SOUTH CAROLINA MECHANIC S LIEN LAW With Changes Made in Section Contents Pre-lien Notice(s)

Transcription

1 SOUTH CAROLINA MECHANIC S LIEN LAW With Changes Made in 2010 Section Contents Pre-lien Notice(s) Name of Notice Who Must Use This Notice When How to Serve Verified or notarized? Section Contents Mechanic s Lien Who is Entitled to a Lien? When to File/Record Where to File/Record How to Serve Amount of Lien Property Subject to the Lien Furnishing Information Verified or Notarized Priorities Lien Release Bond Miscellaneous Issues Section Contents Lawsuit to Foreclose Lien Introduction When Where to File Arbitration Need a Lawyer? Page 1 of 12

2 General Notes Be Careful: The courts consider a mechanic=s lien to be a privilege and not a right. You receive its benefits only if you strictly adhere to the state law requirements. Bottom line: miss a deadline by one day and you have lost it. Unlike other areas of the law where you can argue equities, find technical exceptions, and lawful excuses, there is no forgiveness here. In this case, knowledge is not only power, it=s a necessity. In this states you will be writing down the dates for at least four documents: a) Notice of Project Commencement; b) Notice of Furnishing Labor and Materials; c) Notice of Mechanic s Lien; and d) Lawsuit to Foreclose Mechanic s Lien. Write down all the deadlines in your calendar. Use a highlighter or red pen. If you have a staff, use a Afail safe@ system by doubling up and putting it in their calendar also. This reminds you twice. The first calendar entry should be two weeks before the due date as a preliminary reminder. On the second calendar entry, do a white lie to yourself. Put the due date as one week before it is actually due as insurance in case you get busy or need legal advice. Time is money. You will waste a lot of valuable time running around and doing it at the last moment, as opposed to doing it early. NOTICE OF PROJECT COMMENCEMENT Introduction: The Notice of Project Commencement ( Notice ) is filed by a general contractor, as opposed to the owner or subcontractors. The statutes in South Carolina have recently been amended to make it even more beneficial for the prime contractor to file such a notice. The purpose of the notice is to let other persons who are working upon the project, especially sub-subcontractors and suppliers of subcontractors, that the project has started, and to give needed information as to the name and address of the general contractor, owner, and the exact description of the project. In turn, this information can be used by subsubcontractors, and others, when it comes time for them to file their notices. Although the notice is optional, it is highly recommended that prime contractors use it on a regular basis. Page 2 of 12

3 The purpose of the notice is to protect the general contractor against what are termed remote claimants. The general contractor knows and has control over his or her subcontractors, but not necessarily sub-subcontractors or suppliers to subcontractors. The general does not want to pay the subs who, in turn, do not pay lower tiered subcontractors or suppliers and then have a lien against the property which they have to defend. Serving the notice prevents this detrimental result. If the notice is properly filed, the total amount of liens filed by sub-subcontractors or suppliers to subcontractors can never exceed the amount the general owes to the subcontractor to whom the remote claimant has furnished labor or materials. Thus, if the general has a $25,000 contract with an electrical subcontractor, and files the notice, liens by an electrical supply house or an electrical subcontractor can never exceed the $25,000 amount. And, if there are liens by a sub-subcontractor and supply house for more than what the general owes the sub, the prime need only pay a pro rata amount on these claims. For example, assume there is $10,000 left on the contract with the electrical sub, but there are $20,000 of bills by sub-subcontractors and supply houses. Those remote claimants will only get a pro rata amount of the $10,000, or, in other words, 50 cents on the dollar for their claim, since they are paid pro rata. When: Where to File/ Record: How to Serve: Verified or Notarized: See Time Deadlines Table. The Notice of Project Commencement is filed by the general contractor with the Clerk of the Court or Registrar of Deeds for the county in which the property is located, together with a filing fee of approximately $ There is no need to serve this notice on the owner, subs, sub-subcontractors, or any other person. Instead, as seen by the next section, the general posts a Location Notice at the job site which informs sub-subcontractors, and others, that they can read the information by going to the county courthouse and looking at the Notice of Project Commencement. A verified notice simply means you sign it and are representing the contents are true and accurate. A notarized notice is signed in front of a Notary Public or other official. The notice need only be signed and does not have to be verified or notarized. Page 3 of 12

