The Conference Room--Answers to Questions on N.C. Law

It Was My Understanding There Would Be No Math...

A few weeks ago, on a lovely Saturday at Wrightsville Beach, NC, I was in a small banquet room, assisting a Homeowner's Association with a special meeting calling for the removal of directors. There were two large factions in the Association and on the Board. One faction had collected a sufficent number of petitions to call for the removal of the majority of the sitting Board members. I was asked to take a fairly active role in the running of the meeting to ensure that the law was properly followed by both factions and there would be no procedural problems.

With only that one item on the agenda, whether or not to remove Directors 1-4, how hard could it be? Well, I found out. To understand the removal, you first have to understand the election. You see, these directors had been voted on to the Board by cumulative voting. The North Carolina condominium Act and the North Carolina Model Non-profit Business Act both allow cumulative voting for the election of Directors. Cumulative voting is designed to allow a minority faction to gain some representation on a Board. For example, suppose you have 3 seats up for election. Under straight voting, each member would have one vote for each seat. That allows 51% majority faction to elect all three members (and have 100% of the Board). Under cumulative voting, each member gets three votes, but can vote all three of them for one seat. This way, a minority can pool their votes and get at least one member on the Board.

This meeting however, was to remove a Director. This is allowed in North Carolina under the Condominium Act by a 67%  vote, with or without cause. Fairly straightforward math. However, under the Nonprofit Act, if the Directors are elected with cumulative voting, there is another calculation. Under the Non-profit Corporations Act, §55A-7-25, if the director is elected by cumulative voting, they can be removed “unless the votes cast against removal would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast and the entire number of directors elected at the time of the director’s most recent election were then being elected.” The more you read that quote, the more confusing it gets.

The goal here is to close a loophole in cumulative voting. See if 20% of a membership pooled their votes together sufficently to elect a Director to a Board, under the removal process, the larger faction could just vote them back out again. Hence the above language. I really had to know what this meant and how it was applied because I needed to explain to both sides why I was calculating the votes the way I was. I did a lot of reseach and am convinced that a lot of lawyers across the country (the NC rules are based almost entirely on a Model Act that has been adopted in several States) don't really understand it either. They just dump the whole quote into their memo or brief, present it as obvious, and hope nobody asks them about it.

I finally had to go back to a 1950 Law Review article that drafted an equation (its actually an inequality for the math geeks out there) that could be used by a minority faction to determine the maximum number of Directors they could vote onto a Board. Other articles then took that formula and used it to to determine the number of votes that would block the removal of a Director. The formula is as follows:

X is the number of votes needed to defeat the recall measure. S represents the total number of votes being cast at the recall meeting, not the total number of members in the association. In the removal situation, N is always equal to 1, even if the meeting is being called to remove two directors. For each director to be removed, there should be separate votes, one for removal of each individual director. In each instance, N, in the formula, would be 1.(In the use of the equation in an election, N would be the number of Directors the minority was trying to elect). D  is the total number of directors elected at the most recent election at which the director to be recalled was elected. One question I had was why the +1 at the end of the equation? According to the official comment to the Model rule, the computation should consider that “all votes cast for removal of the director had been cast cumulatively in an efficient pattern for the election of a sufficient number of candidates so as to deprive the director whose removal is being sought of his office.” The “+1” makes it so that, for example, in a race to elect three seats, the winning threshold would be one vote more than 25% of the vote—a total that would be mathematically impossible for four candidates to reach.

The next question I got was why is N equal to 1.  The statute provides for “a” director and “such” director, and therefore contemplates a vote to remove a single director. The vote is independent of how many other directors are being voted out. Otherwise, the petitioners for removal could manipulate the amount of votes needed by petitioning the removal of more directors. For N to be more than one, the vote would have to be to remove that number of directors in a block. The statutes and the petition itself, calls for individual removal voting. 

