LEINS / PRE-LEINS
We are building a new home in Prescott and last week we received a lien notice in the mail. How can someone file a lien on our property when we do not owe anything? How serious is this and what do we do to have it removed?
This information is not intended to be all inclusive of the law of mechanic liens in Arizona, but does contain some basic information.
First of all, do not panic. You received a “Preliminary 20-Day Notice” in the mail and this is not a lien; it is a notice that a subcontractor or supplier that your general contractor is using had provided or will be providing goods and services to improve your property and could file a lien if they are not ultimately paid. This lien is called a “mechanic’s lien.”
Mechanic’s lien law is at best complicated and confusing and there are real risks involved for homeowners. You can take steps to avoid these problems by preparing for the possibility of a lien and employing safeguards to protect you.
A mechanics lien is a “hold” or claim against your property that, if unpaid, allows a foreclosure action, forcing the sale of your home to satisfy any project debts. A mechanic’s lien is a “cloud” on the property that can affect the homeowner’s ability to borrow against, or sell the property as well.
Do not expect a 20-Day notice from your prime contractor however. Since they have a direct contract with you, they are not required to send a 20-Day Notice. However they may still file a mechanic’s lien against your property if they are not paid the amount owed in the contract you have signed.
A problem can occur when the homeowner pays the prime contractor for all or some of the work, but the prime contractor fails to pay the labors, subcontractors and material suppliers. If they are not paid, often their only recourse is to record a mechanic’s lien on the property.
Receipt of a 20-Day Notice allow you to track who has a potential claim against your property. Subcontractors and suppliers must provide you with this notice in order to maintain their right to file a lien. If they do not provide you with the notice, they lose the right to file a lien. A subcontractor or supplier can give you the 20-Day Notice before delivering supplies or starting work and up to 20 days after delivering supplies or starting work.
You can protect yourself from unwarranted liens by carefully selecting your contractor and responsibly managing your construction project. Hire only licensed contractors and make sure the subcontractors are licensed as well. Obtain a list of all subcontractors, laborers and material supplies which are to be used by your prime contractor.
Keep track of any 20-Day Notices and make sure you are aware of who can file a lien against your property. Use Lien Releases and/or Joint Checks to make sure potential lien claimants get been paid. Before you make a payment, you should first obtain a signed Conditional Release from the lien claimant(s). After you receive the Conditional Release make the appropriate payment for the work that was done and after you pay the Contractor, obtain an Unconditional Release signed by each of the claimants. Your prime contractor is also required to give you signed releases from potential claimants, indicating that he has paid them. You can withhold payment until you receive the Unconditional Releases for the previous payment.