Power Point presentation on the intricacies of Arizona Lien Law. Owners can learn how to protect themselves from double payment and Contractors, Subcontractors and Suppliers can learn how to use another tool to get paid.

1. Everything You
Wanted to Know
About Arizona
Lien Law But
Were Afraid to
Ask.
Mike Dulberg
Burch & Cracchiolo

2. Seminar Outline
 Fundamentals of Liens
 Preliminary Notices
 Perfecting the Lien
 Foreclosing the Lien
 Exceptions
 Lien Discharge Bonds
 Lien Waivers
 False Liens

3. What is a lien?
A mechanic’s lien is a statutory
encumbrance against real property
that secures an obligation or debt.
The lien can be foreclosed judicially,
the property sold, and in theory the
lien is satisfied from the sale
proceeds.

4. What is the purpose of a lien?
The policy underlying the lien law is
to protect those who provide labor
and materials that add to the value
of real property.

5. Who can record a lien?
Original contractors,
subcontractors, suppliers, laborers
for wages, architects, engineers
and land surveyors who perform
work at the instance of the owner
or an agent of the owner.
A.R.S. §33-981(A)

6. Who is the agent of the
owner for lien purposes?
“Every contractor, subcontractor,
architect, builder or other person
having charge or control of the
construction . . . either wholly or in
part”
A.R.S. §33-981(B)

7. Who cannot record a lien?
 Unlicensed or improperly
licensed contractors
 Unregistered or improperly
registered design professionals
 Suppliers to suppliers

8. Owner

9. Owner
Original Contractor
(General)

10. Owner
Original Contractor
(General)
Subcontractors Subcontractors

11. Owner
Original Contractor
(General)
Subcontractors
Second Tier Subs
Subcontractors
Suppliers

12. What is the appropriate
amount of a lien claim?
 Contract price
 Reasonable value of work
 Apportionment of lien

13. Who has priority?
 All mechanics’ liens relating to same work under the same
general contract, or separate contracts for the same
construction project, attach when labor or materials are first
provided to the site for that improvement – clearing and
grubbing, excavation, etc. A.R.S. § 33-992(B)
 10 Day grace period for deeds of trust and mortgages
A.R.S. § 33-992(A)
 May have separate priority for site improvements

14. Arizona Preliminary
Twenty Day Lien Notice

15. What is the purpose of the
Preliminary 20 Day Notice?
To inform the property owner of the
identities of all those who might have
the right to file a lien against his
property.

16. Who is required to give a
Preliminary 20 Day Notice?
Every person who furnishes labor, professional
services, materials, machinery or fixtures, except a
person performing labor on the project for wages.
A.R.S. § 33-992.01(B)

17. Who receives the Notice?
 Owner or reputed owner
 Original contractor
 Construction lender or reputed lender
 Person who has direct contract with
claimant
A.R.S. § 33-992.01(B)

18. When is a Preliminary
20 Day Notice Provided?
 No later than 20 days after the claimant first furnished
labor and materials
 If not given initially, the scope of the claimant’s lien
rights are limited to the labor or materials provided not
more than 20 days before the preliminary notice is served.

19. What must the Notice contain?
 General description of labor, materials, professional services,
machinery, tools, fixtures, and their estimated value
 Name and address of person furnishing labor or materials
 Name and address of Owner or Reputed Owner
 Name and address of Construction Lender or Reputed Lender
 Name and address of Original Contractor
 Name of contracting party
 Legal description, address or other description sufficient to identify
the job site AND…

20. …Boldface statement stating:

21. Arizona Preliminary Twenty Day
Lien Notice
In accordance with Arizona Revised Statutes § 33-
992.01, this is not a lien. This is not a reflection on the
integrity of any contractor or subcontractor.
The name and address of
the owner or reputed
owner is:
The name and address of
the original contractor is:
This preliminary lien notice
has been completed by
(name and address of
claimant):
Date:
By:
Address:

22. Boldface statement stating:

23. NOTICE TO PROPERTY OWNER
If bills are not paid in full for the labor,
professional services, materials, machinery,
fixtures or tools furnished, or to be furnished, a
mechanic’s lien leading to the loss, through court
foreclosure proceedings, of all or part of your
property being improved may be placed against
the property. You may wish to protect yourself
against this consequence by either:…

24. 1. Requiring your contractor to furnish a
conditional waiver and release pursuant to
Arizona Revised Statutes § 33-1008, subsection
D, paragraphs 1 and 3 signed by the person or
firm giving you this notice before you make
payment to your contractor…

25. 2.Requiring your contractor to furnish an
unconditional waiver and release pursuant
to Arizona Revised Statutes § 33-1008,
subsection D, paragraphs 2 and 4 signed
by the person or firm giving you this notice
after you make payment to your
contractor…

26. 3. Using any other method or device
that is appropriate under the
circumstances.

