Arizona Webinar: Securing Payment After Recording Your Lien – Key Steps for Contractors

Liens are undoubtedly one of the best tools that construction professionals can leverage to resolve their payment issues. Oftentimes, just the fact that a lien has been recorded is enough to get the ball rolling resulting in successful payments. However, sometimes, you might have to take it all the way to foreclosure. One thing that lien claimants should bear in mind is that simply recording the lien is not enough. There are further steps that should be taken to keep your lien valid and enforceable.  

How to Preserve Mechanics Lien Rights in Arizona?

Before we get into what happens after you record your lien and what steps you need to take, let’s do a quick recap of how to preserve mechanics lien rights in Arizona. There are three main action items:

Step 1 - First, you need to timely serve a proper preliminary 20-day notice. Except for laborers for wages, every mechanics lien claimant in Arizona must serve this preliminary 20-day notice. If you fail to serve it, then you forfeit your lien rights.

Step 2 - Second, make sure that you are not forfeiting you lien rights by signing an improper or incorrect lien waiver. Arizona provides four statutory forms – conditional progress waivers, unconditional progress waivers, conditional final waivers and unconditional final waivers. Always read the lien waivers thoroughly before signing them.

Step 3 - Third, you need to time record a statutorily compliant Notice and Claim of Lien with the county recorder in the county where the project is located. Again, if you fail to record it, then your lien rights will be waived off.

I Have Recorded My Lien – What Happens Next?

Assuming that you have performed all the above three steps, the next course of action is to focus on the steps that have to be taken after your lien has been recorded. There are four major action items:

• You must timely serve the Notice and Claim of Lien.

• You need to watch out for lien discharge bonds.

• You must sue to foreclose the lien within six months of recording the lien.

• You must record a Lis Pendens within 5 days of filing suit.

Let’s take a detailed look at each of these action items.

Serving a Notice and Claim of Lien in Arizona

Pursuant to A.R.S. § 33-993(A), must serve the copies of their Notice and Claim of Lien on the property owners within a reasonable time after recording.  

• The copies must be served by mail, either first class mail, registered or certified mail.  

• The sender should also obtain a certificate of mailing, receipt of registration, or receipt of certification.

• Lien claimants can also serve it in the same manner that process is served.

• The term ‘reasonable time after recording’ has not be defined by the Arizona law. It depends on case-to-case basis. However, the best practice is to serve it as quickly as possible because there is no point in waiting to serve it.

Discharge Bonds

Once the Notice and Claim of Lien is recorded, the property owner has the option to post a statutory lien discharge bond pursuant to A.R.S. § 33-1004.

• What this lien discharge bond does is it discharges the lien on the property. This means that once the discharge bond is recorded, the lien claimant’s target for the purpose of a lawsuit shifts from a foreclosure of the mechanics lien to a claim on the bond.

• The lien discharge bond must be recorded in the county where the property is located, and it should be served on the lienholder.

• If you have a lawsuit pending, then the lien claimant must amend their suit to add a claim on the bond.

• If there is no lawsuit pending, then the lien claimant must file suit against the bond within six months of recording the Notice and Claim of Lien.

• A key point to remember here is that the timeline to file the suit does not change, whether it you are filing suit on the lien or bond.  

The Mechanics of a Lien Foreclosure Lawsuit in Arizona

When you file suit to foreclose, it means that you are asking the court to order the sale of the property to satisfy the liens. So, mechanics lien claimants are responsible for proving the validity of their lien and the value of the materials or services provided.

• As mentioned earlier, you have six months from the time of recording the Notice and Claim of Lien to file the foreclosure suit. If you fail to do so within the six months deadline, then the lien expires by operation of law.  

• You must include all the necessary parties in the suit. The necessary parties will include all the parties holding an equal or inferior interest in the property.  

1. You need to bear in mind that a lien foreclosure lawsuit is not something that can be done overnight. It involves a lot of research and process, so you must provide sufficient time to your attorney to gather all the required information.  

2. They will need sufficient time to identify all the proper parties, find out other lien claimants on the same project, obtain litigation guaranty from a title company, etc., all off which takes time.  

3. You also need to be careful with lender because often they will have superior interest than lien claimants. This priority is largely based on when the lender’s loan was put in place.

4. If the loan was secured before construction work began and in certain other circumstances, then the lender is going to have priority over the lien claimants.

5. If the work progressed before the loan was secured and put in place, then in those circumstances, lien claimants may have priority over the lender on the property.  

