Protect Your Home from Surprise Legal Claims and Arizona Lien Laws

When you hire a general contractor to build an addition or renovate your home, you probably assume your obligations are over once you have paid the agreed-upon price. An unexpected legal threat can arise with a subcontractor lien, blindsiding a Phoenix homeowner. 

Regardless of whether you have paid your contractor in full, an unpaid subcontractor, supplier, or laborer could file a lien against your property. Understanding how subcontractor liens work, including how they are filed, your rights as a homeowner, and the steps to take when a lien shows on a property title, is vital. 

What Is a Subcontractor Lien?

A mechanic’s lien or construction lien is a legal claim made by a contractor, subcontractor, supplier, or laborer who claims they were not paid for work on a project. Subcontractor liens are filed by parties hired by the general contractor, not the homeowner. Although these parties may have no direct contractual relationship with you, they can still cloud your title with a lien if they were not paid for their work.

Under Arizona’s Revised Statutes Section 33-981, an individual who has provided materials, tools, machinery, fixtures, professional services, or labor in the construction, repair, alteration, or improvement of a building or structure, whether the owner requested it or not, can file a lien against the property. Arizona courts take these claims seriously. For homeowners, paying your contractor does not always guarantee your property title is free and clear.

How Do Subcontractor Liens Work?

Subcontractors must take the following steps for a lien to become enforceable:

  • Preliminary 20-day notice: The law requires most lien claimants to serve notice on the property owner, general contractor, and construction lender, if applicable, within 20 days of the first day materials or labor were furnished. This is to alert the homeowner that lien rights may be asserted if the sender remains unpaid for work on the project. 
    • Sometimes, the preliminary 20-day notice is filed during a project or when it nears completion; to understand how this may impact the validity of a lien, it may be worth contacting an attorney or our office.
  • Lien filing: A subcontractor who has not been paid for work may file a lien with the county recorder’s office. This filing must be done within 60 days of project completion if notice of completion has been recorded or within 120 days if notice has not been recorded. The lien must include detailed information, including the legal description of the property, the identities of the parties involved, and the amount the subcontractor is owed.
  • Foreclosure action: A lien becomes a cloud on the title. To enforce it, a subcontractor must initiate a foreclosure lawsuit within six months of filing the lien. Failure to do so renders the lien invalid. Under Arizona Revised Statutes Section 33-998, a subcontractor lien will not continue for more than six months after being recorded unless legal action is brought to enforce the lien within that time. 

What Should You Do If Faced with a Subcontractor Lien in Phoenix?

If you discover a subcontractor has filed a lien on your property, do not ignore it. A lien is a legal claim that can impact your ability to sell or refinance. Take the following steps as soon as possible:

  • Contact an attorney: Mechanic’s liens involve complex procedures and strict statutory deadlines. An experienced litigation attorney who is familiar with construction matters can evaluate the validity of the lien, advise you of your options, negotiate a resolution, or initiate legal proceedings if necessary.
  • Collect documents: Gather all records related to the project, including contracts, change orders, invoices, proof of payment, and correspondence. This documentation is critical in building your case.
  • Consider discharging the lien with a bond: Under Section 33-1004 of the Arizona Revised Statutes, a homeowner may discharge a mechanic’s lien by posting a surety bond in an amount equal to 150% of the demand amount set forth by the notice and claim of lien. This may be a good option if you need to move forward with a refinance or sale.

What Makes Subcontractor Liens a Problem in Phoenix?

The Phoenix metro area has seen a surge in construction. With this growth comes a rise in the number of contractors and subcontractors. While many companies operate professionally, not all do. Subcontractors may go unpaid due to cash-flow issues, disputes, or even unscrupulous behavior by general contractors. Subcontractors who are not paid for their work often exercise their lien rights to secure payment, creating a risk for homeowners.

What Can You Do to Prevent Subcontractor Liens?

Although not all liens can be avoided, homeowners in Phoenix can take the following proactive steps to reduce the risk:

  • Use licensed contractors: Always hire general contractors that are licensed and bonded. Go to the Arizona Registrar of Contractors (ROC): Contractor Search page to find out if a contractor’s license is current. 
  • Request lien waivers: Before issuing progress or final payments, your general contractor can be required to provide lien waivers from all suppliers and subcontractors. A lien waiver is a legal document by which the signer relinquishes the right to file a lien after being paid. Several types of lien waivers are available under Arizona law. Use the appropriate waiver for the stage of the project and ensure payment conditions are clearly defined.
  • Maintain a paper trail: Keep detailed records of all payments made, including dates, amounts, and copies of checks or electronic transfers. Confirm in writing that your contractor is paying all vendors and subcontractors as required.
  • Pay through escrow: Consider using a construction escrow service for large residential projects. These third-party services disburse funds only when certain conditions, such as signed lien waivers, are met. Although this is an added expense, it could shield you from lien issues in the future. 

Whether you are dealing with a disputed lien or want to safeguard your next project from legal complications, Resolvere Law PLLC can guide you through the process. You can expect passionate, professional support, perspective, and real results with our firm. Call us at 480-568-1327 to schedule a free consultation.