Personal Liability for Owners under NC Mechanic's Lien Laws

In a surprising decision by the North Carolina Supreme Court, an owner of a construction project may incur personal liability to a subcontractor if it makes any payment to the general contractor after receiving a Notice of Claim of Lien on Funds from the subcontractor ---- even if the owner is retaining more than enough money to cover the amount claimed by the subcontractor in the Notice.

Let's say a subcontractor serves on the owner a Notice of Claim of Lien on Funds in the amount of $100,000. The owner is holding a Contract balance in excess of $250,000, so it goes ahead with a payment to the general contractor of $75,000, which leaves the owner with more than enough on hand to cover the $100,000 claim of lien on funds. No matter --- the owner, because it made a payment in any amount to the general contractor after receiving the Notice of Claim of Lien on Funds, is now personally liable to the subcontractor to the tune of $100,000.

The case is O&M Industries v. Smith Engineering Company, 624 S.E. 2d 345 (Supreme Court of North Carolina, January 27, 2006).