1 | NC Connection | June 2014 We Know North Carolina invtitle.com

As our economy continues to

recover from the recent

recession, we are beginning to

see increased commercial and

residential land development

activity. Developers have often

been sitting on the sidelines for

a while or are new to North

Carolina. Through

conversations with commercial

contractors, Investors Title has

learned recently that many of

the developers are unaware that

they must have a lien agent for

their development project and

that they must appoint the lien

agent prior to the time they sign

their first contract for

improvement of the land (see

N.C. Gen. Stat. Section 44A-

11.1(a)). The contractor often

feels uncomfortable instructing

the developer of the legal

requirements and does not want

the developer to feel that they

are sharing this information

because they anticipate the

need to assert a lien against the

new project. In response to this

concern, Investors Title has

created a bulletin for land

developers explaining the new

legal requirements. This

information sheet can be used

by your contractor clients or by

you to provide a quick and

simple explanation of the new

requirements and to provide

information regarding where the

land developer can find

assistance with the lien agent

process. We urge you to

distribute this helpful document

to your commercial contractor

and land development clients to

inform them of the new lien

Land Developers... 1

Year One: MLA... 2-6

A.M. Best Rating 5

Online Rate Calc. 6

NC Fun Facts 6

Claims Corner 7-8

NC Fun Facts 7

CFPB Resources 8

Branch Profile 9

Investors Trust: THC v. McCrea

9

Land Developers Need to Appoint Lien Agent ASAP! by Steve Brown, Esq. VP—Communications and Marketing Development sbrown@invtitle.com

THE NC CONNECTION

agent requirements and to direct

them to the resources they may

need. A printable copy of the

bulletin may be found here. The

same document is found by

navigating to invtitle.com |

resources | NC | Products and

Services | LiensNC Guide.

“...many of the

developers are

unaware that they

must have a lien

agent ...”

Online Rate Calculator Changes Effective June 30, 2014

See page 5 for details.

2 | NC Connection | June 2014 We Know North Carolina invtitle.com

Year One: The Mechanics’ Lien Agent

and NCLTA Lien Waivers

appoint a lien agent for all

construction projects where the

cost of improvements will be

$30,000 or more at the time the

owner first contracts for the

improvements. The only

exception is for an owner that is

doing a renovation of his or her

own residence or constructing

an accessory structure that is

incidental to the residential use.

If you are closing a transaction

involving property where a lien

agent has been appointed, the

owner of the property will

execute the NCLTA Form 5 –

Owner’s Affidavit and Indemnity

for closing. The NCLTA Form 5

is setup differently from the

previous construction-related

NCLTA lien affidavits [NCLTA

Forms 2 and 3]. Unlike the

NCLTA Form 2 and Form 3, the

NCLTA Form 5 is an owner’s

affidavit only. This means that

the owner is the only party that

will execute the Form 5.

Execution of the NCLTA Form 5

requires the owner to certify that

the owner has complied with the

terms of N.C.G.S. 44A as to the

appointment and identification of

the lien agent. In addition, the

owner is required to identify any

potential lien claimants that first

furnish work within the 15-day

period prior to closing of the

transaction. The NCLTA Form 5

does not include any waiver or

subordination provisions and, as

Summer is here, and we are a

little more than a year into the

implementation of the

mechanics’ lien agent system in

North Carolina. The statutory

changes to N.C.G.S Ch. 44A

that require an owner to appoint

a lien agent on construction

projects where the cost of

improvements is $30,000 or

more became effective April 1,

2013. To facilitate the filings

necessitated by these changes,

the LiensNC website

(www.liensnc.com) was created

to act as a clearinghouse for all

lien agent related filings. In

addition, the NC Land Title

Association promulgated new

lien affidavit forms to

accommodate the changes.

Three new forms were created

for use when a lien agent has

been appointed. Over the past

year, I have received numerous

questions about the use of these

new forms and how they relate

to the old forms. As we have

passed the first anniversary of

the creation of the lien agent

system, now is a good time to

review the applicable lien waiver

forms and their use in various

types of transactions.

Owner Affidavit and Indemnity

Agreement – NCLTA Form 5

The changes to N.C.G.S Ch.

44A require the owner to

THE NC CONNECTION

a result, contractors do not

execute this form. Contractors

will execute the NCLTA Form 6

or NCLTA Form 7 depending on

the transaction as discussed

further below.