The odd thing in this election was that it was actually a majority of the Board members where were being voted off, but under the statute they were each voted on as if they were a sole minority. One suggestion was that the votes for removal be voted cumulatively as well, but under the statutes, cumulative voting is only allowed for elections, not any other actions, including removal.

After all that brainpower and math, none of the Directors had 67% for removal, so the formula didn't even come into play. But the next question from the Board and the membership was "how can we amend the By-laws so we don't have to have cumulative voting anymore..."

-Bradley A. Coxe is a practicing attorney in Wilmington, NC who specializes in Personal Injury, Car Accidents, Medical Malpractice, Contract and Real Estate disputes, and all forms of Civil Litigation.  Please contact him at (910) 772-1678.

My Not-So-Hero, Zero

There has been a lot of justifiable backlash over “zero tolerance” policies for weapons at schools. The tale of the cub scout proud of his pocket knife with fork and spoon has prompted many people to cry out “where is the common sense of these school officials?” My practice really isn’t geared to this type of litigation (although I know attorneys who do) but I’d like to make the connection between these zero tolerance policies and some types of tort reform.

Zero tolerance for weapons in schools sounds like a great idea. Don’t let anybody wiggle out of the rule because of their race, wealth, Mom is the principal, or anything else. In practice though it requires a third-grader to be suspended because her grandmother sent a birthday cake to school, and a knife to cut the cake for the teacher. With zero tolerance, there is no room for common sense. It is a robotic and undemocratic rule of law.

Caps on medical malpractice damages or pain and suffering damages is also a form of this zero tolerance. The jury system allows ordinary citizens to come and decide after a judge explains the law, what the facts are of a case. Part of the facts is what actual damages does this person show? Sometimes, if they find maliciousness, they can also answer, what amount would punish this person or corporation enough that they won’t do it again? (punitive damages) Then the judge, after his ruling, can apply his own common sense and order a new trial if the jury’s verdict are far out of line with what the facts are that were presented. A cap on damages is a state legislature deciding, without hearing any facts of a case, and possibly years before the case even occurs, that some amount of money is too much, even if a jury and judge who hear the actual evidence and circumstances think otherwise. A unanimous jury verdict is the purest form of democracy that any of us will experience. An inflexible cap or rule, is the opposite.

-Bradley A. Coxe is a practicing attorney in Wilmington, NC who specializes in Personal Injury, Car Accidents, Medical Malpractice, Contract and Real Estate disputes, and all forms of Civil Litigation.  Please contact him at (910) 772-1678. 

How to Go to the Doctor

The following is an excerpt of an article written for paralegals and attorneys by Steven Glass, a retired personal injury attorney from Florence, South Carolina, concerning the lack of attention that attorneys, and their clients, sometimes pay to the client's treating physicians. Mr. Glass points out that the attorneys should be aware of their client's medical treatment, how their injury affects their lives, and help their clients communicate with their doctors.

I always tell my clients to tell the truth to the doctor; it helps the lawsuit and more importantly, helps their health. However, I do instruct them to tell the complete truth to their doctor. Usually the problem I run into is the patient who minimizes his complaints, not the client who exaggerates. Months or years later, when the defense attorney is quizzing the client about their symptoms, the lack of medical record history paints a false picture that the injury or pain was less than it actually was, or worse, was not caused by the accident at issue in the case. Patients only tell the doctor about the bad knee pain, and don't "bother" him about the neck pain that doesn't seem so bad. But six months later when the knee pain is gone, but the neck pain lingers, it appears that it just happened. I've had clients who don't mention back pain to their family doctor, who records "no complaints," because they think he doesn't need to know because they are seeing a chiropractor for the back.

Mr. Glass advocates an even more active roll for the attorney in the medical treatment, with direct communication in person or by letter to the doctor to make sure that these symptoms are recorded and treated. An attorney must balance this strategy with the understanding that any letter may very well end up in the defense attorney's hands and could be used to attack the credibility of the treating physician at trial.

