: Sworn to and subscribed in my presence this day of 200. Notary Public for South Carolina My Commission Expires: BY: ITS: Instructions: For maximum protection, sub-subcontractors and suppliers to subcontractors should provide this Notice of Furnishing Labor Or Materials to the General Contractor via certified or registered mail when first supplying labor, service, materials, or rental equipment to a Project.

7 SC FORM 3 (Date) VIA FACSIMILE AND CERTIFIED MAIL - RETURN RECEIPT REQUESTED (Name) (Address) (City, State) RE: Project Name Contract / Invoice Number or Project Description Dear : (Name of Company) has fulfilled its obligations to your company and has provided labor and/or materials in a timely manner for the above-referenced Project. However, your company has nonetheless refused to pay (Name of Company) its outstanding contract balance of $, set forth in the enclosed documents. Pursuant to S.C. Code Ann , (Name of Company) hereby demands payment of the contract balance on the above-referenced project. Should your company fail to make a reasonable and fair investigation of the merits of (Name of Company) claim and to pay its claim, or whatever portion of it is undisputed, within forty-five (45) days from the date of this letter, your company will be held liable under Section for payments of the contract balance as well as for reasonable attorneys fees and interest at the current judgment rate from the date of this demand. Sincerely, Name of Company Enclosures

8 Dated Material: June 30, Mechanic s Lien In North Carolina A. A Contractor must file and serve a claim of lien within 120 days of last furnishing labor or materials to a project. Such work may include punch list work required to satisfy the Contract, but it most likely does not include corrective or warranty work. In the case of a Materials Supplier, the time begins to run with the last delivery of materials to the project, and the materials must be placed on the actual site to be lienable. A first, second, third, or more remote tier subcontractor or supplier, must serve a Notice of Claim of Lien (on funds) ( Notice of Claim ). The Notice of Claim must be served upon the Owner and all other parties in the chain between the claimant and the Owner. The Notice of Claim attaches to the funds owed under the various contracts. No filing is required of the Notice of Claim. However if the lien claimant also wishes to assert a subrogation claim of lien against the Real Property, a copy of the Notice of Claim must be attached as an exhibit to the Claim of Lien filed with the court. The Notice of Claim should be served as soon as possible since it only attaches to funds remaining to be paid. In the case of multiple lien claims upon insufficient funds, the funds shall be shared on a pro-rata basis. Failure of the Noticed Party to retain funds to pay the lien on funds makes the Noticed Party personally liable to the lien claimant up to the amount of the wrongful payments. If the Noticed Party is the Owner, and it makes further payments to the Party against whom the lien is claimed, failure of the Owner to retain the funds sufficient to pay the lien can entitle the lien claimant to a lien upon the Owner s interest in the real property. The first, second, and third tier subcontractors and suppliers may have another method of obtaining lien rights in the Owner s property. These claimants may assert a lien upon the real property through a direct subrogation claim to the Contractor s lien rights. This direct subrogation lien is separate and distinct from the previously mentioned lien rights. The requirements to obtain and enforce this direct subrogation lien are as follows: (1) the Notice of Claim of Lien must have been served upon the Owner, against funds owed from the Owner to the Contractor, (2) the Owner must actually owe funds to the Contractor at the time the subcontractor/supplier filed his claim of lien, (3) the claim of lien must be filed within 120 days after the last furnishing labor or materials to the project by or on behalf of the Contractor, (4) the subcontractor/supplier must initiate a lawsuit to foreclose on the lien within 180 days of the Contractor last furnishing labor or materials to the project. Note: This direct subrogation lien subjects the Contractor to a risk of double payment. In essence, the Contractor can be forced to pay a second or third-tier subcontractor for its work even though the Contractor has already previously fully paid the first-tier subcontractor for the same work. The Contractor, however, can protect itself from this risk if it properly files a Notice of Contract and properly serves its Notice of Payments, as required by the statute. B. A Contractor must file and serve a lawsuit to foreclose on the lien within 180 days of last furnishing labor or materials to a project. (The 120 day period and the 180 day period 1

9 Dated Material: June 30, 2011 must be counted from the same day.) Failure to do so will render the lien void. Generally, the civil action is filed in the county where the property is located. If the civil action is filed elsewhere, a Notice of Lis Pendens must be filed in all counties where the liened property is located. C. The Contractor s claim of lien will be against the Owner s equity in the property. Priority of the Contractor s perfected lien rights against any equity will depend on the date that labor or materials were first furnished to the project, and will be subordinate to any prior recorded mortgages, liens, or encumbrances. D. A Claim of Lien (against the real property) is subject to the Owner s full payment defense. Put another way, a Subcontractor s lien can be defeated if the Owner has paid the General Contractor in full before the Subcontractor serves its Notice of Claim. Thus if payment problems are anticipated, the Subcontractor should serve its Notice of Claim prior to the Owner making payment to the General Contractor. E. NC Form 1 Contractor s Notice Of Contract This notice must be filed with the Clerk of Superior Court for each county where the project is located, and posted on the Project adjacent to the building permit (or Notice of Award if NCDOT Project), all within 30 days following the date the building permit is issued. If the Contractor receives a Notice of Subcontract from a second or third tier subcontractor/supplier then proceed to NC Form 2. NC Form 2 Contractor s Notice of Payment After receiving a Notice of Subcontract from a second or third tier subcontractor/supplier, the Contractor must serve a Notice of Payment to that subcontractor/supplier, in person or via certified mail, within 5 days following each subsequent payment to a first tier subcontractor/supplier. Recording and posting the Notice of Contract along with serving the Notice of Payment, protect the Contractor from the risk of double-payment liability from subrogation liens asserted by unpaid second and third tier subcontractors/suppliers. F. NC Form 3 Sub-Subcontractor/Sub-Supplier s Notice of Subcontract This notice by second or third tier Subcontractors or Suppliers is served upon the General Contractor in person or via certified mail, and eliminates the General Contractor s protection provided by the Notice of Contract. Once a Contractor receives this notice, he is responsible for serving the noticing subcontractor/supplier with a Notice of Payment within 5 days following each subsequent payment to a first tier subcontractor. A failure to do so can subject the Contractor to double liability. Sub-Subcontractors and Suppliers to Subcontractors are advised to send this notice prior to first supplying labor, materials, or equipment to a project. 2

