Arkansas Construction Lending Requirements

Arkansas Lien Law Overview

Arkansas mechanics lien laws provide a robust framework to protect those who improve real property, but the state draws a massive procedural distinction between residential and commercial projects. On residential projects (single-family up to four units), the general contractor must provide a Pre-Construction Notice to Owner. If they fail to do so, no one on the project (including subs and suppliers) has lien rights. On commercial projects, the burden shifts to the subcontractors and suppliers, who must provide a 75-Day Notice to preserve their lien rights. Mechanics liens in Arkansas relate back to the commencement of the project, making pre-closing site inspections absolutely critical for lenders.

Mortgage Priority

Will an Arkansas Lien have priority over pre-existing mortgages or construction loans?

Yes, if the construction mortgage is not recorded prior to the visible commencement of work. Arkansas follows a strict “relation-back” doctrine. All mechanics liens are of equal priority and relate back to the exact date of the commencement of the project (defined as the first visible manifestation of activity on the real estate such that a reasonable person would believe construction has started).

• To establish priority: The construction mortgage MUST be recorded before any visible work begins or materials are delivered. If the mortgage is recorded prior to commencement, it retains priority over all subsequent mechanics liens, provided the loan funds are specifically used to fund the construction or improvement (Ark. Code Ann. § 18-44-110).
• Loss of Priority: If dirt is moved or materials are delivered before the mortgage is recorded, all mechanics liens will leapfrog the construction loan and take superior priority against the property.

Retainage Overview

Arkansas does not have a statutory retainage limit for private construction projects (Residential, Multi-Family, or Commercial). Retainage on private projects is governed entirely by the terms of the construction contract and the loan agreement between the lender, owner, and contractor. Lenders should adhere to standard industry practices (typically holding back 5% to 10% until substantial completion) to mitigate completion risk. (Note: Public works projects in Arkansas are statutorily capped at 5% retainage, but this does not apply to private construction lending).

Prompt Payment Act

Arkansas does not have a robust Prompt Payment Act for private construction projects. Payment deadlines, penalties, and interest for late payments on private Residential, Multi-Family, and Commercial properties are dictated strictly by the terms of the construction contract. Lenders must review the contract to ensure draw schedules align with the contractor’s contractual payment deadlines to avoid breach of contract disputes.

Title Practices

Under Arkansas law, title companies are not required to administer construction loan disbursements. Lender-managed disbursements (or third-party draw administration) are the standard practice. Utilizing ALTA 32 (Construction Loan) and ALTA 33 (Disbursement) endorsements is considered a best practice for maintaining first lien priority. Because Arkansas utilizes a strict relation-back priority doctrine based on the visible commencement of work, lenders have multiple viable options to protect their position. Performing standard date-down title updates prior to every draw or utilizing robust proactive title monitoring subscriptions are both highly effective and industry-accepted best practices. Regardless of the chosen method, requiring the title company to identify and clear any encumbrances discovered during the draw administration process remains a critical backstop against unrecorded or “hidden” liens relating back to early project commencement.

Lien Waivers

Lien Waiver Summary

Because Arkansas does not regulate lien waivers by statute, they are treated purely as contractual documents under state contract law.

• Advance Waivers: There is no specific statutory provision or case law in Arkansas that strictly prohibits waiving future lien rights through a contract (advance waivers).
• Best Practice: Since parties can agree to almost anything in an Arkansas lien waiver, it is incredibly dangerous to accept third-party forms. Lenders should strictly enforce the use of their own standardized Conditional Waivers (for current draws) and Unconditional Waivers (for previously funded draws) to ensure no overreaching or ambiguous language exposes the lender to hidden liabilities.

Statutory Lien Forms

Arkansas does not mandate specific, fill-in-the-blank statutory forms for lien waivers. However, the statutes strictly govern the content, delivery method, and timing of the Pre-Construction Notice, 75-Day Notice, and the formal Claim of Lien statement.

Lien Waiver Notarization

Not required. Arkansas law does not require lien waivers to be notarized to be considered legally valid and effective.

Notices

Notice of Commencement (or similar like event)

Recognized by State?

No (Arkansas does not use a traditional recorded Notice of Commencement).

Effect

While a formal recorded Notice of Commencement does not exist, the Pre-Construction Notice to Owner acts as the initial project trigger on residential projects. Priority is strictly determined by the physical, visible start of construction. Understanding this dynamic is critical for construction lenders. While it may initially seem advantageous for a lender if the general contractor fails to provide this notice — because doing so statutorily extinguishes all sub-tier mechanics lien rights — relying on this omission is a highly dangerous strategy. If the notice is not provided, the general contractor’s construction contract becomes legally unenforceable, and subcontractors will likely abandon the jobsite upon realizing their lien rights are void. This almost guarantees a halted project and a severely impaired, incomplete asset. Therefore, lenders must strictly require the execution and delivery of the Pre-Construction Notice prior to the first draw to ensure the project remains legally compliant, fully enforceable, and viable through to completion.

