As a general rule . . . mechanics liens all over the country have priority over other liens or encumbrances that arose after the attachment (or sometimes the perfection) of the mechanics lien to the property. The main purpose of filing a mechanics lien is to get paid. So, when other parties have an interest in the liened property as well, determining which interest has priority is an especially important determination. The rules setting forth the priority of mechanics liens, like almost every other mechanics lien rule, vary widely from state to state, and it is very difficult to formulate a general guide to determining mechanics lien priority. As a general rule, however, mechanics liens all over the country have priority over other liens or encumbrances that arose after the attachment (or sometimes the perfection) of the mechanics lien to the property. While many states grant some additional priority to mechanics liens, and some states grant less, a relatively consistent position is that if you started performing work prior to the attachment of a non-mechanics-lien encumbrance, your mechanics lien will have priority.
Mechanics Lien Priority in Arizona
The priority of mechanics liens in Arizona is governed by A.R.S. Sec. 33-992, which provides that mechanics liens are:
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 ten days after labor was commenced or the materials were commenced to be furnished.
So, in Arizona, mechanics liens enjoy priority over all other encumbrances to the property that attach after the time labor commenced on the project, with one important caveat. A construction loan has priority over a mechanics lien even if the loan was subsequent to the beginning of work as long as the mortgage is recorded within 10 days of the beginning or labor or first furnishing of materials.
Recent Arizona Case Law
A recent, but unpublished, case in Arizona examines the above priority standard and comes out in favor of the mechanics lien claimant. In Markham Contr. Co. v. First Am. Title Ins. Co., 2013 Ariz. App. Unpub. LEXIS 816 (Ariz. Ct. App. 2013), an Arizona court determined that since the work on the site began more than 10 days prior to the recording of the mortgage securing the construction loan, the mechanics lien took priority.
It’s nice to see that sometimes, the mechanics lien laws are applied how they should be. This decision should not come as a shock, it applies the law exactly as written and reaches the correct result. Sometimes in the realm of mechanics lien law, however, this kind of ‘totally expected’ decision comes as the biggest shock. The main point of contention in the case, as regards the priority issue, was whether Markham performed work more than 10 days prior to the recording of the construction loan mortgage. While there was some evidence resented on either side, it was found that Markham performed work (trash haul-off, potholing, blue staking, pad clearing, installing job trailers, installing an access ramp) more than 10 days prior the the recording of the construction mortgage, and that such work counted as the beginning of the construction project for the purposes of establishing priority.
It’s nice to see that sometimes, the mechanics lien laws are applied how they should be, and everything works relatively smoothly. Mechanics liens are one of a construction company’s best protections against non-payment – and, in general, the priority rules governing them don’t erode that substantial protection.