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.