Have you ever had a doctor who continually seemed to minimize the injury in office notes,  time after time reporting improvement and minimal difficulty?  In many cases in which the injury is minimized medically because of failure to convey sufficient information, the result is inaccurate diagnosis and treatment. After years of practicing law I learned that it was important to teach clients how to go to the doctor. Most clients do not realize it that when the doctor asks, “how are you today”, this is not a social exchange and the reply will be recorded. By making it a practice to prepare a client for the doctor’s visit many potential catastrophes can be avoided, and accurate depiction of the effects of injury can be medically documented. Additionally learning the real day to day difficulties the client is experiencing and having it related to the physician will dictate what medical care is ordered. Having a physician order counseling, or additional testing, or being concerned about continuing employment can add considerably to the value of the case and too often the client does not relate what could be important to the physician for effective treatment. This causes cases to lose value.

Doctors are human too, although lawyers are not sure, and with the little time patients are allotted face to face medical care, the client must briefly be able to communicate to the physician the effects of injury to daily life. The effect of an injury on daily activities tells a doctor more than the normal physician questions of describe the pain, its severity, where it is located, etc. The average physician pressed for time will rarely ask, “ what activities increase pain or maybe more importantly, “ what activities performed over what time period increase the pain level and diminish the ability to perform?” The next question should become “what activity performed over what time period makes it impossible to continue?” The point here is that the physician’s idea of the scope or ambit of what constitutes medical responsibility and time limitations will not result in clarification of the extent of the injury and its effect on the patient. Many attorneys see themselves as separate from medical care and the patient’s limitations and long term outcome can readily fall between the cracks. The solution seems to lie only with the proper training and preparation of the patient.

I have had clients that could not eat with the family as mealtime was either too uncomfortable physically or emotionally. I have had clients who could not sit through a thirty minute television show. I have had clients who could not ride in a car over one hour without getting out and walking or who simply stopped going on outings at all. Learn what a trip to the mall is like, know if the client was able to attend a wedding, help out at a garage sale, attend school meetings. In these crevices is the fodder that will give a doctor concern or compel a claim’s adjuster or jury jump. Learn early signs of depression, these will have no value if not treated and documented.

Given that the above facts are determined and gathered, often times they can be communicated to a physician by letter or in person, either to help determine treatment or in consideration of referral to more specialized or intensive care. The physician simply does not have time to gather this information. As trial attorneys know, physicians have limited time to spend with patients and given the imbalance of power, most patients are reticent about communicating information or are unable to determine what is important for the physician to know. While some physicians might take offense at such communication, such a letter can impart professionalism and lead the physician toward thinking of the communication as forming the basis of essential teamwork leading to the best result for the patient.

-Bradley A. Coxe is a practicing attorney in Wilmington, NC who specializes in Personal Injury, Car Accidents, Medical Malpractice, Contract and Real Estate disputes, and all forms of Civil Litigation.  Please contact him at (910) 772-1678. 

Are We There Yet?

Just recently the family and I loaded up the Family Truckster and headed north past Richmond, Washington (which some in my family refer to as "Occupied Virginia"), Philadelphia, New York, and finally to Old Lyme, Connecticut to visit for a few weeks, members of my wife's family. From the time we left my driveway to 14 hours later, I heard the phrase every time I tapped the break, "Are we there yet?" How do they know this phrase, I think? I never taught it to them, and it is one of the biggest kid cliches out there, yet it always happens.

In a similar vein, although without the whining, one of the first thing clients, and particularly personal injury clients ask is "How long will this take?" Unfortunately, I can give the kids in the Truckster a more definite answer (and a juice box) than I can my clients. For the personal injury and car accident cases, after you get accident reports and do a scene investigation, the hold up is medical rather than legal. The client has to get to a point in her medical treatment that she has gotten better, or her doctors are reasonably certain she is as good as she will get. The reason is that before you start filing a lawsuit, you want to try and settle with the insurance company. They are not going to give any money based on what you "think" will happen or what "might" happen, they need to at least know you have enough evidence to get to a jury trial. When you do settle, you can't go back later. So if you accept a settlement from an insurance company and a month later your doctor tells you you need surgery, you can't go back. (This is another reason why personal injury attorneys warn injured people not to settle right away with an insurance company, even if they want to just "get it over with.").

