12.12.17 Mechanic's Liens

Mechanic’s Lien Coverage Requires Underwriter Approval.

Can the Construction Loan Mortgage have initial priority over mechanic's liens?

Yes. ARS 33-992. If construction loan is recorded before labor has been commenced on the property or before materials have commenced to be furnished to the property. "Commencement" means that it is apparent to anyone inspecting the property that construction has commenced.

Will initial priority as to future disbursements be retained only if certain procedures are followed?

No.

If priority is lost, can it be regained?

Yes. ARS 33-993. Cessation of labor for a period of 60 consecutive days amounts to "completion". If a project which has been completed due to cessation of labor is again restarted, a prior recorded construction loan which had lost priority would now regain priority.

Is there a difference between on-site and off-site work?

No. ARS 33-992. On-site and off-site work have the same priority.

Is priority the same for all contractors and subcontractors on the same project?

Yes. ARS 33-1000. All liens for work and labor done, or professional services, or materials furnished are on equal footing.

What are the time periods for recording lien claims by original contractors and subcontractors?

Ninety (90) days for original contractors and sixty (60) days for subcontractors, pursuant to ARS 33-993.

After what period of time can you waive a mechanic's liens if no suit is filed?

Six (6) months, pursuant to ARS 33-998.

Is there a statutory procedure for affidavits of completion or notices of completion?

Yes. ARS 33-993. If a Notice of Completion is recorded, it may reduce the time period for recording a lien to 45 days for an original contractor and 35 days as to all others. Due to other requirements regarding Affidavits of Completion, it is not the practice for title insurers to rely upon the recording of an Affidavit of Completion for shortening the time in which a lien may be recorded.

Can a statutory bond terminate the mechanic's liens as an encumbrance on the title)

Yes. ARS 33-1004.

Can the original, general, or subcontractor's contract or waiver agreement subordinate or waive mechanic's liens by general contractor and/or subcontractors?

No. ARS 33-1003. However, contractors can record a payment bond after which no lien shall be allowed or recorded except by a person who contracts in writing directly with the owner.

Can a bona fide purchaser or bona fide lender take free of mechanic's liens later filed for earlier work?

No.

What are the customary requirements for issuing Loan Policies on construction loan mortgages?

Prior to the recordation of a construction loan, a physical inspection of the site is necessary to insure that no construction has commenced or materials furnished in order that the construction loan may have priority over mechanic's liens. If the inspection discloses that there is broken priority, the construction loan can only be insured if the issuing office has complied with the broken priority requirements of Stewart Title Guaranty Company, and obtained the necessary approval from the Underwriting Manual.

Is it customary to add a "pending disbursement" clause or mechanic's liens exception in the Loan Policy insuring a construction loan mortgage?

Yes.