Mechanics' Liens and
Stop Notices on
Private Arizona
Construction Projects
Instructions (below)
for Using the Private Project Lien Worksheet
Stop Notices
Back to Lien, Prompt
Pay and Stop Notice Handbook
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.
This section is 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 steps completed and calendar the upcoming deadlines to preserve your lien
and stop notice rights.
Limitations on lien
rights. Mechanics’ liens apply only to private construction projects, since
publicly owned property cannot be liened. On “owner occupied” residential
property, you usually will have lien rights only if you have contracted directly
with the owner. 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.
Instructions for using the
Private Project Lien Worksheet:
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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.
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Request the information for your Preliminary Twenty-day Notice. Immediately
request the information you will need to prepare your Preliminary 20-Day
Notice and information about any payment bond that may exist.
See Form A,
"Written Request to Owner for Information for Preliminary 20-Day Notice,"
available in PDF
and edit-ready Word
formats.
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 do not begin until 20 days before the date of the Notice. 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.
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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.
See Form B (Part 1), "Preliminary 20-Day Lien Notice" (PDF
• Word)
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 either first-class mail with a certificate of mailing,
registered mail, or 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.
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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).
See Form C,
"Affidavit of Service" (PDF
•
Word)
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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.
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We recommend using a qualified 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. 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 cost of
the Notice in your bid.
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Record the last date when you provide labor or materials. This date may
become important in determining the deadline for recording your Notice and
Claim of Lien. Make certain that you have completely performed the work
required by your contract.
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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.
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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.
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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 – other than 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's demand for stop notices. The project owner or construction lender may
send out a written request for stop notices. If you are a claimant, and if you
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.
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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.
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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.
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Lien satisfaction and release.
Within 20 days of receiving payment in
full, or within 20 days after a written request from an owner-occupant, 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 of the property for
damages.
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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 or a waiver acknowledging final payment deprives you of
your right to sue for additional payment. 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.
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