• The priority for lien claimants with calid mechanics lien is the same. There is no competition in terms of who gets the lien filed first, who gets it recorded first, etc. All the lien claimants have equal priority which means that they will share the proceeds of the sale on pro rata basis.  

• Another important point to remember is that the courts may award the successful party its reasonable attorney’s fees.  

Must also Record a Lis Pendens

Along with filing a foreclosure lawsuit, the lien claimant is also responsible for recording a lis pendens.  

1. A lis pendens is a notice of pendency of action and it aims to provide a general notice that there is a lawsuit pending which affects the title of the said property.

2. The lis pendens must be recorded in the county where the project is located.  

3. It must be recorded within five days of filing the foreclosure suit. This is a key step that lien claimants must bear in mind if they are filing a foreclosure suit.

4. A lis pendens will include the names of the parties, object of the action, relief demanded, and a description of the property.

Recording a Release of Lien

Let’s assume that you have recorded your lien, and it is satisfied through negotiation, or you file a foreclosure suit and the lawsuit results in a resolution of the lien claim, then in such cases, the lien claimant must record a release of lien.

1. When we say that the lien is satisfied, it means that the lien claimant has received the payment in full. So, if your lien is satisfied, then you must issue a release of lien within 20 days after lien satisfaction.

2. When you record the release of lien documents, it gets the lien off the title of the property, and you don’t have to face any potential penalties.

3. If the lien claimant fails to record the release of lien as per the 20-day deadline, they will be liable to pay a penalty of one thousand dollars and they will also be liable for actual damages.

So, these are major action items that lien claimants must perform after they record their lien to ensure that their lien remains valid, and they get paid successfully. Make sure that you follow all the deadlines and notice requirements diligently because failure to do so may result in your lien rights getting waived off, your lien becoming invalid, or you may also end up paying penalties.  

If you find yourself in a situation where you need assistance to get paid, then ensure that you get in touch with SunRay’s experts well in advance, so that they can take all the required steps promptly. Call 800-403-7660 today and get paid what you deserve.      

Common Questions Contractors Ask

1. What are the immediate steps I should take after recording my lien in Arizona?

After recording your lien, you must take several steps to ensure your lien remains valid:

• Serve the Notice and Claim of Lien: This must be done within a reasonable time after recording by mailing it (via first-class, registered, or certified mail) to the property owner.

• Watch for lien discharge bonds: Property owners may post a bond that replaces the lien, meaning any lawsuit will target the bond instead of the property.

• File a lawsuit to foreclose the lien: This must be done within six months of recording the lien to avoid losing your lien rights.

• Record a Lis Pendens: Within five days of filing your foreclosure lawsuit, record this notice to inform others of the pending action.

2. How does serving a Notice and Claim of Lien work, and what is the timeline for doing so?

Serving the Notice and Claim of Lien involves sending copies to the property owner as soon as possible after recording. Arizona law doesn’t specify an exact time frame, but it’s essential to serve it quickly to protect your rights. You can send it by first-class, registered, or certified mail, and you must obtain proof of mailing. The faster you serve it, the better, as delays could potentially jeopardize your lien claim.

3. What should I know about lien discharge bonds, and how do they impact my lien rights?

A lien discharge bond allows a property owner to replace your lien with a bond, ensuring the lien no longer affects the property itself. If a discharge bond is recorded, your focus shifts from foreclosing on the lien to filing a claim against the bond. Even if a bond is posted, you must file a lawsuit within six months of recording the lien, as this deadline doesn’t change. If a lawsuit is pending, you must amend your claim to include the bond.

4. How long do I have to file a lawsuit to foreclose on a lien, and what is the process?

You have six months from the date of recording the lien to file a lawsuit to foreclose. If you fail to do so within this time frame, the lien expires automatically. Filing the lawsuit means asking the court to order the sale of the property to satisfy your lien. The process includes proving the validity of your lien and involving all necessary parties, such as property owners, lenders, and other lien claimants. You will also need to ensure that you file and record a Lis Pendens to notify others of the lawsuit.

5. What is the purpose of recording a Lis Pendens, and when is it required?

A Lis Pendens is a notice that informs potential buyers or other parties that a lawsuit is pending against the property, affecting its title. It ensures that anyone dealing with the property is aware of the legal claim. In Arizona, you must record a Lis Pendens within five days of filing a lawsuit to foreclose on the lien. It contains details about the lawsuit and the property and is recorded with the county where the project is located.