PROTECTING YOUR INVESTMENT:
FILING MECHANICS' AND MATERIALMEN'S LIENS

Prepared for the
Arizona Chapter
Associated General Contractors of America

By:

Jennings, Strouss & Salmon, PLC
The Collier Center, 11th Floor
201 East Washington Street
Phoenix, Arizona 85004-2385
(602) 262-5911

PREFACE

AN OVERVIEW OF THE LIEN PROCESS

DEFINITIONS

WHO HAS THE STATUTORY LIEN RIGHT

1. People who labored or furnished professional services, materials, machinery, fixtures or tools in the construction, alteration or repair of any building may have a lien on such building for the labor they performed or services and/or materials they furnished regardless of whether the work or materials were furnished at the instance of the owner or his agent. A.R.S. § 33-981(A).
   • Note: Those furnishing professional services are entitled to enforce lien rights if they have an agreement (does not have to be written) with the owner of the property or with an architect, engineer, or contractor who has an agreement with the owner. A.R.S. § 33-981(F).
2. Assignees of a contract or account for material furnished or labor performed on a construction project may also enforce such contract A.R.S. § 33-982.

1. A person who is required to be licensed as a contractor but who does not hold a valid license. A.R.S. § 33-981(C).
2. A person who furnishes professional services but who does not hold a valid certificate of registration. A.R.S. § 33-981(E).
3. A person who is required to give preliminary twenty day notice and show proof of service but has failed to do so. A.R.S. § 33-981(D).
4. A person who does not have a written contract directly with the owner-occupant of a single or two family dwelling upon which improvements have been made. A.R.S. § 33-1002(B).
5. Anyone who furnishes labor or materials to a job where the original contractor has posted a payment bond, the payment bond must be in an amount equal to the full contract amount. A.R.S. §§ 33-1003(B), 34-222(A)(2).

HOW FAR THE LIEN EXTENDS

1. If the land upon which improvements have been made is located outside the limits of a townsite, city, town, or subdivision, the lien shall extend to and include up to ten (10) acres of the land upon which the improvement is made. A.R.S. § 33-991(A).
2. If the land upon which improvements have been made is a lot within an incorporated city or town, or any parcel of land one hundred sixty (160) acres or less in the aggregate, or if the improvements are off site but, in front of, or adjoining the lot or parcel, the lien shall extend to the lot or parcel of contiguous land not exceeding 160 acres aggregate and the buildings, structures and improvements on the lot. A.R.S. § 33-983(A).

PRIORITY OF LIENS

1. All liens, mortgages or other encumbrances upon the improved property which attach subsequent to the time the labor or materials were furnished. A.R.S. § 33-992(A).
2. All liens, mortgages or other encumbrances of which the mechanic or materialmen had no actual or constructive notice at the time he furnished his labor or materials to the project. A.R.S. § 33-992(A).

1. Mortgages and deeds of trust given as security for a loan made by a construction lender take priority over mechanics' or materialmen's liens if the mortgage or deed of trust is recorded within ten days after labor began or materials were originally furnished. A.R.S. § 33-992(A).
2. Liens for professional services attach at the same time and have the same priority as other mechanics' and materialmen's liens. A.R.S. § 33-992(D).

IMPROVEMENTS

1. Under A.R.S. § 33-992(E), if any improvement at the site is not provided for in any contract for the construction of a building or other structure, the improvement at the site is a separate work and the commencement of the improvement is not commencement of the construction of the building or other structure. The liens arising from work and labor or professional services or materials furnished for each improvement at the site have a separate priority from liens arising from work and labor done or professional services or materials furnished for the construction of the building or structure. "Improvement at the site" means any of the following on any lot or tract of land or the street, highway or sidewalk in front of or adjoining any lot or tract of land:
   1. Demolition or removal of improvements, trees or other vegetation. A.R.S. § 33-992(E)(1).
   2. Drilling of test holes. A.R.S. § 33-992(E)(2).
   3. Grading, filling or otherwise improving. A.R.S. § 33-992(E)(3).
   4. Constructing or installing sewers or other public utilities. A.R.S. § 33-992(E)(4).
   5. Constructing or installing streets, highways or sidewalks. A.R.S. § 33-992(E)(5).

