What is a Mechanic’s Lien?
In South Carolina, construction liens, called mechanic’s liens, are automatically created by statute to protect anyone “to whom a debt is due for labor performed or furnished or for materials furnished and actually used in the erection, alteration, or repair of a building or structure upon real estate or the boring and equipping of wells.” S.C. Code Ann. § 29-5-10. People and entities subject to the statute’s protection “shall have a lien upon the building or structure and upon the interest of the owner of the building or structure in the lot of land upon which it is situated to secure the payment of the debt due to him.” Id. If work or materials are not connected to the erection, alteration or repair of a building or structure, there is no lien.
What Does a Mechanic’s Lien Allow You to Recover?
A mechanic’s lien allows a contractor, subcontractor or supplier to recover the value of the labor or materials provided by the contractor, subcontractor or supplier for the benefit of the property owner. S.C. Code Ann. § 29-5-20. In addition, the lienholder can recover the costs of the action to enforce the lien and reasonable attorneys’ fees if the lienholder prevails in enforcing the lien; however, the attorneys’ fees and court costs cannot exceed the amount of the lien. S.C. Code Ann. § 29-5-20.
The total amount of liens held by a subcontractor cannot exceed the amount owed by the property owner to the general contractor “on the contract price of the improvement made.” S.C. Code Ann. § 29-5-40. Similarly, the total amount of liens on an improvement cannot exceed the amount due by the owner. S.C. Code Ann. § 29-5-20(B).
What Notice is Required?
Within fifteen days of beginning work, general contractors should file a Notice of Project Commencement with the Clerk of Court or Register of Deeds in the county where the real property is located and should post a Location Notice at the job site along with their name and address. S.C. Code Ann. § 29-5-23. Failure to do so affects the lien rights of subcontractors and suppliers, as well as defenses to their potential lien claims.
Sub-subcontractors and suppliers should serve a Notice of Furnishing Labor and Materials on the general contractor by registered or certified mail when first providing labor or materials. S.C. Code Ann. § 29-5-20(B). Failure to do so prevents sub-subcontractors and suppliers from obtaining payment from the general contractor once the subcontractors to whom sub-subcontractors supply labor or materials are fully paid, even if the subcontractor didn’t pay its sub-subcontractors and suppliers.
Perfecting a Mechanic’s Lien
Mechanic’s liens are created as soon as any contractor performs or furnishes labor or materials actually used in the erection, alteration or repair of a building or structure upon real estate or the boring and equipping of wells. However, to ensure payment for the labor and/or materials, contractors must also “perfect” their lien rights. To perfect a mechanic’s lien, the contractor, subcontractor, or supplier must file a notice of mechanic’s lien with the Register of Deeds or Clerk of Court of the county where the real property is located and serve the property owner with notice and a copy of the lien within 90 days of the completion of the work. S.C. Code Ann. §§ 29-5-20, 29-5-40, 29-5-90. The lien must include the contractor or subcontractor’s license number, and a Statement of Account setting forth the amount owed, a description of the property affected by the lien “sufficiently accurate for identification,” and the property owner’s name. Id.; S.C. Code Ann. § 29-5-15. As the specific additional requirements for filing a lien may vary from county to county, all contractors attempting to file a lien should contact an attorney to ensure the lien is properly prepared and filed.
Enforcing a Mechanic’s Lien
Contractors, subcontractors or suppliers with a properly perfected lien, called “lienholders,” must enforce the lien by foreclosure. To do this, the lienholder must bring suit to foreclose the lien and file a notice of pendency of the action within six months after the last day labor was furnished or materials were provided. S.C. Code Ann. § 29-5-120. The lienholder should file a petition with the Court of Common Pleas for the county in which the property is located containing a statement of the contract on which the lien is based, the amount due, a description of the property subject to the lien and “all other material facts and circumstances.” S.C. Code Ann. § 29-5-160. The petition must also request that the property be sold and the proceeds applied to discharge the debt, and must be served on the property owner. Id.; S.C. Code Ann. § 29-5-150. After the petition is filed and proper notice is given, a hearing will be held at which the lienholder may prove the lien claim. S.C. Code Ann. § 29-5-220. If a lien is established, the court will order that the property subject to the lien be sold and the proceeds used to pay off the amount owed to the lienholder. S.C. Code Ann. §§ 29-5-260 – 29-5-310.
Beware of Potential Double Payment
Once a property owner has received proper notice of a subcontractor’s lien, all payments made directly from the property owner to any subcontractor while the general contractor is still on the job are deemed payments to the general contractor and will not reduce the property owner’s obligation to the subcontractor holding the lien. S.C. Code Ann. § 29-5-50; see also Action Concrete Contractors, Inc. v. Chappelear, Op. No. 27268 (S.C. Sup. Ct., June 12, 2013). Similarly, all payments made by a general contractor to a subcontractor after receiving a sub-subcontractor’s Notice of Furnishing Labor and Materials will not reduce the general contractor’s obligation to the sub-subcontractor. To reduce the possibility of double payment, all property owners should ensure their contracts with general contractors, and general contractors should ensure their contracts with subcontractors, provide protection against double payments.