You’ve Recorded a Mechanics’ and Materialmen’s Lien, Now What?

By Bruce A. Smidt, Esq.

After failing to be fully paid for labor, services, equipment or materials you provided on an Arizona construction project, you have filed a mechanics’ and materialmen’s lien.  Now what do you do?

The most critical fact you need to be aware of is that under Arizona’s lien statutes, a mechanics’ and materialmen’s lien automatically expires six months after it is recorded unless a lawsuit is filed within that time to foreclose upon the lien.  Therefore, in order to preserve your lien rights, you must file a lawsuit to foreclose upon your lien within six months of the date the lien was recorded.  Failure to do so will result in a complete loss of your lien rights.

Assuming that all of the statutory requirements have been complied with, a mechanics’ and materialmen’s lien creates an encumbrance against the real property that was improved by the labor, services, equipment or materials supplied by the claimant.  The objective of a lien foreclosure action is to force the property to be sold at a public auction and obtain payment out of the sale proceeds.

Before filing an action to foreclose upon a mechanics’ and materialmen’s lien, it is necessary to verify who the owner of the property is and determine who else has an interest in the property as all of these persons and entities must be named as defendants in the lawsuit.  To accomplish this, your lawyer will order a title report with respect to the property from a title company which will identify all of the persons and entities that must be sued in order to successfully foreclose your mechanics’ lien.

In addition to specifying who must be named as defendants in your lien foreclosure lawsuit, the title report is also useful for determining whether or not a lien foreclosure action is worth pursuing as it will identify other mechanics’ lien claimants, whose liens will be on parity with yours regardless of when they were recorded, and lenders whose loans may have priority over your lien.  Depending upon the value of the property and the amount of the loans that have priority over your mechanics’ lien, you and your attorney may decide that there is insufficient equity in the property to make a lien foreclosure lawsuit worthwhile.

The fact that there may be insufficient equity in the property to make pursuing a lien foreclosure action worthwhile, does not mean that you are without remedies.  In most instances you will be able to file a lawsuit against the person or entity with whom you contracted for breach of contract.  In some instances you may also be able to file a lawsuit against the owner for unjust enrichment.

Likewise, even if you have lost your lien rights because you failed to file a lawsuit to foreclosure upon your mechanics’ and materialmen’s lien within six months of the date it was recorded, your contract rights, and any claim you may have for unjust enrichment, will still remain.