27. In addition to Boldface type,
the statute also requires that :
The following language shall be in
type at least as large as the largest
type otherwise on the document.

28. “Within ten days of the receipt of this preliminary
twenty day notice the owner or other interested
party is required to furnish all information
necessary to correct certain inaccuracies in the
notice pursuant to Arizona Revised Statutes § 33-
992.01, subsection I or lose as a defense any
inaccuracy of that information.”

29. Within ten days of the receipt of this preliminary
twenty day notice if any payment bond has been
recorded in compliance with Arizona Revised
Statutes § 33-1003, the owner must provide a
copy of the payment bond . . . to the person who
has given the preliminary twenty day notice. In
the event that the owner or other interested party
fails to provide the bond information within that
ten day period, the claimant shall retain lien
rights to the extent precluded or prejudiced from
asserting a claim against the bond as a result of
not time receiving the bond information.

30. What if you make a mistake
on the 20 Day Notice?
Statutory obligation of owner or other interested party to correct:
 Legal description/street address of job site;
 Name/address of owner or reputed owner;
 Name/address of original or reputed contractor;
 Name/address of construction lender or reputed lender;
 If payment bond is recorded, MUST provide a copy of
payment bond.
A.R.S. § 33-992.01(I)

31. How do you serve the
Preliminary Twenty Day Notice?
 First class mail with a certificate of mailing
OR
 Registered or certified mail with return
receipt

32. How do you prove you’ve
served the 20 Day Notice?
 Signed acknowledgment of receipt (rare)
A.R.S. § 33-992.02(1)
 Affidavit of mailing AND either the certificate
of mailing, OR the certified mail or
registered mail receipt attached to the affidavit
A.R.S. § 33-992.02(2)

33. How do you perfect your lien?
 Time for recording lien
 Completion
 Multiple buildings
 Multiple lots
 Who signs the lien
 Where is it recorded
 Required elements

34. When can you file your lien?
 At any point after there is a balance due and owing
 MUST file lien within 120 days after completion of the
project
 If Notice of Completion is filed, then MUST file lien
within 60 days after it is recorded
On the typical project just as the work commences for all
lien claimants at the same time for priority purposes,
completion is also the same for all subcontractors and
suppliers working under the same general contract

35. What is completion?
The earliest of:
1. 30 days after final inspection and written
final acceptance (Certificate of Occupancy)
OR
2. Cessation of labor for 60 consecutive days
except if due to a strike, shortage of
materials or act of God.
A.R.S. § 33-993(C)

36. …UNLESS:
There is no building permit, or no final
inspection and written final acceptance, in
which case completion runs from the last
date any labor or materials were furnished to
the site.
A.R.S. § 33-993(D)

37. What if there are
multiple buildings?
The statute is explicit for:
Residential Occupancy
The statute is silent for:
Commercial Occupancy

38. Residential Projects
If a work of improvement consists of the construction for
residential occupancy of more than one separate building
without regard to whether the buildings are constructed pursuant
to separate contracts or a single contract, each building is a
separate work and the time within which to perfect a lien by
recording the notice of lien pursuant to subsection A of this
section commences to run on the completion of each separate
building. For purposes of this subsection, "separate building"
means one structure of a work of improvement and any garages
or other appurtenant buildings in a multibuilding residential
project or residential subdivision. A.R.S. § 33-993(B)

39. Commercial Projects
The statute does not specifically address
multi-building commercial projects
Therefore, it is safer to treat a
multi-building commercial project the same as
a multi-building residential project

40. What if there are
multiple lots?
To the extent practicable you must
apportion the claim among the lots
actually improved.

