Arizona Construction Lien Law
Lien Law Overview
Mechanics liens cannot be claimed against
- “Owner-occupied” one-family or two-family residential property unless the lien claimant has a direct contract with the owner-occupant,
- On public construction projects (because publicly owned property cannot be burdened by a lien), or
- On private projects where payment bonds have been recorded.
Lien Waiver Summary
There are four statutory lien waiver forms:
i)Unconditional Waiver and Release on Final Payment
ii)Unconditional Waiver and Release on Progress Payment
iii)Conditional Waiver and Release on Final Payment
iv)Conditional Waiver and Release on Progress Payment. See A.R.S. §33-1008.
Waivers that do not substantially comply with the statutory forms prescribed by Section 33-1008 are ineffective and do not release lien rights.
Are title companies required by law to manage construction loan disbursements?
Can a mechanics lien have priority over a pre-existing mortgage in Arizona?
Generally, no. Arizona is a “first-in-time” jurisdiction.
Mechanics liens have priority over all liens, mortgages or other encumbrances upon the property that attached after work began or materials began to be furnished. A mechanics lien does not have priority over a mortgage or deed of trust made by a construction lender that is recorded within 10 days after labor was commenced or the materials were commenced to be furnished. See A.R.S. §33-992.
The liens for work and labor done or professional services or material furnished are on an equal footing, regardless of the date of recording the notice and claim of lien, and without reference to the time of performing the work and labor or furnishing the professional services or material. As between equal competing mechanics liens, all lien claimants will share proceeds pro-rata if the sale of the property is insufficient to satisfy all claims. See A.R.S. §33-1000.
Notice of Commencement (or similar like event)
Preliminary Lien Notifications
To preserve lien rights for all labor and materials furnished, lien claimants must serve a Preliminary 20-Day Notice within 20 days of commencing work on, or delivering materials to, a project. The form of notice is within the statute and must be served on:
- The owner or reputed owner
- The original contractor or reputed contractor
- The construction lender or reputed construction lender –and–
- The person with whom the claimant contracted.
A person performing actual labor for wages is not required to serve notice. See A.R.S. §33-992.01(B).
Preliminary 20-Day Notices should be addressed to the necessary recipients at their residence or business address and served via either (1) first-class mail with a certificate of mailing or (2) registered or certified mail with postage prepaid. See A.R.S. § 33-992.01(F). Preliminary 20-Day Notices are considered served when deposited in the mail.
Notice of Completion
In Arizona, a Notice of Completion is a written notice that an owner may record after completion to shorten the deadline for claimants to record liens to 60 days from recordation. “Completion” means the earliest of the following events:
- Thirty days after final inspection and written final acceptance by the governmental body which issued the building permit for the building, structure or improvement.
- Cessation of labor for a period of sixty consecutive days, except when such cessation of labor is due to a strike, shortage of materials or act of God.
To be operative, a Notice of Completion must:
- Contain the information set forth in Ariz. Rev. Stat. § 33-993(E)
- Substantially follow the form prescribed by Ariz. Rev. Stat. § 33-993(F)
- Be recorded in the office of the county recorder in which the property or some part of the property is located –and–
- Be mailed to the original contractor and all persons from whom the owner has received Preliminary 20-Day Notices by certified or registered mail (with postage) prepaid within 15 days of recording (The mailed copy of the Notice of Completion must also include a written statement of the date of recording and the recorder’s record location information.)
Notice of Completion – The contents of a Notice of Completion are required by Arizona statutes. A notice of completion must be signed and verified by the owner or its agent and must contain the following information:
- The name and address of the owner.
- The nature of the interest or estate of the owner.
- The legal description of the jobsite and the street address. The validity of the notice is not affected by the fact that the street address recited is erroneous or that such street address is omitted.
- The name of the original contractor, if any.
- The names and addresses of any predecessors in interest if the property was transferred after the beginning of the work or improvement.
- The nature of the improvements to the real property.
When Must it be Filed
Notice of completion must be filed as soon as the Certification of Occupancy is available. A delay in filing the Notice allows a larger filing window for mechanics liens. Arizona Mechanics Liens must be filed within 60 days of filing of Notice of Completion, or within 120 days after completion. Action to enforce lien must be filed within 6 months after recording lien. Generally, properly recorded mechanics liens automatically expire six months after they are recorded. See Ariz. Rev. Stat. § 33-998.
Contractor Requirement: Separate license for commercial and residential.
Subcontractor Requirement: Subs must be licensed.
Contractor Warranties: Implied warranty. 8 year statute of limitation. Commercial structures and residential structures will be treated differently when determining who can utilize this theory of recovery. The primary cause of action used in residential construction defect cases is a breach of the implied warranty of habitability. This cause of action allows a homeowner to sue the builder or vendor for construction defects for up to eight years (nine years if the defect is found in the eighth year). The Court of Appeals, in Hayden Business Center Condo Ass’n v. Pegasus Development, 209 Ariz. 511, 105 P.3d 157 (App 2005), determined that the implied warranty of habitability is created only to protect residential homeowners. This is based on the premise that commercial developers and purchasers are more sophisticated consumers who will perform their due diligence before the purchase.
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