HOMEOWNER/PROPERTY OWNER RIGHTS THAT AFFECT LIEN RIGHTS

1. Owner-occupants are exempt from certain liens. This exemption is based upon an owner's status as owner-occupant. In general, if an owner meets this definition prior to construction, alteration, repair, or improvement, he will be exempt from all mechanics' or materialmen's liens, except those of a claimant in direct written contract with the owenr-occupant. A.R.S. § 33-1002(B).

1. Where a materialman has executed a written contract directly with the owner-occupant of the property. A.R.S. § 33-1002(B).
2. Where a home is built by a developer, but prior to the time the homebuyer takes possession by recording a deed or contract for conveyance. (This actually takes the property owner out of the "owner-occupant" status.)

1. The bond and a copy of the contract must be recorded in the office of the county recorder in the county in which the land is located. A.R.S. § 33-1003(A).
2. The contract must contain a legal description of the land on which the work is being or will be performed. A.R.S. § 33-1003(B).
3. The bond must meet the statutory requirements.

PERFECTING A LIEN

STEP 1: THE PRELIMINARY TWENTY DAY NOTICE

1. Who is required to give notice
   
   Except for a person performing actual labor for wages, any person providing labor, professional services, materials, machinery, fixtures, or tools (except wage laborers) to a construction project must give the preliminary twenty day notice. A.R.S. § 33-992.01(B).
2. When notice must be given
   
   Notice must be given within twenty (20) days after the labor, professional services, or materials were first provided to the jobsite. A.R.S. § 33-992.01(C).
   
   If a person who is required to give notice does not do so within 20 days of the commencement of their work on the project; he may still give the notice later but he will retain lien rights only for that portion of labor and materials furnished within 20 days prior to the notice being served and any time thereafter. Lien rights for those materials and labor furnished earlier will be lost. A.R.S. § 33-992.01(E).
   
   
3. Who must receive notice
   
   Claimants must serve notice to the following:
   
   1. the owner or reputed owner, and
   2. the original contractor or reputed contractor; and
   3. the construction lender or reputed construction lender; and
   4. the person with whom the claimant has contracted for the purchase of labor, materials, etc.
   
   
4. If the identities of parties to receive notice are unknown
   
   If any person does not know the identities of those who must receive the Notice, the owner must, within ten (10) days of receiving a written request, provide the legal description of the property, the name of the owner, the name of the original contractor, the name of the construction lender and whether any payment bond has been posted.
   
   If the owner or interested party fails to furnish the requested information, the claimant must still file a preliminary twenty day notice. However, the owner will not be able to assert that the notice is defective because of any inaccuracies of the information contained in the notice. A.R.S. § 33-992.01(J).
   
   Further, the owner must furnish all information necessary to correct inaccuracies in any previously received notice within ten (10) days of the receipt of such notice, or face losing as a defense any inaccuracy of that information. A.R.S. § 33-992.01(J).
   
   On the other hand, if the requested information is received after filing of the notice, and the information contained in the notice is inaccurate, the claimant must give an amended preliminary twenty day notice in the same manner and form as the original notice within thirty days of receipt of the requested information. A.R.S. § 33-992.01(J).
   
   
5. Required contents of the twenty day notice
   
   The preliminary twenty day notice must contain:
   
   1. A general description of the labor, professional services, materials, machinery, fixtures, or tools furnished (or to be furnished) and an estimate of the total price thereof. A.R.S. § 33-992.01(C)(1).
      
      If subsequently provided services or materials are not within the general description or exceed the initial estimate by less than twenty (20) percent, the notice will still be valid. A.R.S. § 33-992.01(H). This effectively allows for one notice to suffice for the duration of the project, in most cases.
   2. The name and addresses of the person furnishing such labor, professional services, materials, machinery, fixtures, or tools. A.R.S. § 33-992.01(C)(2).
   3. The name of the person who contracted for the purchase of such labor, professional services, materials, machinery fixtures, or tools. A.R.S. § 33-992.01(C)(3).
   4. A legal description, subdivision plat, street address, location with respect to commonly known roads or other landmarks in the area, or any other description of the job site sufficient for identification. A.R.S. § 33-992.01(C)(4).
   5. The following statement must appear on the notice in bold-faced type in accordance with A.R.S. § 33-992.01 (C)(5).
   