So that process may take a few weeks or a few months, it just depends. Then, after you get the report that the client has reached maximum medical improvement, you have to order the medical records. This can take awhile, and usually I'll have to make multiple requests before the creaky bureaucracy of a hospital or a slammed office manager of a family physician can get me my request. Expect a delay of at least 30-60 days for the records.

After that, you make a demand, and it will take another month before you get to a settlement with the insurance company or decide to file a lawsuit. (that's assuming they don't ask for additional medical records that you don't have). When you file a lawsuit, there is a flurry of activity getting the Complaint prepared and then you wait for the Defendant to answer. In North Carolina, the Defendant has 30 days, but count on 60 because they always get an extension to answer. You'll again have long stretches where it seems nothing happens along with spikes of activity--answering discovery, the client's deposition, perhaps a motion for Summary Judgment. Until finally, a jury trial. I usually tell my clients that in the areas I practice, count on roughly a year from the date of filing the Complaint, to a jury verdict. In the rare cases where there is an appeal, that could drag on another six months to a year.

One thing I do try to remember is that while I know what needs to be done right away, what can wait, and when a case is "moving" or "stalled." My clients don't have that knowledge. Also, while I have a lot of cases, each of my clients only has one. They want to be assured that I am actually working on their case as quickly as I can, and very few clients are unreasonably demanding of my time. The best thing that works for me is to let them know when something is going on, and, more importantly when something isn't going on and I'm waiting for medical records or discovery or an Answer. The second best thing is actually take their phone calls. A five minute conversation about the only case they have is something each client deserves, even if it does sometimes feel like you are answering "Are we there yet?"

--Bradley A. Coxe is a practicing attorney in Wilmington, NC who specializes in Personal Injury, Car Accidents, Medical Malpractice, Contract and Real Estate disputes, and all forms of Civil Litigation.  Please contact him at (910) 772-1678. 

What to Wear

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I'm getting ready for a jury trial next week, and one of the pre-trial steps I take is getting the client prepared. You'd think that this would primarily be going over the facts of her case and the strategy involved, and you'd be right, but one aspect of that is her presentation in front of the court and the jury. Other clients have told me how everybody they know thinks they are honest and likeable and salt of the earth and they may be right. I tell them that one of the few things I'm sure of in a jury trial here is that none of those people will be on the jury. The jury will meet them for the first and last time in court so they have to convey those things that all their friends already know, in a short and limiting environment. One of the ways that a client can make a good impression is simply by what they wear.

My client in my trial next week was a little concerned. She is a horse trainer, and her idea of dressing up is usually her best pair of jeans. I used to tell clients to dress like they were going to church, until I had one client in a car accident trial show up in a three-piece suit, looking better than I was! I quickly had him lose the vest and coat. I didn't want the jury confused as to who was the lawyer and who was the client. So now I tell them to dress a level or half-level down from my suit. For men that usually means long pants and a collared shirt. I don't have anything more specific to tell my female clients, but they usually can get the idea.

The key in my opinion is to treat court with respect. Jurors are usually not crazy about taking time out of their lives for this civic duty, they at least want the participants to act like it is serious business and they are grateful for the opportunity to have their case heard. Dressing for respect goes not only for my clients, but for anytime you are heading to court, even if you are heading to the courthouse to see about a traffic ticket. Don't wear a hat; don't wear flip-flops; don't wear a T-shirt (especially with curse words printed on it); don't wear a tube top; the judge will not be impressed by the tattoo at your panty line. Most judges will try to be fair but if you dress like you don't respect who they are, and what the court is, you are starting the game already behind.