Preliminary Lien Notifications

• Residential Projects: The direct contractor MUST provide a Pre-Construction Notice to Owner prior to starting work. If the GC fails to provide this, all sub-tier lien rights are extinguished, and the GC may be barred from enforcing their contract and fined up to $1,000. Sub-tiers can optionally provide this notice themselves, but it only protects labor/materials furnished after the notice is given. Lender Note: If a sub-tier steps in to provide this notice, it protects all sub-tiers on the project from that date forward, not just the single subcontractor who sent it.
• Commercial Projects: Subcontractors and suppliers not in direct privity with the owner must send a 75-Day Notice to the owner and general contractor within 75 days of the last date they provided labor or materials.
• All Projects: A 10-Day Notice of Intent to Lien is required from all claimants at least 10 days before officially filing a Claim of Lien.

Notice of Completion (or similar like event)

• Recognized by State? No.
• Effect: Arkansas does not utilize a Notice of Completion to truncate or alter the timeline for contractors to file mechanics liens. The 120-day lien filing clock strictly starts from the last date labor, equipment, or materials were furnished by the claimant.

Additional State-Specific Notices

• Demand for Information (Ark. Code Ann. § 18-44-108): Under Arkansas law, property owners, lenders (mortgagees), and sub-tier participants have the statutory right to demand a list of all parties performing work or furnishing materials on the project, along with the specific amounts owed to each, from the general contractor or a subcontractor.
• Timeline & Penalty: The contractor must provide this correct list within five (5) business days. Failure to comply, or providing a false certification, subjects the contractor to a fine of up to $2,500 and civil liability for any damages, costs, and reasonable attorney’s fees proximately caused by the violation.
• Lender Application: Crucially, a contractor’s failure to respond to this demand does not excuse sub-tiers from their strict statutory obligation to provide preliminary notices (e.g., the 75-Day Notice). If a sub-tier fails to serve their required notice, their lien rights are void, regardless of the GC’s unresponsiveness. For a construction lender, this 5-day demand is a highly effective, proactive risk management tool. Draw administrators can invoke this statute prior to the final draw to force the GC to formally disclose all sub-tier payees, effectively cross-referencing the GC’s “All Bills Paid” affidavit and exposing unpaid parties before final funds are released.

Document References

• Pre-Construction Notice to Owner: Required on residential projects from the direct (general) contractor before work begins. This document warns the owner about potential lien rights. For the lender, verifying this notice is critical because if it is not provided, all sub-tier lien rights on the project are extinguished, but the general contractor may also be barred from enforcing their contract or face fines. (Ark. Code Ann. § 18-44-115).
• 75-Day Notice (Notice to Owner and Contractor): Required from subcontractors and material suppliers on commercial/non-residential projects. Must be sent within 75 days of the last date of furnishing labor or materials to preserve lien rights. This provides lenders and owners visibility into unpaid lower-tier claims. (Ark. Code Ann. § 18-44-115).
• Notice of Intent to Lien: A mandatory 10-day notice that must be served on the property owner by any claimant prior to filing a formal mechanic’s lien. This serves as a final warning and an opportunity for the lender/owner to resolve the payment dispute. (Ark. Code Ann. § 18-44-114).
• Statement of Account and Claim of Lien (Mechanic’s Lien): The formal, notarized lien document filed with the circuit clerk within 120 days after the last furnishing of labor or materials. It perfects the lien against the property. (Ark. Code Ann. § 18-44-117).

Contractor Licensing & Bond Requirements

Arkansas regulates contractor licensing strictly through the Arkansas Contractors Licensing Board (ACLB). Licensing requirements are segregated by the type and value of the project.

• Commercial Contractors: Required to hold a Commercial License for any project that is not a single-family residence if the contract value (including labor and materials) is $50,000 or more.
• Residential Builders: Required to hold a Residential Builder’s License to build single-family residences (up to four units) when the project cost is $2,000 or more.
• Surety Bond: A $10,000 contractor’s surety bond is required to be filed with the State of Arkansas as part of the licensing process for both commercial and residential contractors.
• License Lookup: Lenders must verify contractor credentials at the ACLB portal:Arkansas Contractors Licensing Board Search.