Magazine article Business Credit

Mechanics' Liens in South Carolina. (Construction Corner)

Magazine article Business Credit

Mechanics' Liens in South Carolina. (Construction Corner)

Article excerpt

Introduction

A mechanic's lien in South Carolina is an encumbrance, like that of a mortgage, on the real estate upon which a project is being built. The lien provides security for payment of persons whose labor and materials have been used in connection with the improvement of the property.

Distinctive Features of Law in State

A 1992 amendment to the mechanic's lien statute established a rather complicated procedure to avoid surprise liens by remote parties. Under the amendment, the contractor can file a "notice of project commencement" with the clerk of court of the county where the project is located within 15 days of commencement of the work. This filing places upon a remote party the burden of giving to the general contractor a notice of furnishing of labor or materials.

Anyone with an interest in the property can bond off the lien with a cash bond or surety bond in the amount of one and one-third the face value of the lien. Filing the bond discharges the property and substitutes the bond as security for payment of the lien amount upon a determination in court of its validity.

The prevailing party in a mechanic's lien enforcement action can recover its attorney's fees. There is a complicated procedure set forth in the statute for determining the "prevailing party."

Deadline Summary

Pre-filing before construction

There is no deadline for sending the notice of furnishing to the general contractor; however, until such notice is received, the remote provider's lien rights are reduced by every payment made to the subcontractor/customer for that remote provider's materials or services.

Lien filing and/or service after labor or materials supplied

The lien must be perfected by serving notice of it upon the owner and filing it in the land office of the county where the project is situated within 90 days of the last furnishing of materials or labor by the lien claimant.

Enforcement

Thereafter, in order to perpetuate the lien, the claimant must bring a civil action to enforce it within 180 days of such last furnishing.

Defense of payment/owner's responsibility for payment to subcontractors

The value of the lien cannot exceed the amount owed by the owner on the contract for construction when the lien is filed. Thereafter, the owner must pay the lien claimant in preference to the contractor. In the case of a default by the general contractor, the "amount owed by the owner"--to which subcontractor and supplier liens are limited--is measured by determining how much is owed to the general contractor upon lien filing, and deducting therefrom the reasonable costs of completing the project.

Priority

If there is money left in the contract sum but not enough to pay off all lien claimants, they share pro rata, regardless of the order of filing of the liens. Continuing advances under a prior filed construction mortgage have priority over a mechanic's lien unless the lender is served with a copy of the lien, whereupon the lien achieves priority as to any additional advances made after receipt of notice.

Bankruptcy

If the general contractor files bankruptcy, the security of the lien remains outside of the bankruptcy. If the owner files, however, rights are automatically stayed.

Sale or Foreclosure of Property

If it is determined that the claimant has a valid lien against the fee estate of the owner, and the lienor's claim remains unpaid, a forced sale of the property will result and the liens will be paid out of any proceeds of sale-subjected to the rights or pre-filed mortgages.

Subdivision and Utility Improvements

Practically any kind of service can support a lien, including subdivision and utility improvements, design, equipment rental and security.

Renovation or Repair Work

Renovation or repair work can support a lien as long as it is a true improvement or alteration and not maintenance work. …

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