4 LOCATION NOTICE Introduction: As seen from the above discussion, the Notice of Project Commencement is filed at the county courthouse but is not served on sub-subcontractors or suppliers to subcontractors. So that these persons can get the information that is contained in the Notice, a document titled, Location Notice is required to be posted at the job site by the general. The Location Notice states: The contractor on the project has filed a Notice of Project Commencement at the county courthouse. Sub-subcontractors and suppliers to subcontractors shall comply with when filing liens in connection with this project. Who Must Use This Notice: When: The Location Notice should also contain the name and address of the general contractor. This information is in the from titled: Notice of Project Commencement and Location Notice, available on this web site. The general or prime contractor posts the Notice. The South Carolina statutes do not state exactly when the Notice is to be posted. However, it is a fair inference that it should be at the same time as filing the Notice of Project Commencement, which must be done within 15 days of the start of the project. PRELIEN NOTICE This state requires a Notice be sent out before the mechanic=s lien is filed/recorded. For simplicity, this notice will be referred to as a APrelien Notice@. The basic information on this Notice is as follows: Name of Notice: Who Must Use this Notice: Notice of Furnishing Labor or Materials. Only remote claimants use this Notice. This is defined as sub-subcontractors as well as suppliers to subcontractors. For this reason, neither a general nor a subcontractor is required to use this notice. Page 4 of 12

5 Purpose of Notice: The Notice is optional but highly recommended. If the Notice is served, the general contractor can no longer simply pay it s subcontractors and then claim it has no further obligation to take care of the sub-subcontractors or suppliers to subs. After receiving the Notice, it forces the general contractor to take protective measures to make sure the subsubcontractors are paid. At that point, the general can either make direct payments, payments by joint check, or payments accompanied by a lien release, making sure the sub-subcontractor is paid. In essence, it means the balance of the contractor payable to the subcontractor is now going to be used to pay for the claims of the sub-subs. And, even if there is not enough to go around to pay all the sub-subs, they will all share pro rata, if they have served the Notice. Otherwise, the general would pay the subs and the money may not filter through to the sub-subs. The Notice of Furnishing Labor and Materials is to be served only if the general contractor has recorded the Notice of Project Commencement. On the other hand, even if the general contractor does not do so, there is technically no reason why the Notice of Furnishing Labor and Materials should not be sent out, since it gives an added measure of protection. When: How to Serve: Verified or Notarized?: See Time Deadlines table. Serve the general contractor by certified mail, return receipt requested. A verified notice simply means you sign it and are representing the contents are true and accurate. A notarized notice is signed in front of a Notary Public or other official. The form only needs to signed and is not required to verified or notarized. MECHANICS= LIENS Who is Entitled to a Lien: A mechanic=s lien is primarily for general contractors, subcontractors, laborers, as well as material/equipment suppliers. But it also covers design professionals (architects and engineers), surveyors, security guards, rental equipment companies, well diggers, grading subcontractors, bulldozing, leveling, excavation, and filling of land; the grading and paving of curbs and sidewalks, together with asphalt paving; construction of ditches and other Page 5 of 12

6 drainage facilities; and the laying of pipes and conduit for water, gas, electric, sewage, and drainage purposes. When to File/ Record: Where to File/Record: How to Serve: See Time Deadlines table. In most states, the time period begins to run upon completion of the project and is not extended for later call-back or warranty work. South Carolina is different. The time is extended for remedial or warranty work, as long as this is done pursuant to the contract. For example, this would include going back and remedying work that has already been done or work under a one-year warranty. Office of the Registrar of Deeds or Clerk of the Court in the county where the project is located. Under Section the mechanics lien must be both served on the owner and filed with the Clerk or Register within 90 days of the lien claimants finishing their portion of the work. In most states, service can be made by certified mail, but not this state. It requires personal service upon the owner. And the statute is even more specific. The service must be made by the civil division of the Sheriff s Office and not by your staff or a private process server. This is where it gets tricky. You have to file both the lien/verified Statement of Account and an Affidavit of Service or Affidavit of Non-Service (by the Sheriff showing it was served) within that 90 day period. Because a Sheriff s Office can be overloaded with service requests, it is highly recommended you start the process at least two weeks before the deadline. Call the Sheriff s Office before and see how busy they are. The Sheriff s office will use their own Affidavit of Service forms. But what if the owner cannot be served? The statute then allows you to serve a person in possession. This is known in the trade as substitute service. On residential construction, this usually means serving a person of suitable at age who lives at the property. If it is a commercial project, including a condo or subdivision project, it is best to serve the project manager or other person who is in charge. If that does not work, the Sheriff s Office will prepare what is called an Affidavit of Non-Service. You take that, along with the Lien and Verified Statement of Account and file with the Clerk or Register. Filing the Affidavit is considered delivery of the lien. Unfortunately, there is no provision for posting the lien on the property if personal service cannot be perfected. Page 6 of 12

