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» Under existing North Carolina law, a contractor, subcontractor, or material supplier may file a claim of lien on real property within 120 days of completion of the work and may file suit to perfect and enforce the lien within 180 days of the day of last completion. The lien will then relate back to the first furnishing of labor, services, or materials by the claimant. Thus, any mortgage lender making a loan during this period, or even an innocent purchaser of a property, will take subject to the lien, which has retroactive priority status. As there is no requirement that the lien be of public record at the time the property is sold, it makes it quite difficult for closing attorneys, lenders, and title insurance companies to identify these "hidden liens." How does a lien come about in a residential construction project, and how does it give rise to the "hidden lien" feature? Say a builder buys a lot and starts constructing a house. He most likely obtained a construction loan to build said house and, at the start of the project, is paying the contractors he hired, such as the concrete company for the foundation or the grading company to clear the lot and prepare it for building. As the project progresses, the builder finds himself searching for cash and begins robbing Peter to pay Paul, most likely from a draw from the construction loan. As empty promises by the builder come and go, the contractors start getting nervous about getting paid and start considering whether a claim of lien should be filed with the court. Once the unpaid contractors get word that the house has closed and disbursed, the unpaid contractors start filing their liens and the lawsuits, if needed, in order to perfect the lien. A properly perfected lien will relate back to the first date of delivery or work performed. Therefore, a properly perfected lien is going to have priority over the new owner as well as the mortgage lender even though the lender holds a purchase money deed of trust. At the time the closing attorney updates the title, it is possible no liens have been filed. The contractors still have lien rights at this time, which gives rise to the "hidden lien" since there is no claim of lien on record. Once the new owner or mortgage lender receives notice of the claim of lien, a claim is filed with the title company, which oftentimes results in a title company writing a check to satisfy the lien. As a result of increasing claim litigation over these "hidden liens," many title insurance companies took the position last year that they would no longer issue new construction coverage in North Carolina on their title policies. Realizing the drastic effect this would have on North Carolina's construction industry as well as anyone involved in the closing process, the North Carolina legislature enacted new legislation in July 2012 that overhauled the state's existing lien law. Modeled after Virginia's lien law, one of the most significant changes North Carolina adopted is the requirement that a property owner designate a lien agent who must be placed on notice by any potential lien claimant. As of April 1, all private construction projects valued at $30,000 or more will require the designation of a lien agent obtained from a list of title insurance companies or insurance agents maintained by the North Carolina Department of Insurance. In order to preserve rights, the lien claimant must serve notice on the lien agent within 15 days after first furnishing labor or materials to the project. The initial notice is not a lien but merely an announcement that a contractor, subcontractor, or material supplier started work and reserves the right to file a lien at a later date. However, do not be confused. The lien agent is not an agent of the owner of the property and the notice by itself is not sufficient to claim a lien on the subject property. Therefore, in addition to giving the designated lien agent notice, effective January 1, a potential lien claimant must also file and serve notice on the owner of the property in order to perfect a claim of lien. (Remember, prior law did not require the claim of lien be served in order to be properly perfected.) The new law gives absolute protection to lien claimants who give notice to the lien agent within 15 days of starting work. If a lien claimant fails to file the requisite notice, and the property is mortgaged or refinanced before a claimant files and serves to claim a lien, he or she would no longer have priority status over the intervening lender and would fall in line behind the mortgagee's lien. Further, if a claimant fails to file the requisite notice with the lien agent and attempts to file a claim after the property has been sold, the lien is no good—thus eliminating the hidden lien. There is a narrow exception, however, for contractors and subcontractors who are considered "last providers," such as the landscaping company. Last providers under the new law will have 15 days from first furnishing of labor or materials to file notice with the lien agent, even if the property is conveyed to an innocent purchaser. The revised lien law substantially reduces the risk title companies now take in writing new construction coverage in North Carolina. As the changes take effect over staggered VISIT US ONLINE @ DSNEWS.COM dates in 2013, the construction and real estate industry would do well to familiarize themselves with North Carolina's new lien statute. This "From the Bench" article was contributed by Sarah Miranda and Chris Salyer of Hutchens, Senter, Kellam & Pettit, P.A., in North Carolina. Miranda practices in the areas of creditors' rights, bankruptcy, real estate, and litigation. Salyer's area of focus is in the practice of foreclosure. North Dakota rank: 49 90+ Day Delinquency Rate Foreclosure Rate February 2013 0.6% Unemployment Rate 0.9% 3.3% year ago 0.8% 1.1% 3.0% year-over-year change -22.7% -21.7% 10.0% Top County RaNsom CouNTy 90+ Day Delinquency Rate February 2013 Foreclosure Rate 0.7% 1.6% year ago 2.0% 3.1% year-over-year change -67.3% -47.1% Top Core-Based statistical area JamesTowN, ND 90+ Day Delinquency Rate Foreclosure Rate February 2013 0.6% 1.3% year ago 0.7% 1.0% year-over-year change -14.4% 32.4% note: The 90+ day delinquecy rate is the percentage of outstanding mortgage loans that are seriously delinquent. The foreclosure rate is the percentage of outstanding mortgage loans currently in foreclosure. State rank is based on the February 2013 foreclosure rate. All figures are rounded to the nearest decimal. The unemployment rate reflects preliminary February 2013 figures released by the Bureau of Labor Statistics. All other data courtesy of LPS Applied Analytics. STAT INSIGHT 0.9% North Dakota's foreclosure rate as of the end of February. Source: Lender Processing Services 101

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