Failure to Substantially Comply With State Law Renders Arizona Lien Unenforceable

Failure to Substantially Comply With State Law Renders Arizona Lien Unenforceable

You put substantial time, energy, and materials towards completion of the project for which you were hired. You serve your preliminary notice, making sure you comply with all your state’s requirements for a valid mechanic’s lien.  You complete the work but unfortunately do not receive payment.

Then you take all the requisite steps to establish a valid mechanic’s lien and have no reason to believe you will not fully recover. However, when you file to foreclose the lien, you learn it is invalid due to your failure to comply with some very specific state requirements concerning the preliminary 20-day notice and claim of lien.

Although you thought you followed the law down to every last detail, you have lost your essential remedy of a mechanic’s lien.

The Case

This tragic scenario is exactly what occurred in the Arizona case of MLM Const. Co., Inc. v. Pace Corp, 172 Ariz. 226, 836 P.2d 439 (1992).  In MLM Construction, Pace Corporation contracted to construct a shopping center on property owned by Garden Lakes Center Associates, in Phoenix, Arizona. BCN lumber was a subcontractor on the project, and MLM Construction Company entered into a subcontract with BCN to provide carpentry labor and materials for $64,945.00.

MLM provided the agreed upon materials and labor and served a preliminary 20-day notice, as required under Arizona Rev. State. Ann. § 33-992.01. The preliminary notice form was titled “Arizona Preliminary Notice in accordance with Arizona Revised Statutes § 33-992.01 and § 33-992.02.”

Arizona Revised Statute § 33-992.01(C)(5) required, however, that the preliminary notice state in bold-faced type, “[i]n accordance with Arizona Revised Statutes § 33-992.01, this is not a lien and this is not a reflection of the integrity of any contractor or subcontractor.”   While MLM’s notice complied with all other requirements set out in § 33-992.01, it failed to include this language. The appellate court was left to grapple with the question of whether MLM complied with the statute sufficiently to have his lien be perfected.

The Court Says No

The court held that the statutory requirements for mechanic’s liens must be strictly followed in order to perfect a lien.  he court found that while substantial compliance with the law can be sufficient to perfect a lien, in this case, the failure to include the language that “this is not a lien…” was a fatal defect.  The omitted language was of sufficient significance, that failure to include it could not result in substantial compliance.  MLM’s lien was held to be unenforceable on this ground.

The deficient preliminary notice was not MLM’s only mistake.

The Arizona court also found that MLM’s lien failed on one additional ground.  Arizona Revised Statute § 33-992.02 requires a lien claimant prove he served his preliminary notice by either obtaining the recipients’ signatures on written documents acknowledging receipt, or by affidavit of the person making the service, showing the time, date, place, and manner of service.

Arizona Revised Statute § 33-993 (A), requires that a copy of the preliminary notice and proof of service must be attached to the notice and claim of lien.  MLM failed to attach any proof of service to his notice of lien.  The court found this failure, even though service was accomplished, rendered MLM’s lien unenforceable.

The case of MLM Construction highlights the technical details involved in the lien process and the ease with which one can make a costly mistake along the way.  MLM believed it took all requisite steps, but MLM’s failure to comply with Arizona’s lien laws on two small technical details cost it.

The takeaway: consult with professionals when securing mechanic’s lien or bond claim rights!

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