7 Attorneys report they use the Affidavit of Non-Service only in rare situations. There is always the danger a court would later find service was not perfected because the owner never received notice. Or, that the Sheriff s office did not exercise all available due diligence. In other words, you use this only in a case of last resort. When you file/record the mechanic s lien, you should attach a form titled, Verified Statement of Account. This gives details as to how you arrived at the balance owing. It is usually stapled or attached to the Mechanic s Lien. For this reason, it is filed/recorded at the same time as the Mechanic s Lien, and is also served upon the owner within the same 90-day deadline. Amount of Lien: Primarily for unpaid labor, material, and equipment supplied. Also include the profit and overhead upon your contract, the cost of private security guards to protect your work, and the reasonable rental value of tools, appliances, machinery, or equipment supplied. If you have a contract with a rental company, it would be the amount paid to that firm. If you are using your own inventory of tools or equipment, you would allocate a reasonable daily, weekly, or monthly rental rate. You can also add interest. Attorney s fees can be included in the lien claim if you later bring a lawsuit to foreclose and are the prevailing party. On the other hand, if the owner prevails, you will have to pay that person s attorney s fees. Since you do not know exactly how much those fees will be, you can simply include a statement in your lien to the effect: $25,432.00, together with interest, court costs, and reasonable attorney s fees. But what about consequential damages, which are in the form of delay damages, extended overhead, lost profits on other jobs, etc.? South Carolina courts have not yet determined whether that should be included in your lien. Most states have refused to allow these damages to be included in the lien amount. However, they could be assessed against the party with whom you have a contract under normal breach of contract damage theories, but not as a lien against the property. You will not be penalized for inaccuracies in the amount stated in the lien, unless you have knowingly and willfully made a false claim. In other words, it is customary to reasonably allege a certain amount, but not always get that exact figure at trial because of off-sets, including, but not limited to, allegations of defective work. Page 7 of 12

8 Property Subject to the Lien: Furnishing Information: Verified or Notarized?: Priorities: A mechanic=s lien applies only to private projects. No lien is allowed in public projects against government property. Upon request, the general should furnish others with information about the owner so the required notices and lien can be filled out properly. A verified notice simply means you sign it and are representing the contents are true and accurate. A notarized notice is signed in front of a Notary Public or other official. A After you file/record, serve by certified mail, return receipt requested. A notarized and verified notice is required in this state. All lien claimants share equally the proceeds of the sale of property upon foreclosure, and it makes no difference who files first. If there is no enough to satisfy everyone, all the lien claimants share pro rata. Subs and subsubcontractors, as well as suppliers to subcontractors, get their money first (assuming there is not enough to go around) before the general contractor receives money on his or her lien. This state applies the first in time, first in right rule such that a construction loan has priority over a mechanic s lien if recorded first. This is different from other states in which the mechanics liens receive priority as of the date the work begins (as opposed to when a lien is filed). Lien Release Bond: The owner may discharge a lien from the property upon filing a cash deposit or bond for one and one-third times the amount of the lien. This can be in the form of either a cash bond secured by cash, a bond secured by the pledge of U.S. or South Carolina securities, or a bond issued by a licensed surety company. Once posted, you will continue your lawsuit as before, except you will be going against the bonding company who will eventually pay the judgment. Page 8 of 12

9 Miscellaneous Issues: Owner s Defenses: The owner does not have to suffer the possible prejudice of paying twice. For example, if the owner pays a general contractor in full, but those monies do not filter down to the subs, the owner is still off the hook. The total amount of liens on the property can, therefore, not exceed the balance owed from the owner to the general. If the owner receives a Notice of Furnishing Labor or Materials and/or a lien, and still owes some money to the general, that person is allowed to pro rate the balance amongst the lien claimants, instead of paying same to the general. But, if the owner continues paying the general after receipt of a mechanic s lien from a claimant, that person does so at their peril, and this will not reduce those mechanic s lien rights. Notice of Non- Responsibility: Prompt Payment Act: If the owner is a landlord and the tenant is contracting out tenant improvement work, the owner can use a Notice of Non-Responsibility. By doing so, the owner s property will not be subject to the lien. This does not apply if the improvements are being done to a contract with the owner or for the benefit of that owner. The owner is required to serve the contractor performing the work. And, the Notice must be served before the furnishing of labor and materials that are unpaid and subject to the lien. South Carolina has an enacted legislation which insures contractors are promptly paid for their work. An owner must pay the general within 21 days of a properlysubmitted payment request. Check your contract documents because there may be some conditions to the payment, including a sign-off by the architect. As between the general and a subcontractor, as well as all other persons down the payment chain, payment must be made within 7 days of receipt of a progress payment. If not so paid, there is assessed a 1% per month interest charge. Payment is considered to be made upon the mailing of a check, by firstclass mail, to the person entitled to payment. However, one can withhold progress payments if there is a good-faith dispute as to unsatisfactory job progress, defective construction not remedied, disputed work, third-party claims filed, the failure of a contractor or subcontractor to make payments to lower tiered contractors or suppliers, or a reasonable amount for retainage. Page 9 of 12

