Arizona mechanics lien rights are strong and provide a fair amount of protection against non-payment. If a contractor or supplier isn’t paid on a construction project, a mechanics lien not only adds some extra security can effectively speed up payment. To reap these benefits, there are specific rules and guidelines that must be followed. Let’s take a look at the 5 essential things you need to know about Arizona’s mechanics lien laws.
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1. A preliminary notice is mandatory for everybody
Arizona law requires that a preliminary “20-day” notice should be sent by every person who furnishes labor, professional services, or materials to a project. This is a mandatory prerequisite to filing a valid Arizona mechanics lien. Even direct contractors who were hired by the owner still must send a 20-day notice in order to secure their lien rights as well. The only real exception is wage laborers.
If the deadline is missed, all hope is not lost; you can still send one in to secure lien rights. Late preliminary notices are allowable, but they will only cover labor or materials provided for the 20 days preceding the date the notice was sent. The sooner this is sent, the better.
For more on Arizona preliminary notices:
Another interesting aspect of Arizona preliminary notices is that it must state an estimated total contract amount. Since we all know that change orders and costs can change over the course of a project, this is a “good faith estimate.” If the claimant shorts the estimate, the law still provides protection for up to 120% of the listed amount.
2. Know your Arizona mechanics lien deadlines
In Arizona, the deadline to file a mechanics lien claim depends on whether or not a Notice of Completion has been filed on the project. If this notice hasn’t been recorded on a project, then the default deadline to file a claim of lien is 120 days from completion of the project. However, if there is a Notice of Completion filed, then the deadline is reduced by half, only 60 days to file a lien claim.
Two interesting tidbits about the Arizona mechanics lien deadline is that 1) the deadline is the same, no matter what role the potential lien claimant had on the project, and 2) the deadline countdown is triggered by the completion of the project as a whole, not the individual lien claimant’s last furnishing of labor or materials.
It’s important to keep in mind that there’s an enforcement deadline as well. An action to enforce (or foreclose) an Arizona mechanics lien must be initiated within 6 months of the date when the lien claim was recorded. If the claim hasn’t been enforced within that 6 month period, the lien will expire and must be removed from the county records. Once the enforcement action has been initiated, Arizona also requires that a Notice of Lis Pendens by recorded within 5 days of filing the lawsuit.
3. Lien protection is expansive – but not everyone qualifies for lien rights
The state of Arizona provides mechanics lien rights for anyone who furnished, “labor, materials, professional services, fixtures, or tools, in the construction, alteration, repair, or improvement of any building, or other structure pursuant to a contract with the owner.” That seems pretty comprehensive, but there are certain requirements that can disqualify a potential mechanics lien claimant.
The first exception comes regarding projects that are owner-occupied residential projects. This is when the owner of a residential project resides or intends to reside in the property for at least 30 days following the completion of the project, and doesn’t intend to sell or lease the property to another. In this scenario, only those who have a direct contract with the owner-occupant will be allowed to file a lien, all other project participants won’t be afforded such rights. According to the statute, a written contract is required, oral contracts will not suffice on such a project.
Another exception is for design professionals. Design professionals can only file a mechanics lien in very specific circumstances. If the design professional has a written contract directly with the property owner or a written or oral contract with an architect or engineer who has a written contract with the property owner. Otherwise, design professionals do not have the ability to file a mechanics lien.
Arizona also refuses to provide mechanics lien protection to unlicensed contractors. Any person who is required to be licensed, but doesn’t hold a valid license will not be able to file a mechanics lien. For more information on contractor licensing in Arizona: Arizona Contractor License Requirements.
Lastly, suppliers to suppliers cannot file a mechanics lien under any condition. Unfortunately, when it comes to mechanics lien law, suppliers to supplier usually get the short end of the stick.
4. Priority compared to construction loans can be tricky
The priority of mechanics liens can tend to get a little complicated in Arizona. According to A.R.S. §33-992, mechanics liens are:
“preferred to all liens, mortgages, or other encumbrances upon the property attaching subsequent to the time the labor was commenced or the materials were commenced to be furnished except any mortgage or deed of trust that is given as security for a loan made by a construction lender… if the mortgage or deed of trust is recorded within 10 days afterlabor was commenced or the materials were commenced to be furnished.”
So in general, mechanics liens enjoy priority over just about all other encumbrances to the property that attaches after the time labor commenced on the project. With one major caveat, construction loans. A construction loan will have priority over a lien, even if the loan was after the commencement of labor or materials furnished. As long as the mortgage is recorded within 10 days of the first furnishing of labor or materials it will maintain priority.
To see how the courts handle this:
5. Liens must be released in a timely manner
A.R.S. §33-1006 governs the release of mechanics lien claims. Once a lien claimant has finally gotten paid, doesn’t mean it’s the end of the story.
Just because the lien claim may have been satisfied or expired, doesn’t mean that it disappears. Arizona law still requires that the claimant take actions to remove the lien claim from public record. Once a claim has been satisfied, the claimant must release the claim within 20 days. This same timeline applies to wrongfully filed liens, once the owner-occupant has sent a written request to the claimant to remove the lien, that claimant has 20 days to issue the release of lien.
Failure to do so can result in some significant consequences. A lienholder who fails to release the lien within 20 days can be subject to personal liability of $1000, as well as any actual damages incurred by the owner. Best practice, whenever the lien is satisfied just go ahead and release it that same day.