   In accordance with Arizona Revised Statutes § 33-992.01, this is not a lien and this is not a reflection on the integrity of any contractor or subcontractor.
   
   Notice to Property Owner
   
   If bills are not paid in full for the labor, professional services, materials, machinery, fixtures or tools furnished or to be furnished, a mechanic's lien leading to the loss, through court foreclosure proceedings, of all or part of your property being improved may be placed against the property.
   You may wish to protect yourself against this consequence by either:
   
   1. Requiring your contractor to furnish a conditional waiver and release pursuant to Arizona Revised Statutes § 33-1008, subsection D, paragraphs 1 and 3 signed by the person or firm giving you this notice before you make payment to your contractor.
   2. Requiring your contractor to furnish an unconditional waiver and release pursuant to Arizona Revised Statutes § 33-1008, subsection D, paragraphs 2 and 4 signed by the person or firm giving you this notice after you make payment to your contractor.
   3. Using any other method or device which is appropriate under the circumstances.
   
   
   
6. Form of the notice
   
   The preliminary notice given by any claimant shall follow substantially the following form:
   
   
   *****
   Arizona preliminary twenty day lien notice In accordance with Arizona Revised Statutes § 33-992.01, this is not a lien . This is not a reflection on the integrity of any contractor or subcontractor.
   
   The name and address of the owner or reputed owner is:
   
   The name and address of the original contractor is:
   
   The name and address of any lender or reputed lender and/or assigns is:
   
   The name and address of the person with whom the claimant has contracted is:
   
   This preliminary lien notice has been completed by (name and address of claimant)
   Date:
   By:
   Address:
   
   You are hereby notified that the claimant has furnished or will furnish labor, professional services, materials, machinery, fixtures or tools of the following general description:
   
   in the construction, alteration or repair of the building, structure or improvement located at:
   
   and situated upon that certain lot(s) or parcel(s) of land in ____________ County, Arizona, described as follow:
   
   An estimate of the total price of the labor, professional services, materials, machinery, fixtures or tools furnished or to be furnished is $____________
   
   Notice to Property Owner
   
   If bills are not paid in full for the labor, professional services, materials, machinery, fixtures or tools furnished or to be furnished, a mechanic's lien leading to the loss, through court foreclosure proceedings, of all or part of your property being improved may be placed against the property. You may wish to protect yourself against this consequence by either:
   
   
   1. Requiring your contractor to furnish a conditional waiver and release pursuant to Arizona Revised Statutes § 33-1008, subsection D, paragraphs 1 and 3 signed by the person or firm giving you this notice before you make payment to your contractor.
   2. Requiring your contractor to furnish an unconditional waiver and release pursuant to Arizona Revised Statutes § 33-1008, subsection D, paragraphs 2 and 4 signed by the person or firm giving you this notice after you make payment to your contractor.
   3. Using any other method or device which is appropriate under the circumstances.
   
   (The following language shall be in type at least as large as any other type on the document.)
   
   Within ten days of the receipt of this preliminary twenty day notice the owner or other interested party is required to furnish all information necessary to correct any inaccuracies in the notice pursuant to Arizona Revised Statutes § 33-992.01, subsection I or lose as a defense any inaccuracy of that information.
   
   Within ten days of the receipt of this preliminary twenty day notice if any payment bond has been recorded in compliance with Arizona Revised Statutes § 33-1003, the owner must provide a copy of the payment bond including the name and address of the surety company and bonding agent providing the payment bond to the person who has given the preliminary twenty day notice. In the event that the owner or other interested party fails to provide the bond information within that ten day period, the claimant shall retain lien rights to the extent precluded or prejudiced from asserting a claim against the bond as a result of not timely receiving the bond information.
   
   Dated
   (Company Name)
   
   By:
   (Signature)
   
   (Title)
   (Acknowledgment of receipt language, in accordance with A.R.S. § 33-992.02 shall be inserted here and should resemble the following:)
   
   (Signature of ______)
   
   Acknowledgment of receipt of preliminary twenty day notice
   
   This acknowledges receipt on (insert date) of a copy of the preliminary twenty day notice at (insert address).
   
   Date:
   (Date this acknowledgement is executed)
   
   Signature of person acknowledging receipt, with title if acknowledgement is made on behalf of another person.
   
