The Key to Spotting a Problem Before the Contractor Files One

Do your Due Diligence for Construction-Heavy Transactions in North Carolina. Few things can jam the lock on a commercial real estate closing faster than a mechanic’s lien. In North Carolina, these liens pack a punch—they can attach mid-project, survive the closing, and undermine title protection if not handled properly. While most practitioners know how to deal with liens once they’ve been filed, the key lies in spotting the risk before it hits the public record.

If you're handling a commercial build, renovation, or even a multi-phase residential development, here are the key warning signs and due diligence strategies to help get ahead of mechanic’s lien trouble in North Carolina.

Follow the Money — Especially to Subcontractors and Suppliers

The North Carolina lien law doesn’t just protect general contractors—it extends to subcontractors, suppliers, and even laborers, whether or not they have a direct contract with the property owner. Under N.C.G.S. § 44A-23, these parties can file claims of lien on funds and, in some cases, on the property itself.

Key Tip: Ask for a list of all subcontractors and suppliers. Then go a step further—confirm they’ve been paid to date. A general contractor saying, “we’re good,” doesn’t cut it if a drywall supplier is owed $80K and ready to file a lien.

Scrutinize Lien Waivers — And Know What You're Looking At

North Carolina doesn’t mandate lien waivers, but smart closers do. The problem? Not all waivers are created equal.

• Conditional waivers (effective upon payment) are useful when tied to draws or progress payments.

• Unconditional waivers can be risky if signed before funds clear.

Red flag: Missing waivers from lower-tier subcontractors. These are the folks most likely to go unpaid, and their lien rights may be lurking.

Key tip: Ask for waivers at every draw stage, not just at closing. A complete waiver package is your best evidence that lien rights have been extinguished.

Investigate Project Delays and Permitting Issues

Delays aren’t just inconvenient—they often signal financial stress. If inspections are stalled, permits are hung up, or crews are being pulled from the site, it’s time to ask tough questions. Watch for:

• Missed draws or skipped payments

• Change orders not being processed

• Owner-general contractor (GC) tension over scope or budget

Every delay increases the odds that someone isn't getting paid—and that someone may be preparing a lien.

Review Construction Contracts and Change Orders

Mechanic’s lien claims often arise from disputed change orders or extras that were never formally documented. If you're reviewing a construction contract, check for:

• Clear scope definitions

• Approved change order procedures

• Payment timelines and retainage details

Key tip: Watch for verbal agreements or undocumented changes. These can easily give rise to unpaid labor or materials—and subsequently, lien claims.

Check for a Filed Notice to Lien Agent (NLA)

North Carolina requires an NLA for any project involving improvements totaling $30,000 or more (excluding single-family owner-occupied dwellings). The property owner must designate a lien agent before work begins, and potential lien claimants must serve the NLA within 15 days of first furnishing labor or materials.

Why it matters: If an NLA wasn’t filed, or no one served it, you're in the dark about who might claim lien rights.

Key tip: Search the LiensNC database early in the process. If there’s no NLA, or if one was filed late, you may need to dig deeper to uncover hidden risks.

Keep the Owner Involved and Accountable

Sometimes the best information comes directly from the owner or developer. Make sure they’re providing:

• Updated draw schedules

• Contractor payment affidavits

• Evidence of completed inspections

If they’re vague or unwilling to produce documentation, that’s a red flag. Push for transparency early—before a closing date is on the calendar.

Bottom Line: Don’t Wait for a Lien to Show Up

Once a mechanic’s lien is filed, your options are limited, and your closing may be delayed. Getting in front of lien risks—especially in North Carolina’s layered lien structure—requires more than just a title search. It takes questions, documentation, and vigilance throughout the closing process.

Need support on a construction-heavy transaction or title issue?

Key Title is your partner in navigating North Carolina’s complex lien laws and clearing the way to a smooth closing. Reach out anytime—we’re here to help.