When community associations engage a contractor to perform construction within the development, the contract between the association and the vendor will often reference the contractor's right to record a lien against the association's property. This is generally referred to as a "Mechanic's Lien" and is governed by A.R.S. § 33-981 et seq. The Mechanic's Lien gives the contractor, or sub-contractors, architects, builders, etc., the right to secure the reasonable value of labor and materials furnished on a project through the potential foreclosure of the property that is the subject of the lien. With regard to a community association, that is generally the Common Area or the Common Elements.
Foreclosure of a lien against association property can have significant impacts on the operations of the community. Accordingly, associations need to understand what these contract provisions entail and take special care to review their contracts to evaluate whether it is appropriate to negotiate the removal of the Mechanic's Lien clause from the contract. In the event that the parties are unable to agree to the removal of the Mechanic's Lien, and a Mechanic's Lien is advanced against the association, we suggest that the association take steps to confirm whether the contractor has satisfied its s initial obligations to perfect that lien. Errors in the accuracy of the information on the lien documents and failure to adhere to all statutory deadlines for notices and filings may invalidate the lien. KEEP IN MIND: Only contractors holding a valid certificate of registration in Arizona are permitted to file a lien against the property. Accordingly, the association can verify the registration status through the Arizona Registrar of Contractors (AZ ROC) at https://roc.az.gov/
- Notice of Intent to Lien (A.R.S.
§ 33-992.01):
- Vendor must serve a preliminary 20-day notice on the association. This notice must be served within 20 days of first furnishing labor or materials.
- Filing the Lien (A.R.S.
§ 33-993):
- The lien may thereafter be recorded in the county where the property is located. The lien must include a statement of the amount due, a description of the property, and the name of the property owner.
- Time Limits (A.R.S. §
33-993):
- The lien must be recorded within 120 days after the completion of the project, or within 60 days after a notice of completion or cessation has been recorded, whichever is earlier.
- Foreclosure of Lien (A.R.S.
§ 33-998):
- If the lien is not paid, the lien claimant must file a lawsuit to foreclose the lien within six months after filing the lien. Failure to do so results in the lien becoming void.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