   
7. Service of notice and proof of service The notice may be served by mailing the notice by first class mail sent with a certificate of mailing, registered or certified mail, postage prepaid in all cases, addressed to the person to whom notice is to be given at his residence or business address. Service is complete at the time of deposit of such mail. A.R.S. § 33-992.01(F).
   
   The claimant must prove that the notice was served. There are two ways that this can be done:
   
   1. The person to whom the notice is served completes and returns (to the claimant) the acknowledgment of receipt form that was attached to the notice. A.R.S. § 33-992.02(1).
   2. The person who served the notice may execute an affidavit attesting to service.
   
   Remember, failure to provide notice or prove service of notice will result in lost lien rights.
   
   

STEP 2: RECORDING THE LIEN

TIMING AND PROCEDURE

1. Within one hundred twenty (120) days following the completion of the project, (unless a notice of completion is filed) a claimant must make duplicate copies of a Notice and Claim of Lien and record one copy with the county recorder of the county in which the property (or some part of it) is located, and, within a reasonable time afterwards, serve the remaining copy upon the owner of the property if he can be found within the county. A.R.S. § 33-993(A). The Notice and Claim of Lien must be made under oath (by claimant or someone with knowledge of the facts) and must contain:
   1. The legal description of the lands and improvements to be charged with a lien. A.R.S. § 33-993(A)(1).
   2. The name of the owner or reputed owner of the property if known, and the name of the person by whom the lien or was employed or to whom he furnished materials. A.R.S. § 33-993(A)(2).
   3. A statement of the terms, time given and conditions of an oral contract, or a copy of the contract, if it is written. A.R.S. § 33-993(A)(3).
   4. A statement of the lienor's demands after deducting credits and offsets. A.R.S. § 33-993(A)(4).
   5. A statement of the date of completion of the building, structure or improvement, or any alteration or repair of such building, structure or improvement. A.R.S. § 33-993(A)(5).
   6. A statement of the date the preliminary twenty day notice was given, including a copy of the notice and proof of mailing. A.R.S. § 33-993(A)(6).
   
   Because "completion" of the project is the key date, it is essential to know how completion is defined by Arizona law. The earliest of the following will meet the statutory definition of "completion":
   
   1. Thirty days after final inspection and written final acceptance by the governmental body which issued the building permit for the building, structure or improvement. A.R.S. § 33-993(C)(1).
   2. A sixty day labor cessation, unless the cessation is due to a strike, shortage of materials or act of God. A.R.S. § 33-993(C)(2).
   3. The last date on which any labor, materials, fixtures or tools were furnished to the property when no building permit is issued or the governmental body that issued the permit does not issue final inspections and written final acceptances. A.R.S. § 33-993(D).
   
   Note: If a work of improvement consists of the construction for residential occupancy of more than one separate building without regard to whether the buildings are constructed pursuant to separate contracts or a single contract, each building is a separate work and the time to perfect a lien by recording the notice of lien begins to run upon the completion of each separate building. "Separate building" means one structure of a work of improvement and any garages or other appurtenant buildings in a multibuilding residential project or residential subdivision. A.R.S. § 33-993(B).
   
   If a "Notice of Completion" is filled
   
   If a "Notice of Completion" has been recorded for the project, less time is available to those seeking to file a lien. In fact, when this optional Notice has been recorded, the claimant has only sixty (60) days to file a lien. A.R.S. § 33-993(A).
   
   The requirements for duplicate copies of the Notice and Claim of Lien (with one going to the county recorder in the county where the property is located and one, within a reasonable time, going to the owner of the property if he/she can be found in the country) are still mandatory. A.R.S. § 33-993(A).
   
