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Mechanic Liens – 20 Day Preliminary Notice Requirements – Allstate Utility v. Towne Bank (CA1, Ariz 25-Oct-2011)

Guy W. Bluff, Esq. 28-Oct-2011

In the case of Allstate Utility Construction, LLC v. Towne Bank of Arizona (1 CA-CV-10-0556; 0747, 25-Oct-2011), Division 1 of the Arizona Court of Appeals finally addressed several issues relating to alleged defect with the 20 day preliminary notice accompanying Allstate’s mechanic’s Lien.  The court held that 1) 20 day notices need not contain an original handwritten signature of the claimant, 2) that certain typeface in the notice was not too small; 3) that the “time of day” of mailing the 20 day notice is not required, and 4) that failure of the lien claimant to include a form of acknowledgement with are not material defects invalidating the lien claim.

Allstate Utility contracted to perform work on property owned by ALC Builders.  Within 20 days of first stating work, Allstate served ALC Builders with its preliminary 20 day notice by first class mail.  When Allstate was not timely paid, it recorded and then sued to foreclose its mechanic’s lien for $112K.  Towne Bank held a security interest in the property which, if Allstate’s lien was determined valid, was admittedly junior to the lien of Allstate.

Towne Bank first argued Allstate’s preliminary 20-day notice was defective because it was not properly signed pursuant to ARS § 33-992.01(C) in that it did not contain an “original” signature of the lien claimant but instead was electronically signed by the notice preparation company.  The statutorily mandated 20 day notice form includes lines labeled “Company name” and “Signature,” as well as “Title.”  In Allstate’s case, in the space labeled “signature,” the notice stated, “SIGNATURE AND TITLE ON FILE.”  The Court held that as a matter of law, Allstate’s name, along with the other information and the notation that the claimant’s “signature and title” were “on file,” were sufficient to manifest Allstate’s intention to authenticate the notice.

Towne Bank next argued that the preliminary notice failed to contain statutorily mandated language in the proper font size.  ARS § 33-992.01(D) requires the preliminary 20-day notice to warn the property owner or other recipient that it has only 10 days to correct any inaccuracies in the notice. The statute provides that the warning “be in type at least as large as the largest type otherwise on the document.” ARS § 33-992.01(D). Towne Bank argues Allstate’s notice was invalid because the warning language was not as large as the largest type otherwise on the document.  The Court held that the font size, while small, was not materially different that the size of any other language on the notice and summarily rejected this argument.

Towne Bank’s third argument was that Allstate’s lien is invalid because the copy of the preliminary 20-day notice that Allstate averred it served on ALC Builders lacked a form by which ALC Builders could “acknowledge” receipt of the notice.  InArizona, a claimant may prove that it served the 20-day notice by recording an acknowledgment of receipt executed by the recipient of the notice.  ARS § 33-992.02(1).  Alternatively, the claimant may prove it served the notice by recording an affidavit of service together with its lien. ARS § 33-992.02(2).  The court held that while the 20 day notice failed to include an “acknowledgment” as provided by statute, this defect was not fatal because Allstate recorded an affidavit of service with its lien – the alternative method of proving delivery.  The court further held that failure to provide an acknowledgment form to the recipient of a preliminary 20-day notice does not invalidate the notice or the subsequent notice and claim of lien.

Towne Bank’s final argument was that the affidavit of service was defective because it did not state the time of day that the notice was mailed to ALC.  The court summarily disposed of this argument as well finding that there is nothing in the statutory language which requires that the precise time of day when the 20 day notice is mailed be noted.

In summary, the Court reaffirmed the long standing rule of law applicable to Arizona Mechanic Liens.  Arizona’s lien statutes generally have two purposes: To protect laborers and materialmen who have provided goods and services, and to protect the right of property owners to notice of lien claims against them. See Kerr-McGee Oil Ind., Inc. v. McCray, 89 Ariz. 307, 311, 361 P.2d 734, 736 (1961); Lewis, 114Ariz. at 431, 561 P.2d at 755.

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