Five Dangerous Myths About Mechanic’s Liens
Mechanic’s liens are useful when properly implemented. However, an improperly executed lien will waste time and money, and the lienholder will never reap the expected rewards. To avoid these pitfalls, consider the following misconceptions about liens:
Myth 1: Any Contractor or Supplier Can Claim a Lien. Only those who properly complete lien documents, including a Preliminary Twenty-Day Lien Notice, may claim a lien. In addition, a subcontractor or supplier to a sub-subcontractor (i.e., a third-tier subcontractor), as well as contractors not licensed to perform the work, may not be entitled to a lien. See A.R.S. 33-981(B) & (C).
Myth 2: Payment Is Guaranteed If I Have A Valid Lien. A construction lender has priority over other lienholders if its deed of trust is recorded within ten days after labor or materials are first supplied to the property. A.R.S.33-992(A). For example, suppose a supplier holds a valid lien for materials supplied from May 10th through May 18th, and the bank recorded its loan documents on May 19th. Later, the owner defaults on its loan, and the lender forecloses. Because the deed of trust was recorded before the ten-day window expired, the lienholder will be paid only if there are funds remaining from the sale of the property after the lender has been paid in full.
Myth 3: A Mechanic’s Lien Is A No-Lose Proposition. On the contrary, a mechanic’s lien will not help if the contractor or owner has a legitimate claim that the contract was not satisfied. In addition, if the lienholder has not complied with the lien statutes, if the value of the work is overstated, or if the lien includes amounts not allowed in a lien, the lienholder could be liable to the owner for placing an illegal lien on the property. See A.R.S. 33-420.
Myth 4: A Lien Guarantees Quick Payment. If the work was performed well, the owner or contractor will probably pay whether or not a lien has been claimed. However, if the quality of the work is disputed or if the job has been financially mismanaged by the owner or contractor, then there will likely be a fight over money regardless of the lien. The lien does not ensure prompt payment, but merely provides another weapon in the fight for payment.
Myth 5: Lien Paperwork Is Merely A Clerical Function. The mechanic’s lien statutes are highly detailed, and the failure to meet even one of the technical legal requirements may nullify the lien. Completion of the lien documents may be assigned to clerical staff only after the proper procedure for processing liens in-house has been established. However, the lien process should always be supervised by knowledgeable management or outside counsel.
The mechanic’s lien process is full of legal trapdoors and requires the lienholder to jump through a series of statutory hoops. Despite these difficulties, a valid mechanic’s lien can provide that last bit of leverage that can be the difference between getting paid on a job and writing it off as a loss.
Rex A. Christensen practices employment discrimination law in Gilbert Arizona. He can be reached at (480) 378-2400