   While an owner may elect to file a Notice of Completion after completion of the project in order to shorten the lien period, the Notice must include specific requirements in order to be effective. These requirements are:
   
   1. The signature and verification of the notification by the owner or his/her agent. A.R.S. § 33-993(E).
   2. The name and address of the owner. A.R.S. § 33-993(E)(1).
   3. The nature of the interest or estate of the owner. A.R.S. § 33-993(E)(2).
   4. The legal description of the jobsite and street address. The Notice is still effective even if the street address is erroneous or omitted. A.R.S. § 33-993(E)(3).
   5. The name of the original contractor, if any. A.R.S. § 33-993(E)(4).
   6. The names and addresses of any predecessors in interest if the property was transferred after the beginning of the project. A.R.S. § 33-993(E)(5).
   7. The nature of the improvements to the real property. A.R.S. § 33-993(E)(6).
      Note: For the purposes of the Notice of Completion, "completion" is defined as the first of either:
      
      1. Thirty days after final inspection and written final acceptance by the governmental body which issued the building permit for the building, structure or improvement. A.R.S. § 33-993(C)(1).
      2. A sixty (or more) day labor cessation, unless the cessation is due to a strike, shortage of materials or act of God. A.R.S. § 33-993(C)(2).
   
   In addition to the required contents of a Notice of Completion, the owner that elects to file such notice must follow these specific procedural guidelines:
   
   The person recording the Notice must, within 15 days of recording, mail by certified or registered mail (postage prepaid) a copy of the Notice of Completion and a written statement of the date of recording and the county recorder's record location to the original contractor and all persons from whom the owner has previously received a Preliminary Twenty Day Notice. A.R.S. § 33-993(I).
   
   If the owner or its agent fails to do this, the Notice is ineffective and any person who had sent the owner a preliminary twenty day notice will have one hundred twenty (120) days to secure and impress a lien. A.R.S. § 33-993(I).
   
   

STEPS: ENFORCING THE LIEN

1. Duration of the lien
   Mechanics' and materialmen's liens do not last more than six months after being recorded, unless a lawsuit is brought within six months to enforce the lien and a notice of pendency of action is recorded in the office of the county recorder in the county where the property is located. A.R.S. § 33-998(A).
   
   
2. Judgment of foreclosure and order of sale
   A judgment of foreclosure and order of sale must be obtained before any mechanics' or materialmen's liens can be satisfied from the sale of property. A.R.S. § 33-997.
   
   1. Claimants (lienors) not contesting the claims of each other may join as plaintiffs in an action to enforce their liens.
   
   
3. Priority among mechanics and materialmen's liens
   
   1. All liens for work and labor done or professional services or material furnished are on equal footing regardless of the date of recording the Notice and Claim of Lien and regardless of the time of performing the work and labor or furnishing the professional services or material.
   2. If the sale of the property does not produce enough money to pay all liens against the property, the proceeds will be shared evenly among the lienors. A.R.S. § 33-1000(B).
   3. Improvements at the site not provided for in any contract for the construction of a building or other structure are considered separate works and have separate priority from liens arising from work and labor done or professional services or materials furnished for the construction of the building or structure. The priority of such improvements will be based upon when they started. A.R.S. § 33-992(E). Such improvements are defined in the section entitled "IMPROVEMENTS."
   Note: There can be a different priority of claims that are invoked by claimants outside the mechanic/materialmen setting. A.R.S. § 33-1001.
   
   
4. Release of liens
   1. Once a lien has been satisfied, the lienholder must issue a release of the lien within twenty (20) days after satisfaction. A.R.S. § 33-1006(A).
   2. If a lien is recorded against an exempt owner-occupant, the person claiming the lien must issue a release within twenty (20) days of the owner-occupant's request, A.R.S. § 33-1006(B).
   Note: When a release is required, it must be issued in the form specified by A.R.S. § 11-480. If such release is not granted, the person required to grant the release will be subject to liability in the amount of one thousand dollars and actual damages. A.R.S. § 33-1006(C).
   
   
5. Discharge of mechanics' liens
   
   Because of the general desire to keep land free from encumbrances, Arizona law provides owners the opportunity to discharge perfected liens. The steps involved in discharging a lien are the following:
   
