Homeowner's Guide to Understanding and Removing Mechanic's Liens
Mechanic's and materialmen's liens ("Mechanic's Liens") ensure that those who labor, supply materials, or provide professional services on a construction project are paid for such work. If the lien is not paid, the Mechanic's Lien holder may sell the property that is subject to such lien to collect payment.
At The Bainbridge Law Firm in Scottsdale, we have represented many homeowners in Mechanic's Lien disputes. If you have questions about how to remove a Mechanic's Lien which was filed against your home or you believe a lien is invalid, call our firm at 602-274-6369 or contact us to speak with an experienced real estate attorney. We have many years of experience representing clients in all types of real estate disputes and litigation.
Fortunately for homeowners, it is not easy to sell property subject to a Mechanic's Lien. The Mechanic's Lien holder must file a lawsuit and receive a court order permitting the foreclosure. Additionally, Mechanic's Liens must conform to many specific requirements regarding the form, content, and timing of Mechanic's Liens. Mechanic's Liens are often invalid for failing to follow these requirements.
Mechanic's Lien filings have dramatically increased in recent years. Through August 6, 2008, 5,303 Mechanic's Liens were recorded in Maricopa County alone. At this pace, the number of Mechanic's Liens recorded in 2008 will double the Mechanic's Liens filed in 2007 and quadruple the filings made in 2005. More homeowners are facing the unwanted dilemma of dealing with a Mechanic's Lien placed upon their home.
The Effects of a Mechanic's Lien in Arizona
Mechanic's Liens can be devastating for individual homeowners. Ownership to property subject to a Mechanic's Lien is uncertain. The property can be sold, and other loans against the property potentially could be wiped out. To avoid this potential loan loss, banks almost never lend money on a property subject to a Mechanic's Lien. Mechanic's Liens effectively prevent any sale, refinance, or mortgage of the subject property.
Options for Removing a Mechanic's Lien
When faced with a Mechanic's Lien placed upon their property, homeowners have three general options:
1. Pay the lien off in full;
2. Allow the Mechanic's Lien holder to foreclose and sell the property; or
3. Contest the validity of the Mechanic's Lien.
It is recommended that a homeowner consult with a licensed Arizona real estate attorney who is familiar with Mechanic's Liens before paying the lien or allowing the property to be foreclosed. Many Mechanic's Liens are invalid and must be removed.
For a Mechanic's Lien to be recorded and then successfully foreclosed, many specific deadlines and other rules must be followed. These Mechanic's Lien laws are strictly enforced; most failures to follow these strict rules make the lien invalid. Arizona disfavors the recording of invalid Mechanic's Liens. Any party who records an invalid Mechanic's Lien is liable to the property owner for $5,000.00 or treble actual damages, whichever is greater.
In practice, it is usually too time consuming and costly on the Mechanic's Lien holder to actually foreclose upon a property and collect proceeds from this sale. Even though Mechanic's Liens are difficult to foreclose, they are still often effective at ensuring that the Mechanic's Lien holder receives payment. This is because a Mechanic's Lien clouds title to property, and effectively prevents any sale, refinance, or mortgage of the property. Mechanic's Liens are often paid simply to remove this cloud to the title.
Overview of Mechanic's Lien Law in Arizona
To determine whether a Mechanic's Lien is valid, homeowners should first determine whether a few basic Mechanic's Lien timing requirements were met. The following three deadlines are just a few of the many rules that must be followed for a Mechanic's Lien to be valid.
1. A preliminary twenty day notice must be mailed to the property owner within twenty days of commencing work.
Prior to liening the property, the lien holder must first provide the property owner with a notice that the party is supplying labor, services, and/or materials to the jobsite, within 20 days of commencing such service. If a contractor fails to supply the property owner with a preliminary twenty day notice, that contractor is not permitted to file a Mechanic's Lien. This rule is strictly enforced; the mailing of a preliminary twenty day notice is required to lien any property. Failure to do so makes any Mechanic's Lien invalid.
A lien can still be filed if a preliminary twenty day notice is mailed late; however, a late filed preliminary notice reduces the lienable amount of a Mechanic's Lien. If the preliminary twenty day notice is sent late, the Mechanic's Lien can only total the value of labor and materials supplied on or after the twentieth day preceding the mailing of the preliminary twenty day notice. For example, if a contractor works on a project from January 1st to February 28th, but this contractor does not mail the preliminary twenty day notice until February 28th, that contractor can only place a Mechanic's Lien on the property for the value of services provided on or after February 8th. If the Mechanic's Lien includes the value of any services provided before February 8th, the entire Mechanic's Lien is invalid, even the portion correctly included in the lien.
2. Mechanic's Liens must be timely recorded.
Mechanic's Lien claimants generally must record their Mechanic's Liens within 120 days following the completion of a construction project. This recording deadline often is shorter than 120 days; however, in no circumstance can a Mechanic's Lien be filed more than 120 days after a project is completed. Failure to record the lien within the applicable time limit invalidates any later filed lien. The lien claimant loses any and all lien rights if this deadline is not met.
3. Foreclosure proceedings must begin within six months of the lien recording.
The Mechanic's Lien claimant must also file a lawsuit against the property owner within six months of filing the Mechanic's Lien. This lawsuit states all the claims against the property owner, including a claim asking permission to foreclose the Mechanic's Lien. If the lawsuit is not filed within six months of the lien recording, the lien becomes invalid and can never be foreclosed.
Special Protection for Homeowners — "Owner Occupied Dwelling"
Homeowners are afforded a special protection against Mechanic's Liens. Arizona limits the parties who can file Mechanic's Liens against a homeowner to only parties that directly contract with the homeowner. This means that subcontractors or material suppliers who enter a contract with another contractor, but not the homeowner, cannot place a Mechanic's Lien upon this property.
Homeowners are afforded this protection so long as the homeowner owns the home at the time the work is supplied to the residence, does not intend to sell or lease the home, and resides in the home, or intends to reside in the home at least thirty days within the twelve months following completion of the work. If the foregoing is true, only the party in direct contract with a homeowner may place a Mechanic's Lien upon the home, not the parties who subsequently contracted with the first contractor.
Other Available Protections Against a Mechanic's Lien Under Arizona Law
There are many other ways to eliminate or reduce the risk of a property becoming subject to Mechanic's Liens. Prior to entering any contracts, the property owner can obtain a payment bond. If done properly, a payment bond prevents any Mechanic's Liens from being filed upon a property by allowing the parties who otherwise could file liens to pursue claims against this payment bond.
Furthermore, all Mechanic's Liens can be released at any time if the owner obtains a discharge bond. A discharge bond is obtained by a property owner depositing one and one half times the value of the Mechanic's Lien with a bonding company. The advantage of a discharge bond is that it immediately releases the lien. The disadvantage of a discharge bond is that the money is held in trust until the litigation is resolved.
The foregoing list of deadlines and other rules is only a sampling of the many Arizona laws that apply to Mechanic's Liens.
This article is not intended to be specific legal advice. It only provides general legal information. You should consult an Arizona licensed attorney if you have a legal issue. The Bainbridge Law Firm is experienced in this area of law and are available for consultation. You may contact our Phoenix office at 602-274-6369.