--Bradley A. Coxe is a practicing attorney in Wilmington, NC who specializes in Personal Injury, Car Accidents, Medical Malpractice, Contract and Real Estate disputes and all forms of Civil Litigation.  Please contact him at (910) 772-1678. 

There is a Lawyer in My Mailbox!

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If you have ever been in a car accident in North Carolina, you may have been shocked at the amount of mail you suddenly get. One of my clients recently got into an accident and brought into my office stacks of letters and documents from attorneys, some hundreds of miles away, asking to represent her in her personal injury lawsuit. Other than a few chiropractor letters for accidents, or mortgage refinancing letters every time you buy some property, I don’t know of any other business or profession that relies on this type of targeted direct mail.

These attorneys (and chiropractors) are able to do this because accident reports are public records. In years past, attorneys or sometimes a paid third-party service would hang by the courthouse or police station getting copies of the accident reports as they came in. Thanks to the Internet, it is even easier now with the reports readily available. In my hometown of Wilmington, the reports are available here. Accident report in hand, the lawyer or his staff can send out the canned letter or package to arrive at your door almost before you get home from the Emergency Room. This practice may get a bit harder soon as there is a new bill in the NC House that would allow a person in a accident to opt out of receiving any solicitation from that report.

One reason why lawyers use this type of direct mail solicitation is because the North Carolina State Bar, the organization that regulates the profession, has strict rules about an attorney communicating his services to a non-client. The Bar is concerned about maintaining the professionalism of attorneys, especially in today’s climate and stereotypes of the “ambulance chasing” lawyer. However, the Bar can’t totally ban all types of advertising because the U.S. Supreme Court has ruled that would violate the 1^st Amendment and Free Speech. That is why lawyers are, with some parameters, able to advertise on TV, radio, billboards, and other places. Even more restrictive is direct solicitation where an individual is targeted for the lawyer’s services as opposed to a TV ad that is aimed at anybody who tunes in. Most direct solicitation of non-clients of lawyers is prohibited by the Bar, with the exception of the direct mail. Since direct phone calls, door-to-door, emails, and other direct solicitation is out, direct mail is the only route available. Even that is restricted; you’ll notice the big disclaimer on all that correspondence saying “THIS IS AN ADVERTISEMENT FOR LEGAL SERVICES.”

While I assume that these direct mail advertisements are effective for the lawyers who take advantage of them in finding good clients, are they effective for the potential client to find a good lawyer? Those ads are certainly a good starting place, just like yellow page ads, or legal websites, but don’t solely rely on them to choose your attorney.

--Bradley A. Coxe is a practicing attorney in Wilmington, NC who specializes in Personal Injury, Car Accidents, Medical Malpractice, Contract and Real Estate disputes and all forms of Civil Litigation.  Please contact him at (910) 772-1678. 

The $10,000 Question

I was reading in the local newspaper about a lawsuit recently filed. It was a slow news day, and this particular suit had an interesting twist on a regular car accident case, so somebody thought it might make a good story. The reporter was fairly accurate, especially when she couldn't get either side to talk, but one "fact" that she reported was wildly inaccurate, but she had no idea why. She reported that the amount of relief the injured person was seeking was $10,000. I know exactly where she got that information; she went to the courthouse and pulled the Complaint. Nothing wrong with that, its a public record. The facts were laid out nicely for her and she reported those correctly as facts, but at the end of the Complaint she got in trouble. She read in what is called the "prayer for relief" that the Plaintiff was seeking a judgment in excess of $10,000. 