   1. After the lien is perfected, a lien may be discharged if the owner (anyone with legal or equitable interest in the land), contractor, subcontractor, mortgagee or other lien creditor, records a surety bond in the county where the property is located. This can be done before or after the action to foreclose the lien has begun. A.R.S. § 33-1004(A). Under A.R.S. § 33-1004(B) the bond:
      1. Must be for the sole protection of the lienholder who perfected the lien, and
      2. Must be equal to one and one-half (1½) times the claim secured by the lien, and
      3. Must be conditioned that it is payment of the judgment which would have been rendered against the property for enforcement of the lien.
      4. Must be executed by the person seeking to discharge the lien, as principal, and by a surety company or companies.
      5. Must contain a legal description of the property and the docket and page of the lien sought to be discharged.
   2. Once such a bond is recorded, the property will be discharged of the lien, regardless of whether a copy of the bond is served upon the claimant or he perfects his rights against the bond. A.R.S. § 33-1004(A).
   3. Once the bond has been recorded, a copy of it must be served upon the claimant within a reasonable time. A.R.S. § 33-1004(C).
      If a copy of the bond is not served upon the claimant as required, he will have six months after discovery of the bond to commence an action on the bond. However, no action may be commenced on the bond after two years from its recording date. A.R.S. § 33-1004(F).
      
   4. Once the surety bond is recorded, the claimant must seek to satisfy his claim through the bond.
      
   5. Discharge of the surety bond
      
      The bond will be discharged if:
      
      1. The claimant fails to commence suit within six months after recording his lien. A.R.S. § 33-1004(D)(1).
      2. A copy of the surety bond is served upon the claimant and he fails to name the owner (principal) and sureties as parties to an action seeking foreclosure of the lien. A.R.S. § 33-1004(D)(2).
      3. The foreclosure suit is dismissed with prejudice as to the lienholder, or entry of judgment against the claimant in such a suit. A.R.S. § 33-1004(D)(3).
   
   

   OTHER LIENS RECOGNIZED BY ARIZONA LAW

   1. Liens for labor or materials furnished for improvements to a mill, factory or hoisting works. A.R.S. § 33-984.
   2. Liens for labor or materials furnished a domestic vessel. A.R.S. § 33-985.
   3. Liens for labor in cutting wood, logs or ties. A.R.S. § 33-986.
   4. Liens for labor or materials furnished on waterways, highways, excavations or land. A.R.S. § 33-987.
   5. Liens for labor or materials furnished for a railroad, locomotive, car or other equipment. A.R.S. § 33-988.
   6. Lien for labor or material furnished mines and mining claims. A.R.S. § 33-989.
   
   

   STOP NOTICE PROVISIONS

   
   
   Effective August 21, 1998, Arizona enacted the "Stop Notice" provisions. These provisions are intended to provide more protection to mechanics and materialmen and are in addition to those protections previously described. The Stop Notice provisions provide this protection by stopping the payment of construction funds. A claimant can use these provisions to stop the release of funds to other parties to ensure that his funds remain available.
   
   

   DEFINITIONS

   
   

   STOP NOTICE

   
   
   Defined by A.R.S. § 33-1051(4) as a written notice that is signed and verified by the claimant (or its agent) that states in general terms all of the following:
   
   1. A description of the labor, professional services, materials, machinery, fixtures or tools furnished or agreed to be furnished by the claimant. A.R.S. § 33-1051(4)(a).
   2. The name of the person to or for whom the labor, professional services, materials, machinery, fixtures or tools were furnished or agreed to be furnished. A.R.S. § 33-1051(4)(b).
   3. The amount in value of the labor, professional services, materials, machinery, fixtures or tools already furnished and the total amount agreed to be furnished. A.R.S. § 33-1051(4)(c).
   4. The amount of any payment received by the claimant for the labor, professional services, materials, machinery, fixtures or tools furnished or agreed to be furnished. A.R.S. § 33-1051(4)(d).
   5. The name and address of the claimant. A.R.S. § 33-1051(4)(e).
   
   

   BONDED STOP NOTICE

   
   
   A Stop Notice which is given to any construction lender and is accompanied by a bond in the face amount of 125% of the claim. The purpose of this bond is to ensure that the claimant would have sufficient funds to cover all costs and damages that the owner, original contractor or construction lender might sustain by reason of the stop notice claim or the lien (not to exceed the amount specified in the bond) if claimant has wrongfully issued the Stop Notice. A.R.S. § 33-1051(1).
   
   

   CONSTRUCTION LENDER

   
   
   Any mortgagee or beneficiary under deed of trust or their assignee that lends money to pay for all or part of the cost of construction, alteration, repair or improvement. A.R.S. § 33-1051(2).
   
   Note: This definition for "Construction Lender" is similar to that which is used for the other sections of this manual with the addition of escrow holders or others that hold funds which have been furnished or will be furnished. These funds can be provided by the owner or any other source of funds that will be used to pay construction costs.
   