Recently Completed

Construction: NCLTA Form 6

– Waiver and Release of Liens

When you are closing a

transaction that involves the

sale of recently completed

construction and are evaluating

which lien waiver forms you

need, the first step is to confirm

whether a lien agent has been

properly appointed (searching

the LiensNC website for an

appointment is discussed

below). Once you have

confirmed a lien agent has been

properly appointed, in order to

obtain title insurance coverage

over loss related to possible

unfiled mechanics’ and

materialmen’s liens, you will

need to obtain the NCLTA Form

5 – Owner’s Affidavit signed by

the owner and the NCLTA Form

6 – Waiver and Release of Liens

signed by potential lien

claimants. The NCLTA Form 6

– Waiver and Release of Liens

is a one page lien waiver that is

designed to be used in tandem

with the NCLTA Form 5 –

Owner’s Affidavit.

(Continued on page 4)

by Ryan Wainio, Esq., VP—Title Attorney

rwainio@invtitle.com

3 | NC Connection | June 2014 We Know North Carolina invtitle.com

THE NC CONNECTION

4 | NC Connection | June 2014 We Know North Carolina invtitle.com

Year One: The Mechanics’ Lien Agent… cont. from page 2.

cannot obtain the entry number,

you can search the LiensNC

website using property-specific

information. The search

function employed by LiensNC

is a Boolean search so be sure

to review the Search Tips

provided by LiensNC if you are

unfamiliar with this search

method. Once you have

identified the owner’s

appointment of lien agent you

will need to click on the small

carrot under the Action column

to find the related filings report.

The related filings report will

give you a list of all potential lien

claimants that have filed a

notice to lien agent and that

have been identified by the

owner in the appointment of lien

agent. These contractors and

suppliers will be required to sign

the NCLTA Form 6 waiving their

lien rights.

Construction Loan/

Contemplated Construction –

NCLTA Form 7 –

Subordination of Liens

The revisions to N.C.G.S. Ch.

44A require the owner of a

parcel where construction is

contemplated to appoint a lien

agent at or before the time the

owner first contracts for the

improvements. In most cases,

the owner will first contract for

the improvements before closing

of the construction loan;

therefore, the owner is required

to appoint a lien agent prior to

closing of the loan. In

connection with the construction

loan transaction, the owner will

again execute the NCLTA Form

5 – Owner’s Affidavit. The

The Form 6 takes the place of

the lengthy signature page that

is attached to the NCLTA Form

2, more commonly known as the

“long form lien waiver.” Poten-

tial lien claimants that must sign

the Form 6 include: 1) any

contractor or supplier that has

filed a notice to lien agent at

www.liensnc.com; 2) a

contractor identified by the

owner in the appointment of lien

agent; 3) any design

professional working on the

project (surveyor, architect,

engineer, landscape architect);

and 4) any contractor or supplier

identified by the owner in the

execution of NCLTA Form 5 as

first providing labor or materials

within the 15-day period prior to

closing.

As mentioned in the opening

paragraph, www.liensnc.com

was created to act as a

clearinghouse for lien agent

related filings. All lien agents

currently acting in North

Carolina utilize the LiensNC

website for management of their

filings. When you are closing a

transaction involving

construction, you will need to

search the LiensNC website for

the owner’s appointment of lien

agent and for any notice to lien

agent filed by a contractor. The

most efficient method of

searching the LiensNC website

is with the unique entry number

that is assigned to each

appointment of lien agent.

When you are closing a

transaction involving recently

completed construction, you

should request this entry

number from the owner. If you

THE NC CONNECTION

difference in what will be

required to obtain title insurance

coverage over possible unfiled

mechanics’ liens lies in what

form of lien waiver the

contractors will execute. In

most cases the applicable lien

form will be the NCLTA Form 7

– Subordination of Liens. The

subordination provisions of the

Form 7 will subordinate the right

of the executing contractor to

the lien of the construction loan

deed of trust. The potential lien

claimants that are required to

execute the Form 7 are the

same as those identified in the

previous paragraph relating to a

sale transaction. The closing

attorney will need to search the

LiensNC website to find the

appointment of lien agent and

run a related filings report to

ascertain the necessary parties

for execution of the

subordination.

There a couple of specific

questions that have come up

often over the past year that I

would like to mention. The first

question is related to whether a

potential lien claimant that has

completed work in advance of

closing of a construction loan,

for example a design

professional, may execute the

NCLTA Form 6 – Waiver and

Release of Liens. Use of the

Form 6 under these facts is

(Continued on page 5)

“...liensnc.com was

created to act as a

clearinghouse...”