10 One receives the 1% per month interest only if the person owing the money is notified, in writing, at the time of the request for a progress draw, of the terms of the statute. This can be in the simple form of a letter which would state: Please be advised that under of the South Carolina Code of Laws, as specifically the South Carolina Prompt Payment Act, that you are required to pay within (21 days or 7 days, whichever is applicable) after receipt of a periodic or final payment request. If payment is not made within that time period, you will be assessed a 1% per month interest charge from and after the due date until that amount is paid. LAWSUIT TO FORECLOSE LIEN Introduction: When: Where to File: Arbitration: Your lien is not valid forever. Because it directly affects the owner=s title, it has a limited shelf life and must be enforced within a short period of time. That enforcement is done by filing a lawsuit to foreclose. Just like the time deadlines for a Pre-Lien or Mechanic=s Lien, the courts strictly construe these time limits which are called statutes of limitation. Again, if you are literally one day late, the lien is ineffectual. Within 6 months of the date of last furnishing labor and materials. Court of Common Pleas in the county in which the property is located. Many construction contracts state that all disputes will be decided by binding arbitration, as opposed to a court proceeding by judge or jury. In fact, it has long been a tradition to do so in the construction industry. Arbitration is usually quicker and less costly, especially because it cuts down on expensive discovery. The decision is final and binding, with no right to appeal. You lose your right for a jury trial, but few contractors want that in the first place. You usually pick an experienced construction attorney or retired judge to hear the case in their conference room. It is just like a court proceeding with the same general rules of evidence, but more informal. Page 10 of 12

11 On the other hand, you can only foreclose your lien through a court proceeding, not arbitration. So, how do you keep your arbitration rights and at the same time preserve your lien rights? Simple. You bring a lawsuit to protect the lien and then immediately request the court to stay the court proceedings. When arbitration is done, you go back to court and turn the arbitration award into a judgment. Need a Lawyer? In this country, every individual has the statutory right to represent themselves. This means they can prepare all necessary papers, appear at hearings, and actually try the case. In so doing, the court considers you to be acting either in pro se or pro per. Before making this decision, consider the following factors: 1. You are a professional and thoroughly know the ins and outs of not only the construction industry but of the project itself. The best lawyer on his or her best day will probably not know more than 50% of what you know. 2. How is your public speaking abilities? If you are uncomfortable speaking to a group, you will even more uncomfortable in court or arbitration. You could be the sharpest wit in town but may not be able to present your arguments. Remember, appearing uncomfortable is perceived as having deficiencies in your case. People usually think that if you are not comfortable about your own facts, then they must not be that strong. 3. If the other side has a lawyer, you might want to think twice about representing yourself. You will certainly know the facts quite well, but you may be blindsided by legal technicalities. 4. You may also want to think twice if this is a really nasty and emotional case. In other words, if the other side is going for blood. Having a lawyer can shelter you from this emotional trauma. No matter how strong you are, lawsuits are taxing not only on your time, but on your physical and emotional energies. 5. If you have a good case in which you have complied with technicalities and performed good work, you are Page 11 of 12

12 essentially engaging in a collection action. These actions are typically very simple because there are few defenses or defects alleged by the other side. It makes it easier for you to represent yourself because it is more a question of when and how much they will pay as opposed to whether you will win at all. 6. If you have a binding arbitration provision, you may consider representing yourself. These proceedings are much more informal and the arbitrator tends to give you more leeway. There are also fewer rules and not they are usually not quite as strict. 7. You could consider representing yourself but get advice along the way from a lawyer. It is much cheaper that way. On the other hand, the lawyer cannot watch over every move and you might slip up. Many times lawyers can also help you with preparing the forms, simply putting your name on the pleading. You can also bring in your lawyer at the end to actually try the case. 8. Judges and courts do not give legal advice. They only help you with what forms to use. However, clerks can be invaluable in steering you in the right direction as far as where to file, time limitations, the nature of the form or pleading, etc. But, remember when it comes right down to the ultimate advice, they cannot help you. 9. Judges usually treat you the same as an attorney which means they expect strict compliance with the rules. Although some judges give you more slack, don t count on it. 10. The biggest dilemma is whether you should hire an attorney for a smaller case, typically in the $5,000 to $10,000 range. You have to watch this because you may eat up that amount in attorney s fees. You never make money on lawsuits, only lawyers do. Try to settle for the best price you can get and move on. Page 12 of 12