Arizona provides some protections to owner-occupants not provided to other parties. Specifically, Arizona § 33-1002(B) provides that:
No lien provided for in this article shall be allowed or recorded by the person claiming a lien against the dwelling of a person who became an owner-occupant prior to the construction, alteration, repair or improvement, except by a person having executed in writing a contract directly with the owner-occupant.
This provision means that only parties directly contracting with the property owner may claim a valid mechanics lien on an owner-occupied residential project. Clearly then, the determination of whether a particular property owner qualifies as an “owner-occupant” pursuant to the statute is of critical importance to everybody other than the direct contractor.
In a recent case, the Arizona Court of Appeals provided some clarification in how a particular transfer of ownership related to the owner-occupant protection clause of the mechanics lien law.
In Marco Crane & Rigging Co. v. Masaryk, 703 Ariz. Adv. Rep. 29 (Dec. 30, 2014), the court examined a situation in which the question of whether or not a party enjoyed the owner-occupant protection arose.
The issue before the court was whether Masaryk qualified as an owner-occupant pursuant to the statutory definition, and accordingly, Marco’s lien was valid or invalid. In the case at issue, a property owner (“Masaryk”) contracted with Mendelsohn Construction (“Mendelson”) to build a house on a recently purchased parcel of land. Mendelson subcontracted with Marco Crane & Riggin Co. (“Marco”) to erect structural steel for the project. Marco sent timely preliminary notice, and when unpaid, filed a timely mechanics lien. Marco sued to foreclose the lien, and a bond was recorded in order to remove the encumbrance from the house. After Marco filed the lien, but before the home was finally completed and Masaryk move in, Masaryk transferred title of the house to a limited liability company she owned to hold personal investments.
The issue before the court was whether Masaryk qualified as an owner-occupant pursuant to the statutory definition, and accordingly, Marco’s lien was valid or invalid.
Marco’s argument hinged on the transfer of the title of the property to an LLC. Arizona statutory law requires an owner-occupant to be a “natural person”. The court of appeals, however, drew a distinction based on timing. At the time Marco’s lien was filed, the property was owned by Masaryk personally and she met the other requirements to be considered an owner-occupant. Namely, Masaryk “intend[ed] to reside in the dwelling at least thirty days during the twelve-month period immediately following completion of the construction, alteration, repair or improvement.” And, in fact, Masaryk did reside in the home for a year and a half.
The fact that Masaryk was an owner-occupant when the lien was filed was the determining factor. The court determined that the subsequent transfer to the LLC was inconsequential to the determination of whether or not Marco’s lien could attach. The fact that Masaryk was an owner-occupant when the lien was filed was the determining factor. Because of this, the specific owner-occupant protections afforded pursuant to § 33-1002(B) are determined when a contractor records its lien at the very latest.
This is important for a potential lien claimant to understand, given the damages and attorneys’ fees available in the case of filing a wrongful lien.