5 | NC Connection | June 2014 We Know North Carolina invtitle.com

of the transaction as they relate

to the seller. Has the seller

recently completed

improvements [infrastructure or

lot finishing work] or does the

transaction involve the sale of

an existing improvement that will

be renovated or torn down? If

improvements have been

recently completed, had a lien

agent been appointed?

Infrastructure improvements can

be ongoing for years, so you

may be dealing with

construction that commenced

prior to April 1, 2013. If so, you

will be utilizing the old NCLTA

lien waiver forms, most likely the

NCLTA Form 2 – Owner/

Contractor Affidavit, Waiver of

Liens and Indemnity Agreement.

Unlike the lien affidavit forms to

be used when a lien agent has

been appointed, the owner and

contractors will both sign the

NCLTA Form 2. If the seller

has properly appointed a

mechanics lien agent, then the

closing attorney will use the

NCLTA Form 5 and NCLTA

Form 6 as discussed in the

paragraph relating to the sale of

recently completed construction.

After evaluating your transaction

as it relates the seller, you must

evaluate the facts relating to the

contract purchaser. In

performing the evaluation, it is

essential to remember that a

contract purchaser is an owner

for purposes of NC’s mechanics’

lien law. This means that if a

contract purchaser has already

contracted for improvements to

be made after closing, they are

required by statute to appoint a

acceptable for provision of title

insurance coverage. The

second question is related to

whether it is still advisable to

have the owner appoint the lien

agent in the event the owner

has not yet contracted for

improvements in advance of

closing of the construction loan.

There is no right or wrong

answer to this question. The

statute does not require

appointment until the time of first

contracting, but the appointment

can be made before first

contracting. Appointment is not

a time-consuming process. The

owner will have the applicable

information, can register on the

website, and fill out the

appointment of lien agent form

in ten or fifteen minutes. The

appointment of the lien agent in

advance of closing makes the

transaction cleaner for me as an

underwriter in determining which

lien waivers are acceptable. In

many cases, follow-up questions

may be required in underwriting

a construction loan transaction

using the old NCLTA Form lien

waivers. Appointment of the lien

agent will negate the need for

this follow-up and, therefore,

make the closing process run

more efficiently.

Sale of Property where

Construction is Immediately

Contemplated

Sale of a property where

construction is immediately

contemplated can be one of the

trickier lien waiver scenarios.

The first step for a closing

attorney is to evaluate the facts

THE NC CONNECTION

lien agent in advance of closing.

I often get asked: What happens

if the transaction does not

close? Will there be a cloud on

the title of the seller? The

simple answer to that is no. The

appointment of lien agent does

not create a cloud on the title.

What if the contract purchaser

has not yet contracted for

improvements but contemplates

doing so soon after the closing

occurs? As previously

discussed, even if the contract

purchaser has not yet

contracted for work, it may be

advisable for the contractor to

proceed with the appointment if

construction is immediately

contemplated. It is one less

hurdle to overcome when

applying for a building permit,

and the appointment will allow

the closing attorney and the title

insurance company to accept

the NCLTA Form 5 from the

owner with confidence rather

than potentially questioning the

facts when another form is used.

NCLTA Forms 1, 2, and 3 and

Recent Revisions to NCLTA

Forms 5, 6, and 7

Over the past year, I have

received numerous questions

about whether the old NCLTA

Forms (Forms 1, 2, and 3) are

still relevant for transactions

after April 1, 2013. The answer

is yes to varying degrees. First,

the majority of closing

transactions will not involve

construction. In these cases,

the NCLTA Form 1 continues to

be the applicable lien affidavit

(Continued on page 6)

Year One: The Mechanics’ Lien Agent… cont. from page 4.

6 | NC Connection | June 2014 We Know North Carolina invtitle.com

Recently, revisions were made

to NCLTA Forms 5, 6, and 7 that

became effective in February of

2014. Questions have arisen

about whether the title industry

will accept the previous version

of these forms for a closing

occurring after February of

2014. Investors Title will

continue to accept the previous

version of the forms as the

revisions are not of a nature to

negate the protections for a title

underwriter relying on them to

provide coverage for loss

relating to possible unfiled

mechanics’ liens. You have

probably already been using the

form for the owner. Second,

there will be projects like the

subdivision infrastructure work

previously mentioned that were

begun prior to April 1, 2013 or

where the cost of improvements

is less than $30,000 or

constitute improvements to the

owner’s residence. In these

cases, no lien agent will be

appointed and the NCLTA Form

2 – Construction Recently

Completed or NCLTA Form 3 –

Construction in Process or

Immediately Contemplated will

be used depending on the

nature of the transaction.

THE NC CONNECTION

new versions of Forms 5, 6, and

7, but if you receive the old

version of these forms (dated

March of 2013) for an upcoming

closing, they are still acceptable

for the provision of mechanics’

lien coverage.

When it comes to choosing

which mechanics’ lien affidavits

to use, an understanding of the

facts surrounding the

completed, current, or

contemplated construction is a

necessity. If you have questions

prior to the closing of a

transaction, please do not

hesitate to contact one of our

title attorneys to discuss further.

Year One: The Mechanics’ Lien Agent… cont. from page 5

Online Rate Calculator Changes Effective June 30, 2014

Investors Title is pleased to announce an update to the North Carolina Online Rate Calculator that is scheduled

for release June 30, 2014 at 7 PM.

The North Carolina Online Rate Calculator will feature the following changes:

1. Users will be able to select from three ALTA residential loan endorsements and include the $20 per endorsement charge in the premium calculation.

2. Users will have the option to exclude Insured Closing Letter premium from the calculation, for use in cash transactions or when no ICL coverage is required.

3. The calculator’s supplementary text was trimmed substantially to reflect the aforementioned changes

North Carolina rates include commitment premium. *Premium for Insured Closing Coverage is

included in all North Carolina rate calculations UNLESS the option for “Exclude ICL premium in

rate calculation” is selected. Typically, this checkbox would be selected when calculating

premium for owner coverage, when no mortgagee coverage amount is entered.

7 | NC Connection | June 2014 We Know North Carolina invtitle.com

Claims Corner: Fraudulent Transactions and

Schemes—Be Wary!

copy of the closing statement

from when he acquired the

property, etc. He replied that he

didn’t have to prove anything to

us. So, of course, we let him

know that he wasn’t our insured,

and that he could certainly file

an action against the current

owners and prove to a judge

that he was the prior owner.

Further investigation revealed

that this individual had a history

of criminal fraud charges in

other states. He never pursued

recovering these sales proceeds

a second time! We believe this

may be a fraudulent scheme to

try to double dip on the sales

proceeds in collaboration with

his “heirs.” How could this

situation have been prevented

by the closing attorney? Make

sure you rely on a death

certificate as well as affidavits of

heirship!

2. A divorced couple still owned

property as tenants in common.

The separation agreement

Some fraudulent schemes may

appear innocent on their face,

but, as real estate attorneys, we

should be aware of some

common ploys and take

measures to prevent being

duped! A few fraud schemes,

listed below, follow a similar

pattern and may have been

preventable:

1. An owner of NC property,

purportedly, died intestate in

Florida with an un-probated

estate. The certifying attorney

was provided with various

affidavits of heirship at closing.

The heirs then sold the property

to our insured owners. About a

year after the sale, the “dead

guy” showed up, demanding the

sales proceeds of the property

that had been fraudulently

conveyed to our insured owners.

In investigation of the claim, we

requested that he prove he was

the prior owner by providing

copies of cancelled checks for

tax payments on the property, a

THE NC CONNECTION

stipulated that, upon the sale of

the property, the sales proceeds

would be split 50-50. Couple

comes to closing of the sale and

instruct the closing attorney to

go ahead and make the entire

sales proceeds payable to the

wife. It is later determined that

the couple’s son, who had the

same name as Dad, had

impersonated Dad, forged Dad’s

signature, and helped Mom run

off with the entire sales

proceeds. In this instance, Dad

certainly proved to us that he

was the “real” owner and that

Junior had forged his signature,

so coverage was afforded. How

could this have been prevented?

Perhaps by only paying the

sales proceeds as set forth in

the separation agreement. And,

wouldn’t the 30-year age gap be

a clue? Junior may have been

mature, but the separation

agreement said the couple had

been married for 30 years.

Junior was 35 years old!

(Continued on page 8)

by Carol Hayden, Esq., VP—Senior Claims Counsel

NC FUN FACTS

Whitewater Activities

North Carolina has many options for whitewater activities

across the state. With numerous rivers and centers such as

the Nantahala Outdoor Center, there is something for all skill

levels.

The U.S. National Whitewater Center, located in Charlotte,

offers a wide variety of activities, classes, and adventures. For

more information, check out www.usnwc.org.

8 | NC Connection | June 2014 We Know North Carolina invtitle.com

More on This Topic

Claims Corner: Fraudulent Transactions… cont. from page 7

documents/notarial-and-

authentication-services-consular

-officers.html, including the

following advice:

How do you get a document

notarized overseas?

Notarizing officers at any U.S.

Embassy or Consulate abroad

can provide a service similar to

the functions of a notary public

in the United States. It is also

possible to have a document

notarized by a local foreign

notary and then have the

document authenticated for use

in the United States. In

countries that are party to the

Hague Apostille Convention, this

is a simplified process.

In conclusion, we as attorneys

need to be diligent, especially

with parties we do not know, to

see through some of these

fraudulent schemes.

~

3. A prior owner was a citizen of

a foreign country. A deed to his

neighbor, notarized overseas,

was delivered to the neighbor,

who recorded it. The neighbor,

grantee of the deed, sold the

property to our insured owners a

few months later. It was later

alleged that the first deed was a

forgery. How could this have

been prevented? When

examining deeds in the chain of

title, pay close attention to

notarizations. The US does not

recognize notaries from certain

countries, unless notarized by a

US Consulate or Embassy,

whose offices all provide notary

services. The State Department

can provide information

regarding which countries are

parties to the Hague Treaty,

under which foreign notarized

documents can be authenticated

by the US State Department.

The following website has more

information: http://

travel.state.gov/content/travel/

english/legal-considerations/

judicial/authentication-of-

THE NC CONNECTION

Investors Title has developed a

number of resources to help

prevent fraud including an

anonymous form to repot

potentially fraudulent

transactions.

Fraud Red Flags

Click here for more

example fraud

scenarios and a list

of red flags to help

with identifying

potential fraud

scenarios.

Suspected Fraud Notification

If you become aware of possible fraud, please use the form found here to notify Investors Title. You may submit this form anonymously, if desired. If you would prefer to call, mail, or fax your information, please refer to the contact information provided on the following webpage: www.invtitle.com/suspected-fraud-notification

CFPB Resources

www.invtitle.com/cfpb/nc

Investors Title has developed a number

of resources to assist you in navigating

important industry changes. Please visit

the NC CFPB Resources page linked

above to access articles, templates, and

links to on-demand education courses.

Click here to access all of Investors

Title’s NC On-Demand seminars.

9 | NC Connection | June 2014 We Know North Carolina invtitle.com

The Charlotte branch opened in April 1975 and is currently the largest NC Investors Title branch office with six team members. Marianne Joines, Commercial Transactions Coordinator for the Commercial Services Division, also works from the Charlotte location.

THE NC CONNECTION

A trustee is generally prohibited from engaging in transactions with trust assets that benefit the trustee personally. That principle, which most fiduciaries already know, was illustrated in a North Carolina case that developed after Richard and Lea McCrea divorced in 2008. As part of the financial settlement, Richard

agreed to provide his ex-wife and children

with housing, which Lea would lease from him. In accordance with that agreement, Richard created a trust in April 2008 that designated the children as beneficiaries. The trust named a trust company in Chicago as the initial trustee, and it also named an Illinois attorney, Richard Sawdey,

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Investors Trust Company: THZ Holdings, LLC v. McCrea as the trust protector. Richard lent funds, which he had also borrowed, to the trust for the purpose of buying a home, which the trustee did. For reasons that are not clear in the case, no mortgage was attached to the house, but the trustee did agree to repay Richard’s loan by December 2018. When the economy soured in 2008, Richard lost “all sources of his income,” and the initial trustee resigned. The trust protector then appointed Richard as the successor trustee, and soon thereafter, Richard transferred the property to himself and later to himself and his new wife as joint owners. Ultimately, one of the transferees attempted to evict Lea and the children and sell the property. The children, through Lea as their guardian ad litem, objected and filed suit against Richard, among others. The trial court ruled in their favor, returning the property to the trust and removing Richard as trustee. The appellate court, finding that Richard breached his duty of loyalty by transferring trust property to himself, affirmed.

---THZ Holdings, LLC, v. McCrea, No. COA13-425, N.C. Ct. App. 12/17/13

This article is provided for informational purposes only and does not constitute legal advice.

Team members of the Charlotte branch collected close to 70 items for the Harvest Food Bank. Team members (left to right): Kim Frais, Ambrie Grant, Andie Rachels, Melissa Plummer, Kathy Coppedge, Laurie Tecza

Team Member Role # of yrs with

Investors Title

Kathy Coppedge Underwriter 18

Kim Frais Underwriter 16

Ambrie Grant Admin Assistant 1.5

Marianne Joines Commercial Serv. 20

Melissa Plummer Underwriter 13

Andie Rachels Underwriter 2

Laurie Tecza Office Manager 9

charlotte@invtitle.com 800.669.4842 / F 704.335.8124

80 years of combined experience!