Now that attorney did not put in $10,000 because that is what he wanted, or what he thought the case was worth, or what he thought the other side would give him. Strangely enough, usually what you can ask for a trial, or what the jury can give you, has nothing to do with anything you ask for in the Complaint. In fact, some types of cases, negligence and punitive damages, do not allow the Plaintiff to put in an amount, only if it is more or less than $10,000. Even when it is not required, the instinct of an attorney is not to give away free information on what he thinks the value of his case is, especially as it may change as the lawsuit progresses. In addition, the Complaint is usually not even allowed to be read to a jury. The reason for the $10,000 figure is to determine which North Carolina court your civil suit goes.

North Carolina Courts start with Magistrate Court. After that, the main trial courts are the District Court and Superior Court. These are the courts where cases are actually tried with a jury or judge making a decision on the facts in the case. Beyond the trial courts are the appellate courts, the North Carolina Court of Appeals and the North Carolina Supreme Court. Those courts only decide cases that come up on appeal for errors of law.

District Court and Superior Court, on the civil side (as opposed to criminal cases) split their cases based on the amount in controversy. Anyone claiming an amount for $10,000 or less is tried in the District Court, and anything over $10,000 is tried in the Superior Court. Unlike Magistrate Court, whose judges  can't award anything over $5000, a jury or judge in District Court can award more than their "limit" of $10,000 if they find the facts and evidence support it, and the Superior Court can award less.

So the next time you read that somebody is asking for "more than $10,000," you'll know what you don't know--how much they really want or will get. 

--Bradley A. Coxe is a practicing attorney in Wilmington, NC who specializes in Personal Injury, Car Accidents, Medical Malpractice, Contract and Real Estate disputes and all forms of Civil Litigation.  Please contact him at (910) 772-1678. 

The Reason an English King wanted to "Kill all the Lawyers."

John Adams--Massachusetts
Samuel Chase--Maryland
Abraham Clark--New Jersey
William Ellery--Rhode Island
Thomas Heyward Jr.--South Carolina
William Hooper--North Carolina
Francis Hopkinson--New Jersey
Samuel Huntington--Connecticut
Thomas Jefferson--Virginia
Thomas Lynch Jr.--South Carolina
Thomas McKean--Delaware
William Paca--Maryland
Robert Treat Paine--Massachusetts
John Penn--North Carolina
George Read--Delaware
George Ross--Pennsylvania
Edward Rutledge--South Carolina
Roger Sherman--Connecticut
James Smith--Pennsylvania
Richard Stockton--New Jersey
Thomas Stone--Maryland
George Walton--Georgia
James Wilson--Pennsylvania
Oliver Wolcott--Connecticut
George Wythe--Virginia

25 out of 56 Signers of the Declaration of Independence were lawyers. 

--Bradley A. Coxe is a practicing attorney in Wilmington, NC who specializes in Personal Injury, Car Accidents, Medical Malpractice, Contract and Real Estate disputes and all forms of Civil Litigation.  Please contact him at (910) 772-1678.  

If a Tree Falls and Nobody Hears it...Do You Have a Lawsuit?

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Hurricane season officially began on June 1.  Around here, we have had a little bit of experience in the Hurricane department, so when we see the Weather Channel hanging around, we know to get to the store, stock up on bottled water, propane and Spam and hunker down for a good named storm.  After it is over, everybody heads blinking into their yard checking out the damage and swapping tall tales of much bigger storms with their neighbors.  The situation happens fairly frequently that a tree on one property has fallen and damaged a house or fence on another property, or sometimes caused someone personal injury.  Who is responsible?  First, most people have homeowner's insurance and if your house or even your car gets hit with the neighbor's formerly prized pecan tree, your insurance will usually pick up the tab.  It may be a good idea as part of your hurricane season checklist to review your homeowner's policy and check for what exactly your coverage is for trees and other things, and what amount of a deductible you will pay. 

Second, forgetting about insurance, in North Carolina, your neighbor generally has no duty to pay your damage, even if it was his tree that hit your house.  After all, he didn't knock it down onto your property, it was an "Act of God," and He is beyond the subpoena power of the North Carolina Courts.  However, you may have a case against that neighbor in negligence if he knows that the tree is unhealthy or diseased or otherwise fails to maintain the tree. 

