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NC Lien on Funds not Lien on Property

I am a NC sub-contractor and I need to file a lien on funds. I have waited patiently for 90 days to be paid on the work from our GC. We have this 'lien on funds' in NC that freezes payment in the hands of who has it. It's different than a lien on property. A copy of it goes to the CG and the property owner. This locks down any future payment until the owner pays us since the GC isn't paying us timely. Unlike a regular lien on a property, nothing gets filed or recorded. It's just a series of certified letters to the GC and the Owner. How does this hold any weight without it being filed or recorded like a 'lien on property' is.

1 reply

Jul 24, 2019

Great question, the scheme of protections available to subcontractors in North Carolina can definitely be confusing.

As you mention, one of the protections available is a "Lien on Funds." Since the lien on funds does not encumber or otherwise have any impact on the improved property itself, it does not need to be recorded like a regular mechanics lien against property, and instead is only required to be served on the "obligor." The lien on funds works kind of like a stop notice, and is effective when received by the obligor.

The lien on funds has a few different effects. First, it requires the obligor "to retain any funds subject to the lien or liens upon funds under this Article up to the total amount of such liens upon funds as to which notices of claims of lien upon funds have been received." Second, it can enable the claimant to claim a lien upon real property through subrogation.

In order to make sure that the obligor complies with the requirement to retain the funds subject to the lien on funds, North Carolina law provides for certain penalties if the requirement is breached. If the obligor makes additional payments to the party against whose interest the lien on fund is claimed, not only does the lien on funds continue to remain in effect as to those particular funds, the obligor becomes personally liable to the claimant up to the amount of the wrongful payments. Additionally, if the obligor is the property owner and becomes personally liable through making payment after receipt of the lien on funds, the claimant is entitled to a claim of lien upon real property.

These requirements and outcomes are set forth by North Carolina law § 44-A18 - 20. Note, however, that a lien on funds is only effective to the extent that there is money still due to the party that is supposed to be paying the claimant. Or, put another way, a lien on funds only helps to the extent that there is money owed to the party one tier immediately above the subcontractor claimant.

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