10 Dated Material: June 30, Payment Bond. Bond claims on public projects are governed by statute. In order for a Second Tier or more remote Subcontractor/Supplier to bring an action on the payment bond on a public project he must serve upon the Contractor a Notice of Claim on Bond, within 120 days of last performing labor or furnishing materials for which he is claiming payment. The Notice must state with substantial accuracy the amount claimed and the name of the person for whom the work was performed or to whom the material was furnished. The Notice of Claim on Bond should be served by registered or certified mail. No action on a payment bond for a public project can be commenced after the expiration of one year from the latter of the day of claimant s last performing labor or furnishing materials to the project or the day of final settlement between the Contractor and Owner. In North Carolina, bond claims on private projects are not governed by statute and are simply a matter of contract. Thus, one desiring to pursue a bond claim on a private project must strictly comply with all the terms and conditions of the bond. Many bond forms require notice to the Contractor and/or Surety within 90 days of the last day of providing labor or material to the project. Similarly, many require the civil action to be pursued within one year. It is important to note, however, that one must read each private bond to determine what its terms and conditions are for that bond. 3. North Carolina Statutory Payment Demand Letters Arguably, N.C. Gen. Stat provides a way to collect attorney s fees up to 15% of the outstanding balance owed on a construction contract. To take advantage of this statute, the construction contract (or sales agreement) must include an express statement that the party will be awarded attorneys fees and other costs should it have to initiate litigation to collect the outstanding debt. Further, the party must give the debtor written notice that he can avoid the attorney fees and costs by paying the outstanding amount within five days. If payment is not made within five days, the party will be entitled to reasonable attorneys fees, which generally are deemed to be 15% of the outstanding debt at the time the litigation was initiated. 4. Prompt Pay Act 1. Private Projects Pursuant to N.C. Gen. Stat. 22C-5, a Subcontractor is entitled to interest of 1% per month if the General Contractor fails to make payment within seven days after its receipt of payment from the owner. This rule also applies to payments between lowertier Subcontractors/Suppliers. 3

11 Dated Material: June 30, Public Projects The prompt pay act for public projects is set forth in N.C. Gen. Stat This act applies to all public projects except projects let by the North Carolina Department of Transportation. Under this act, the Owner is required to pay the General Contractor within 45 days after the work is certified as complete by the designer/architect, accepted by the Owner, or occupied by the Owner for the use that project was constructed. Failure of the Owner to make the payment within 45 days entitles the General Contractor to interest at 1% per month. Periodic payments to the Contractor must be paid in accordance with the payment provisions of the contract, or General Contractor is entitled to be paid interest on any such amount at the rate stipulated for delayed final payments. Similarly, the General Contractor must pay the Subcontractor within seven days of receipt of payment from the Owner. Late payments entitle the Subcontractor to interest at 1% per month. If any percentage of retainage on payments made by a Contractor to the Subcontractor exceeds the percentage of retainage on payments made by the Owner to the Contractor, the Subcontractor is entitled to interest at 1% per month, or fraction thereof, on the percentage of retainage that exceeds the percentage being held by the Owner. 4

12 NC FORM 1 NOTICE OF CONTRACT (1) Name and address of the Contractor: (2) Name and address of the owner of the real property at the time this Notice of Contract is recorded: (3) General description of the real property to be improved (street address, tax map lot and block number, reference to recorded instrument, or any other description that reasonably identifies the real property): (4) Name and address of the person, firm or corporation filing this Notice of Contract: Dated:_ BY: ITS: Contractor "Filed this the day of, 200_,. Clerk of Superior Court County, North Carolina

13 NC FORM 2 NOTICE OF PAYMENT (via certified mail or hand delivery) Project: (1) Payment to Subcontractor: (2) Date of Payment: (3) Amount of Payment: (4) Payment period covered: Dated:, 200 Name of Subcontractor BY: ITS:

14 NC FORM 3 NOTICE OF SUBCONTRACT (1) Name and address of the subcontractor: (2) General description of the real property where the labor was performed or the material was furnished (street address, tax map lot and block number, reference to recorded instrument, or any description that reasonably identifies the real property): (3) (i) General description of the subcontractor's contract, including the names of the parties thereto: (ii) General description of the labor and material performed and furnished thereunder: "(4) Request is hereby made by the undersigned subcontractor that he be notified in writing by the contractor of, and within five days following, each subsequent payment by the contractor to the first tier subcontractor for labor performed or material furnished at the improved real property within the above descriptions of such in paragraph (2) and subparagraph (3)(ii), respectively, the date payment was made and the period for which payment is made. "Dated:, 200 Name of Subcontract insert address BY: ITS: