In construction cases, lien waivers are generally used as requests for payment are made. Caution is the word when dealing with lien waivers.

In a recent case decided by the North Carolina Business Court, (Wachovia Bank vs Superior Construction Corp.) the Court interpreted a lien wavier against the general contractor.

In this case, Wachovia was the lender and Superior Construction was the general contractor. The project was a condominium complex located in Brunswick County. The project was partially completed and lawsuits started flying.

North Carolina lien law provides that a lien “relates back” to the first date when the lien claimant began furnishing labor and/or materials. This is a great aspect of North Carolina lien law which is helpful to lien claimants. The lien will have priority of title as it relates to other lien claimants or encumbrances which arise after the date of furnishing of material and/or labor by the lien claimant.

In this case, Superior provided labor and materials to the condo project approximately one month before Wachovia obtained a promissory note and deed of trust on the construction project. (In most cases, these facts would have greatly benefited Superior Construction).

During the construction, as Superior made payment requests, Wachovia required Superior to sign lien waivers. Judge Jolly, the Judge who issued the opinion in this case determined that the pleadings “clearly establish that Defendant Superior executed the Waivers in exchange for consideration from Wachovia”.

The Attorneys for Superior argued that the lien waivers did not alter the effective date of the lien and the relation back of the lien but only served to reduce the amount of the lien claim. However, the Court did not agree. The Court determined that Superior lawfully chose to change its position in the hierarchy of liens on the project by way of the contractual lien waivers.

Thus, when requested to sign a lien waiver, caution is the word. Be sure to read the entire wording of the lien wavier and be certain that it is accurate as to the facts of your situation.