Where there is negligence, there is usually a defense of contributory negligence.  So if you asked your neighbor if you could remove the diseased tree and he agreed, but you failed to do so before the storm knocked it on your roof, the neighbor would have the defense of contributory negligence.  Other jurisdictions have considered it contributory negligence for failing to prune a diseased limb that hung over your property line. 

If there is a case against your neighbor, and you are covered by insurance, usually your insurance company will pay you and then may maintain an action against the neighbor to get their money back.  If that happens, talk to the attorney for your insurance company.  Sometimes you can ride his coattails and recover your deductible as well. 

--Bradley A. Coxe is a practicing attorney in Wilmington, NC who specializes in Personal Injury, Medical Malpractice, Contract and Real Estate disputes and all forms of Civil Litigation.  Please contact him at (910) 772-1678.  

Lien on Me

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There are several different types of liens in the law.  Generally, a lien is the right that is created by law, or sometimes by express contract, to retain lawful possession of property of another under that person fulfills a legal duty to the person holding the lien.  A mortgage on your house is one kind of lien. 

A mechanic’s lien, also called a contractor’s lien or materialman’s lien, is a particular type of lien that allows a person who furnishes materials or work to the construction of a building or other large project to have a lien on the building or on funds for the building.  In North Carolina, these liens are set forth in Chapter 44A of the North Carolina General Statutes.  In North Carolina, there are actually two different broad types of mechanic’s liens.  The first is a property lien and the second is a lien on funds.  The property lien can arise when the owner of the land is the one who owes the money.  For example, a general contractor is hired and signs a contract to build a house.  The homeowner then doesn’t pay.  The general contractor can then put a mechanic's lien on the house.  To do this, he files a notice with his name and the owner’s name, the property address, the work he did, the money owed, and the date of the last work done.  This notice must be filed within 120 days of the work, or the lien right is gone.  After the lien is filed, it is extinguished unless the builder were to file a lawsuit to enforce the lien within 180 days from the last work done.  The effect of the lien is that the homeowner would have to satisfy the lien before he could sell or convey the building.  Even if the homeowner disputes the amount owed, the lien still remains until the matter is resolved by the courts.  If the homeowner needs to sell the property prior to that, he can deposit the amount of the lien with the clerk of court who will hold the money pending a resolution.  That way, the builder is assured of there being money to pay him if he is correct.  

The second type of mechanic’s lien is the lien on funds.  This lien arises when the person who is supposed to pay for the work, and the owner of the property are different.  For example, a subcontractor is hired by the general contractor who is in turn hired by the homeowner.  The subcontractor doesn’t have a contract with the homeowner; the general contractor was the one who was supposed to pay him, so the subcontractor can’t attach a lien to the actual property.  What he does is to make a claim of lien on funds.  The time periods and deadlines are the same, but rather than put a claim on the property, what he is doing is giving notice to the homeowner not to pay the general contractor. That money is what the lien is on, not the property.  Only if the homeowner gets notice of the lien and pays anyway, or the general contractor has his own lien against the property that the lienholder can piggyback on, can the subcontractor put a lien on the property.  If the homeowner has paid the contractor all that he is entitled to, and he hasn’t paid the subcontractors, there is no restriction against the homeowner in selling the property.

Even without a lien, a claim for breach of contract arises, so that a general contractor can get a judgment from a court for money either way.  However, all that a judgment gives you is a chance to collect.  With a valid lien, the general contractor can preserve what assets there are, and get a priority over them, which gives the lienholder a much better chance of actually getting paid. 

--Bradley A. Coxe is a practicing attorney in Wilmington, NC who specializes in Personal Injury, Medical Malpractice, Contract and Real Estate disputes and all forms of Civil Litigation.  Please contact him at (910) 772-1678.