This week, four calls came in from homeowners receiving Preliminary 20 Day Notices in the mail. All of the owners were distraught and asked, “How can a contractor file a lien on our property when we do not owe anything? How serious is this and how do we get it removed?”
As far as I know, local contractors have never been in the habit of sending out preliminary lien notices. In the past, many subs and suppliers have been fortunate to work with people they have done business with before, but with today’s shortage of manpower and many new companies popping up, suppliers and subs are doing work with some new companies, and many are from out of the area. There seem to be more and more issues with non-payment of work, and subs and suppliers are not being paid.
We have written several columns on preliminary, 20 day notices, and, based on what is taking place with growth and building, it is important to share this information again. Keep in mind, 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 have received a preliminary, 20-day notice in the mail; this is not a lien. Rather, it is a notice that a subcontractor or supplier that your general contractor provided — or will be providing — goods and services to improve your property and could file a lien if they are not ultimately paid. If the subcontractor or supplier is not paid, you will receive additional documents.
The later document is called a “mechanic’s lien.” And if payment is not made to contractor or supplier after receipt of these additional documents, the contractor or supplier could institute legal proceedings to foreclose on the lien. But, that is way down the road. The preliminary, 20-day notice is not recorded but only allows the contractor to begin the process.
Mechanic’s lien law is, at best, complicated and confusing, and there are 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” for a potential future 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 title to the property that can affect the homeowner’s ability to borrow against or sell the property.
Receipt of a 20-day notice allows you to track who has a potential claim against your property. Subcontractors and suppliers must provide you with this notice to maintain their right to file and pursue 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.
Watch the timing. If the notice is later, the subcontractor or supplier is only entitled to foreclose a lien to recover payments owed 20 days before receipt of the notice and anytime thereafter.
Keep track of any 20-Day Notices and make sure you are aware of who can file a lien against your property. Your best protection as a homeowner is to be certain you require and get from the contractor lien releases, both conditional and unconditional waiver and releases on progress payments and final payments. If you have questions or would like copies of the releases, we will be happy to assist.
It is important to obtain conditional and unconditional releases for progress payments/partial and final payments. The prime contractor has a direct, contractual agreement with the homeowner. If the contractor isn’t paid, he or she can sue on the contract. But subcontractors, workers and suppliers don’t have a contract with the homeowner.
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 laborers, subcontractors, and materials suppliers that were hired to do portions of the job. Again, obtain conditional and unconditional releases for partial and final payments.
You can help protect yourself from unwarranted liens by carefully selecting your contractor and responsibly managing your construction project. Thoroughly check your prime contractor’s business and professional work before you sign a contract; hire only licensed contractors and check the contractor’s license status. Make sure your contractor hires only licensed subcontractors and be sure to check their licenses, too.
YCCA hopes you find this information valuable. Please call if you have any questions.