Mechanics' Liens and Stop Notices on Private
Arizona Construction Projects
Arizona laws on
mechanics’ and materialmen’s liens protect parties that supply labor,
professional services, materials, machinery, fixtures or tools for the
improvement of real property. This handbook may be useful in understanding the
steps you must take to protect your payment rights.
These instructions are designed
to be used with the
Private
Project Lien Worksheet, which you may wish to attach to each of your private
construction job files. As your work progresses, track the completed steps and
calendar the upcoming deadlines to preserve your lien and stop notice rights.
Mechanics’ liens apply only to private construction projects, since
publicly owned property cannot be liened. On “owner occupied” residential
property, you will have lien rights only if you have the owner's signature on a
contract. Finally, if you are required to be licensed by the Arizona
Registrar of Contractors or Board of Technical Registration, you must hold a
valid license to have lien rights. When submitting a bid, a contractor must hold
a valid license to perform the required work.
-
Contract date. The
contract date is the date on which your written contract is signed. If you have
no written contract, the contract date is the first date on which you supply
labor or materials.
-
Request the information for your
Preliminary 20-Day Notice. Immediately request the information you will need
to prepare your Preliminary 20-Day Notice and ask whether a payment bond
exists.
In order to have lien
rights for all the materials and services you provide, you must serve a
Preliminary 20-Day Notice (see step 3 below) within 20 days after you
first provide labor or deliver materials to the job site. A Preliminary Notice
can be served later (more than 20 days after the first work or delivery), but
lien rights begin 20 days before the date of the Notice. The Preliminary 20-Day
Notice reaches back only 20 days. For
example, if you start work on April 1 and serve your preliminary notice on April
30, your lien rights will begin on April 10 (A.R.S.
§ 33-992.01[E]). A contractor who serves a late Preliminary Notice forfeits
the right to lien for materials and services delivered more than 20 days before
the Notice. A contractor who fails to serve a Preliminary 20-Day Notice
altogether forfeits all lien rights, stop notice rights, and payment bond rights
on state public projects.
-
Serve the Preliminary 20-Day Notice. Arizona law (A.R.S.
§ 33-992.01[B]) requires every lien claimant, other than a laborer for
wages, to serve a written Preliminary 20-Day Notice to: (a)
the owner or reputed owner, (b)
the original contractor or reputed contractor, (c) the construction
lender or reputed construction lender, and
(d)
the person with whom he contracts.
The law requires you to "substantially
follow" the Preliminary 20-Day Notice form set forth in
A.R.S. § 33-992.01.
Mail the notice via
(a) first-class mail with a certificate of mailing issued by the U.S. Postal
Service,
(b) registered mail, or (c) certified mail, postage prepaid, and addressed to each
person at his or her business or residence. We recommend that you send a copy of
the Preliminary 20-Day Notice to the payment bond surety as well.
-
Be prepared to
supplement your Preliminary 20-Day Notice. The initial Preliminary 20-Day Notice
will protect your lien rights up to 120% of the amount stated in the Notice. If
the value of your labor or services exceeds the amount stated by more than 20%,
you must serve a Supplemental Preliminary 20-Day Notice within 20 days of
providing the excess service or materials. Serve the Supplemental Notice in the
same manner described in steps 3 and 4 above.
-
Prepare an Affidavit
of Service. You must be able to prove that you served the
Preliminary 20-Day Notice. The Notice form contains an "acknowledgment of
receipt" that the recipient can complete and return to you within 30 days. In
the event the recipient does not return the receipt, you must prepare an
affidavit of service stating the time, place and manner of service. Keep it in a
safe place with a copy of the Notice and the U. S. Postal Service certificate of
mailing or delivery receipt, which must be attached to the affidavit (A.R.S.
§ 33-992.02).
-
We recommend using a qualified
Arizona lien service with errors and omissions insurance. Obviously, the requirements for an
effective Preliminary 20-Day Notice can be daunting. Good lien services are in
the business of serving Notices that satisfy the statute and preserving the
documents that must be included in a valid lien and foreclose the lien if
necessary. Ask whether the service is
licensed by the State Bar of Arizona as a legal document preparer. Ask whether
it has adequate errors and omissions insurance in case it makes a mistake. Then
include the modest cost of the Notice in your bid.
-
Record the first and
last dates
when you provide labor or materials. These dates may become important in
determining the deadline for recording your Notice and Claim of Lien and the
date when the lien attaches to the property. Make
certain that you have completely performed the work required by your contract.
-
Not paid on time? If you are not paid in full and on time,
notify the general contractor, the party with whom you contracted, the owner of
the property, the construction lender, and the payment bond surety in writing.
Also, promptly consult your attorney. This brief summary is not a substitute for
specific legal advice. The longer you wait to consult your attorney, the fewer
options your attorney will have in trying to assist you.
-
Deadline
for recording and serving your lien. A
Notice and Claim of Lien must be recorded no later than 120 days after project
completion or, if the owner records a Notice of Completion, no later than 60
days after the Notice is recorded. If the project consists of more than one
building, each building requires a separate notice and claim of lien. The time
for recording runs from the completion of each building. Date of project completion.
A.R.S. § 33-993(C) defines “completion” as the earlier of the following
events: (a)
30 days after final inspection and written final acceptance by the governmental
body that issued the building permit (usually a Certificate of Occupancy); or (b)
cessation of labor for 60 consecutive days, except when cessation is due to a
strike, shortage of materials or Act of God. If no building permit is issued, or if the entity that issued the building
permit does not issue a final acceptance, the completion date for lien purposes
is the last date on which any labor, materials, fixtures or tools were furnished
to the property.
A.R.S. § 33-993(D) Notice of Completion shortens your lien time.
If the owner records a
Notice of Completion, your time for recording a lien will expire 60 days after
the Notice is recorded. The owner is required to give you a copy of the Notice
of Completion within 15 days, provided you have properly served the Preliminary
20-Day Notice.
-
Consider securing payment by serving a Stop Notice. If
you are not paid, you can both record a lien and serve a “stop notice.”
Arizona's
stop notice law
gives contractors, subs and suppliers a second collection remedy: a demand that
the owner or construction lender immediately withhold amounts out of the
undisbursed construction funds to satisfy the claim.
Delays avoided. A lawsuit to enforce the stop notice may be filed as
early as 10 days after the notice is served and requires no title search on the
real property. You can pursue a stop notice during construction without impeding
the project, and you retain your lien rights if enforcement of the stop notice
does not satisfy your claim.
Hold on funds. A mechanic’s lien is a claim against real property; a
stop notice is a claim against construction funds held by the owner or
construction lender. An owner who receives a stop notice must withhold monies to
satisfy the claim unless he has recorded a payment bond on the project. In
contrast, a construction lender may elect not to withhold the monies unless a
bond for 125% of the amount stated accompanies the stop notice.
Stop notice eligibility.
Stop notices may be served in connection
with all private construction projects except owner-occupied dwellings. In order
to serve a stop notice, you must serve a Preliminary 20-Day Lien Notice.
Anyone who is entitled to record a lien – except the original contractor
– may serve a stop notice on the owner.
Anyone who is entitled to record a lien – including the original contractor
– may serve a stop notice on the construction lender.
The time requirement for recording a lien also applies to serving a stop
notice; both rights expire on the same day.
Owner may demand stop notices.
The project owner or construction
lender may send out a written request for stop notices. If you have a claim
and fail to respond with a stop notice within 30 days after written
demand, you forfeit all stop notice rights on the project. If the total
stop-notice claims exceed the remaining construction funds, the owner or lender
may distribute the remaining funds on a pro rata basis.
False notice. Willfully serving a false stop notice carries a heavy
penalty. If you willfully give a false stop notice or bonded stop notice, or if
you knowingly include in a stop notice any work or materials that you didn’t
furnish to the project, you forfeit all stop notice rights and your right to
participate in any distribution of monies. In addition, you would be subject to
statutory penalties: $5,000 or more in damages, liability for the owner’s
attorney fees, and criminal prosecution.
-
Filing a
legal action to enforce the Stop Notice. A stop notice claimant may file a
lawsuit to enforce payment as early as ten days after the stop notice is served.
The time for filing a legal action to enforce a stop notice expires three months
after the deadline for recording liens. If no action is filed on the stop notice
within that time, any monies frozen by the stop notice will be released.
-
Filing a
lien foreclosure action. A mechanics’ lien automatically expires
six months after it is recorded. Any lawsuit to foreclose the lien must be filed
within that period, and a lis pendens must be recorded within five days
of filing. (See our article, "Arizona
Mechanics' Lien Foreclosure 101.)
-
Lien satisfaction and
release. Within 20 days of receiving payment in
full, or within 20 days after a written request from an owner, a lien
claimant must record a Satisfaction and Release of Lien. If the claimant fails
to do so, the claimant can be held liable to the owner for
damages.
-
Waiver
and release of lien rights.
Arizona law provides four statutory
forms of conditional and unconditional waivers to be used in connection with
receipt of a progress payment or final payment. Note that executing an
unconditional waiver, whether a progress waiver or a final waiver, deprives you of
your right to sue for additional payment for that period. A final unconditional
waiver waives any further payment on the entire project. Therefore, exercise extreme caution
when executing a waiver and release. Never sign an unconditional release until
you have been paid in certified funds or know that the check you received has
cleared. If you are at all unsure, seek legal assistance before you sign.
Back to Lien, Prompt Pay and Stop Notice Handbook |
|
|
| |
|
