The following information provides valuable guidance on collecting monies due for construction work.
Written Agreement
Always have a written agreement with the party from whom you are seeking payment, setting forth the description and value of the materials / labor provided and the time of payment.
Preliminary 20-Day Notice
You must serve this Notice to the owner and lender in all cases to enforce lien or bond claims. It must identify the property address, legal description, contracting parties, bonding company, if applicable, and value of the materials and supplies to be provided. The Notice may be sent by first-class mail, but you must retain proof of mailing and support it with an Affidavit from the person causing it to be mailed. The Notice must be sent within 20 days of commencement of the labor or providing of materials to preserve recovery rights. If the value of the materials and labor actually provided exceeds the amount stated on the Preliminary Notice by 20%, you should immediately serve an amended Notice with the new amount.
Lien Rights
If you have not been timely paid for materials provided or labor performed, you may record a lien against the property. The lien must state with accuracy the name of the true owner and the legal description of the property and must be recorded within 120 days of completion of construction. The time may be shortened by the recordation and service of a Notice of Completion. The recorded lien must be served on the owner of the property by certified or registered mail, preferably no later than 90 days of recording.
Lien Foreclosure Action
To avoid losing your lien rights, you must file a lawsuit in the superior court to foreclose the lien within 6 months of recordation of the lien. Within 5 days of filing the lien foreclosure action, you must file and record a Lis Pendens, placing everyone on notice of the pending action. The object of the lawsuit is to obtain a judgment of foreclosure, after which you may seek to have the property sold at Sheriff’s auction to satisfy your lien claim. You are entitled to bid at the sale in form of a credit bid in the amount of your lien claim which includes the amount owed for materials and labor, plus any interest, attorney’s fees, and court costs awarded by the court, plus all costs incidental to the foreclosure sale.
Stop Notice
There are two types of Stop Notices which may be utilized to assist in securing payment. When a lender is in control of dispersing money on a construction job, a Bonded Stop Notice must be served on the lender. This Notice must be accompanied by a bond in the amount of 125% percent of the amount claimed owed. Upon receipt of this Notice, the lender must withhold the amount claimed in the Notice or subject itself to liability. You may also serve a Stop Notice without bond upon the owner. The owner should, upon receipt of the Stop Notice, withhold monies equal to the amount of the Stop Notice or be exposed to liability. The Stop Notice must be served within the time available to file lien claims. You may file a lawsuit to enforce either Stop Notice 10 days after service, but no later than 3 months after expiration of the time in which you have to file your lien.
Bond Claims
There are several types of bond claims. If you are a supplier, and a contractor with whom you have a contract does not timely pay you on a residential project, you may make a claim against his residential construction bond. On many commercial or larger residential jobs a payment bond has been recorded from which claims may be satisfied. When you are not in direct contract with the party for which the bond is issued, you may need to make a written claim within 90 days of when you ceased work on the project or within 90 days from when materials were last provided to preserve your bond claims. This is certainly the case on public jobs – local, state and federal. On all but federal jobs a Preliminary Notice must be served. In all cases, a lawsuit must be filed within 1 year of the date materials or labor was last provided.
Joint Check Agreement
As a supplier or subcontractor, you may wish to utilize a joint check agreement where the owner or lender agrees to issue joint checks to all parties who are owed monies. Each check should specify the work for which payment is being made and should require a lien waiver from each payee.
Lien Waivers
Arizona recognizes, by statute, four different lien waivers: (1) conditional progress payment, (2) conditional final payment, (3) unconditional progress payment, and (4) unconditional final payment. Where the general contractor also acts as developer and/or owner is otherwise responsible to distribute monies to subcontractors and/or suppliers, monies should only be distributed in exchange for a statutory approved lien waiver. No supplier, subcontractor or contractor should ever deliver an unconditional lien waiver to an owner or lender in exchange for a check. An unconditional lien waiver should only be delivered in exchange for actual cash, money order, or cashier’s check.