   

   APPLICABILITY

   
   
   Stop Notice provisions are only available in private work and do not include dwellings of owner-occupants. A.R.S. § 33-1053.
   
   

   ELIGIBILITY

   
   
   1. A Stop Notice may be given to the owner by any party that is entitled to record a claim of lien, except the original contractor. A.R.S. § 33-1054.
   2. A Stop Notice (or bonded stop notice) may be given to the construction lender by any party that is entitled to record a claim of lien, including the original contractor. A.R.S. § 33-1055.
   
   

   LIMITATIONS

   
   
   1. Any person entitled to give a Stop Notice who fails to serve a Stop Notice within thirty days after a written demand from the owner or construction lender forfeits the right to any mechanics' and materialmen's liens on the work described in the demand. A.R.S. §§ 33-1054, 33-1055(A).
   2. In accordance with A.R.S. § 33-1055(B), if the Stop Notice (or bonded stop notice) is filed by the original contractor or a subcontractor, the original or subcontractor can only recover on its own Stop Notice (or bonded stop notice) the net amount due the original or subcontractor after both of the following deductions.
      1. The Stop Notice claims of all subcontractors or material suppliers who have filed bonded stop notices for work done on behalf of the original contractor or subcontractor. A.R.S. § 33-1055(B)(1).
      2. The amount of any payment already received as described in the stop notice or bonded stop notice. A.R.S. § 33-1055(B)(2).
   3. A construction lender cannot be required to withhold more than the net amount due for labor, services, materials, machinery, fixtures or tools by a bonded stop notice. A.R.S. § 33-1055(C).
   4. If a Stop Notice is sufficient to substantially inform the owner of the information required by the stop notice provisions, a defect in form will not render the stop notice invalid. A.R.S. § 33-1052.
   
   

   ENSURING AN EFFECTIVE NOTICE

   
   
   1. The owner must be served with or mailed by certified mail a Stop Notice or it can be left at the owner's business or residence with a person of suitable age and discretion. A.R.S. § 33-1056(A).
   2. If the Notice is to be served or mailed by certified mail on a construction lender who holds construction funds and maintains branch offices, it must be served on the manager or another responsible officer or person at the office or branch that administers or holds the construction funds. A.R.S. § 33-1056(A).
   3. Stop Notices (or bonded stop notices) are effective only if the claimant has complied with the following:
      1. Given proper twenty day notice. A.R.S. § 33-1056(B)(1).
      2. Serves the notice before the time in which to record a claim of lien runs out. A.R.S. § 33-1056(B)(2).
   
   

   HOW MONEY CAN BE WITHHELD UNDER A STOP NOTICE

   
   
   Stop Notice served on owner.
   
   1. Once an owner receives a Stop Notice, he must withhold from the original contractor sufficient funds due or to become due to that contractor or its subcontractor to pay that claim and any claim of lien that the claimant may record if a payment bond has not been recorded. A.R.S. § 33-1057(A).
   2. If a payment bond has been recorded and the owner elects not to withhold the funds, he must give a written notice to the claimant within thirty (30) days of renewing the Stop Notice that the bond has been recorded. A.R.S. § 33-1057(B).
   Stop Notice served on construction lender.
   1. If the construction lender is served with a bonded Stop Notice. and no payment bond has previously been recorded, he must withhold from the borrower sufficient funds to pay the claim and any claim of lien that may be recorded. A.R.S. § 33-1058(A). If the notice is not bonded, the lender may withhold the funds. A.R.S. § 33-1058(A).
   2. If a payment bond has been recorded, the construction lender must withhold the funds if a bonded Stop Notice was filed by the original contractor. A.R.S. § 33-1058(A).
   3. If a payment bond has been recorded and the Notice (bonded or not) was filed by any party except the original contractor, the construction lender may withhold the funds. A.R.S. § 33-1058(A).
   