41. Where is the lien
recorded?
Record with the County Recorder of
the County where the property is
located, in whole or in part.
A.R.S. § 33-993(A)

42. When do you have to
serve the lien on the
owner?
Within a reasonable time, if he can be
found within the county.
A.R.S. § 33-993(A)

43. Who signs the lien?
Under oath, by the claimant, or
someone with knowledge of the
facts.
A.R.S. § 33-993(A)

44. What are the required
elements of a lien?
1. Legal Description
2. Name of owner or reputed owner
3. Name of contracting party
4. Contract terms – attach written contract
or summarize terms of oral contract
5. Amount of demand
6. Date of completion
7. Date 20 Day Notice served plus proof
of service A.R.S. §33-992.02

45. What rights does an owner have
after the lien is served?
May withhold amount of lien from what is due
to contractor.
 Provide copy to contractor
 Within 10 days, contractor must
provide notice of intent to dispute the lien
 If not disputed, deemed to have agreed to the
demand
A.R.S. § 33-994

46. What is the contractor’s duty
after the lien is served?
Required to defend lien foreclosure lawsuits
filed by its subcontractors and suppliers
Contractor defending foreclosure action has
all the rights and defenses of the owner
A.R.S. § 33-995

47. Filing Suit to
Foreclose the Lien
1. MUST be filed within 6 months from date of
recordation or lien is null and void. A.R.S. §
33-998(A)
2. MUST record a Lis Pendens within 5 days after
action is filed A.R.S. § 33-998(A) and
A.R.S. § 12-1191(A)
3. MUST name all persons with an interest in the
property.

48. Who is named
in the lawsuit?
 Owner
 Party contracting the debt
 All other lien claimants

49. No Liens Against
Owner-Occupied Dwellings
When you are dealing with an
owner-occupied dwelling, there
are no lien rights UNLESS there is
a written contract directly with the
owner-occupant
A.R.S. § 33-1002

50. What is a dwelling?
Real property where a building has been or
is to be constructed which is designed for
single one-family or single two-family
residential purposes, including an
apartment in a horizontal property regime
or other condominium.
A.R.S. § 33-1002(A)(1)

51. What or who is an
owner-occupant?
 Natural person – can include beneficiary or
trustee of a family trust
 Holding legal or equitable title before
construction commences
 Reside or intend to reside – for at least
thirty days during the twelve-month period
immediately following completion

52. Evidence of an Intent to
Reside in the Dwelling
Personal belongings or furniture are in the
dwelling AND
Occupied by the owner occupant himself or
members of his family
If dwelling occupied by non-family member
may negate an intent to reside

53. How can an owner bar
liens from his property?
Payment Bond in Lieu of Lien Rights:
A.R.S. § 33-1003
Payment Bond issued by authorized Surety
AND a copy of the contract must be recorded
with the County Recorder.
Recorded documents must include Legal
Description…

54. …No lien is allowed thereafter
EXCEPT by a person
contracting directly with the
Owner

55. What does it mean to
bond around a lien?
Record a Lien Discharge Bond
A.R.S. § 33-1004
Bond for 1.5 times amount of Lien
Conditioned for payment of the
judgment that would have been
rendered against the real property upon
foreclosure

56. What is the effect of a
Lien Discharge Bond?
The Lien is discharged and property is
free and clear
Merits of lien claim still litigated
Recovery from bond Principal and
Surety and not by foreclosing the real
property

57. When does a contractor
have fiduciary duties to pay
his subcontractors?
On Owner-occupied dwellings subcontractors and
suppliers have no lien rights so monies paid to the
contractor for labor or materials are deemed to have
been paid in trust for the benefit of
subcontractors/suppliers A.R.S. § 33-1005
Funds cannot be diverted for any other purpose
Under certain circumstances, there may be personal
liability for diverting funds

58. Waiver of Lien Rights

59. How can lien rights
be waived?
ONLY pursuant to a waiver and release
prescribed by the statute OR if the
claimant has been paid in full

60. Can a general contractor
waive the lien rights of his
subcontractors?
NO, the statute explicitly prohibits
waiving or impairing the lien rights
of others A.R.S. § 33-1008(A)
Execution of waiver effective only if it
follows statutory forms, unless part of
a settlement

61. What are the release forms
required by the statute?
 Conditional waiver and release on
progress payment
 Unconditional waiver and release on
progress payment
 Conditional waiver and release on
final payment
 Unconditional waiver and release on
final payment

62. Penalties For Invalid Liens
Any person who knowingly files a lien against real
property which is groundless, contains a material
misstatement or is otherwise invalid, may be liable for
the greater of $5,000 or treble the actual damages
together with reasonable attorney’s fees and costs.
A.R.S. § 33-420(A)
Any person who willfully refuses to release or correct a
false or invalid lien within twenty days of receiving a
written request is liable for the greater of $1,000 or
treble the actual damages together with reasonable
attorney’s fees and costs. A.R.S. § 33-420(C)