What Is a Mechanic's Lien?

You’ve provided invaluable materials, services and/or equipment for a construction project. You didn’t get paid at the set time, so you recorded a mechanic’s lien. What is going to happen next? You file a mechanics’ lien.

Lien Foreclosure Six-Month Deadline

Through Arizona lien laws, your mechanics’ lien filing deadline ends six months following the recording date, unless you (the lien holder) take legal action on the property owner to foreclose on the lien. The purpose of your lawsuit is to appropriate the owner’s property, sell it at a foreclosure auction carried out by the county sheriff, and apply the profits to the amount owed to you.

If you do not take legal action within the six-month timeline, your mechanics’ lien automatically terminates and is lost. Consequently, it is vital to calendar the foreclosure deadline and file the mechanics’ lien foreclosure action prior to that date.

Prior to The Mechanics’ Lien Foreclosure Action Being Filed

First, in the interest of lien rights, for work deemed to be “contracting” by the AZ ROC, you are required to be able to verify that you held a valid AZ contractor’s license when you entered into the agreement and when you carried out the work. Equipment rental businesses and material suppliers do not require a contractor’s license. When “you” are an entity or LLC, that legal company is required to be in good repute with the AZCC for the purpose of filing suit.

Following you recording your mechanics’ lien you should consult with your attorney to go over what a lien foreclosure action is going to involve and whether there are other collection ways you should think about.

Prior to filing a lawsuit for foreclosing on a mechanics’ lien, your attorney is going to arrange for a title report on the property from a title agency. This title report is going to show the property’s legal description, the present owner, if there are any large lenders that have precedence over your mechanics’ lien, and any other type of mechanics’ liens on the property. Every mechanic’s lien has equal precedence to each other; in spite of the date they are recorded. The title report is going to identify the people and legal entities you are required to sue in order to effectively foreclose your lien. The title report additionally should help you establish whether, keeping in mind the debts on the property, there is adequate equity in the property to determine if your lien foreclosure action is actually worth it.

Following The Lawsuit Has Started

A mechanics’ lien foreclosure grievance petitions the court to:

enter judgment in your favor for a particular amount of money,
enter judgment that you have a genuine lien on the property for that amount, and
order the regional sheriff to sell the property and use the profits to appease your lien.

Additionally, the complaint typically alleges a noncompliance of contract by the party (e.g., the sub-contractor) that didn’t manage to pay you.

Lastly, the complaint designates the other mechanics’ lien claimants, for the sake of getting everybody with a claim on the property in open court in the same action.

The vast amount of this type of lien foreclosure actions gets settled by those involved without ever going to trial. Nevertheless, if the lien foreclosure action progresses to court, they are going to enter judgment on each of the mechanics’ lien and are going to order the sale of the property to appease the valid lien claims.

Trustee’s Sales and Bankruptcy

The owner’s buying and construction loans on a project are typically recorded prior to construction beginning. The precedence of those loans, compared to mechanics and vendors liens, is established by the “first in time, first in right” policy, and they typically have precedence over mechanics and vendors liens. Consequently, if the owner delays payment in its buying or construction loan, all of the mechanics and vendors’ liens could be eliminated by a trustee’s sale.

Likewise, if the property owner files for bankruptcy court safeguarding, mechanics’ liens are impacted. If you have a lien claim on an owner that files for bankruptcy, you should promptly speak with your attorney to assess the circumstances and discuss what your options are.