   Note: When the lender has the option of withholding funds, the claimant is entitled to a copy of the payment bond provided that, when giving the lender the notice, he makes a written request for notice of election that is accompanied by a pre-addressed, stamped envelope. A.R.S. § 33-1058(B). If the claimant follows this procedure, the lender must give the claimant a copy of the bond within thirty (30) days of deciding whether to withhold. A.R.S. § 33-1058(B). However, if the lender fails to provide the copy and this failure is unintentional and results from a bona fide error the lender will not be liable provided that the lender maintains reasonable procedures to avoid such errors and the error is corrected within twenty (20) days of its discovery. A.R.S. § 33-1058(B).
   
   

   EFFECT OF PREVIOUS ASSIGNMENT OF CONSTRUCTION FUNDS

   
   
   1. No assignment of construction funds (by owner or contractor) takes priority over the Stop Notice or bonded Stop Notice regardless of whether the assignment was made before or after the notice, and the assignment has no effect on the rights of claimants who give the Stop Notice or bonded Stop Notice. A.R.S. § 33-1059(A).
   2. Payment of loan fees, interest or other charges to the construction lender disbursed or allocated by the lender and from the construction funds is not an assignment and is not subject to any Stop Notice or bonded Stop Notice. A.R.S. § 33-1059(B).
   
   

   DISTRIBUTION OF FUNDS

   
   
   1. When funds withheld are insufficient to cover all valid claims, such funds will be evenly distributed among claimants without regard to the order of time in which the respective notices were given or their respective actions, if any, were filed. A.R.S. § 33-1060.
   
   

   PENALTY FOR FALSE NOTICE

   
   
   1. Any person who willfully gives a false Stop Notice or bonded Stop Notice forfeits all right to participate in the pro rata distribution of funds and loses all lien rights. Further, such a person maybe subject to penalties and damages under A.R.S. § 33-420. A.R.S. § 33-1061.
   
   

   RELEASE OF STOP NOTICE OR BONDED STOP NOTICE

   
   
   1. An owner, construction lender or any original contractor or subcontractor disputing a Stop Notice or bonded Stop Notice may file with the person on whom Notice was served a release bond. The requirements of the bond are as follows:
      1. The release bond must be executed in the penal sum of one hundred twenty-five percent (125%) of the amount claimed in the Notice. A.R.S. § 33-1062.
      2. The bond must provide for payment of any amount that the claimant may recover on the claim, together with any reasonable expenses, including attorney fees awarded by the court. A.R.S. § 33-1062.
   2. Once a copy of the release bond is filed and served on the claimant, the funds withheld in response to the Stop Notice or bonded Stop Notice must be released promptly. A.R.S. § 33-1062.
   
   

   TIMING OF COMMENCEMENT OF STOP NOTICE ACTIONS

   
   
   1. An action to enforce payment of a claim on a Stop Notice or bonded Stop Notice against an owner or construction lender may be brought at any time after ten (10) days from the Notice's date of service on either the owner or the lender. The action must be commenced no later than three months after the period in which claims of lien can be recorded unless all parties to the claim agree in writing to an extension. In which case, the extension can be no longer than an additional three months. A.R.S. § 33-1063(A).
   2. If an action is not commenced within the above time frame, the Notice ceases to be effective and the funds must be paid or released to the contractor or the person to whom they are due. A.R.S. § 33-1063(B).
   3. Notice of the lawsuit must be given to the same persons and in the same manner as provided for service of Stop Notice or bonded Stop Notice within five days after commencement. A.R.S. § 33-1063(B).
   
   

   OTHER STATUTES REGARDING STOP NOTICES

   
   
   1. If an action to enforce a Stop Notice or bonded Stop Notice is dismissed with prejudice or if a judgment is rendered against the claimant, the Notice or bonded Stop Notice ceases to be effective and the funds withheld will be paid or released to the parties to whom they are due. A.R.S. § 33-1064.
   2. In an action against an owner or construction lender to enforce payment of a claim stated in a Stop Notice or bonded Stop Notice, the prevailing party will be awarded reasonable attorney fees from the liable party. A.R.S. § 33-1066.
   3. If the claimant prevails in an action against an owner or construction lender to enforce payment of a claim stated in a bonded Stop Notice, any amount awarded on the claim will include interest at the legal rate computed from the date the bonded Stop Notice is served on the owner or construction lender. A.R.S. § 33-1067.
   
   When considering the use of stop notices, it must be remembered that they work in conjunction with liens and provide additional protection. Also, they are only available for projects that have begun after August 21, 1998.

   NOTES: