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Mechanic Liens – Scope of Lien; 20 Day Preliminary Notices; Completion Date; Lis Pendens– Fagerlie v. Markham Contracting (31-May-2011)

Guy W. Bluff, Esq. 29-Oct-2011

In the case of Fagerlie v. Markham Contracting Co, (1 CA-CV-10-0051, 31-May-2011), Division 1 of the Arizona Court of Appeals held that (1) Markham could claim a lien on the lots for work done at the “instance” of the developer, Estates at Happy Valley, LLC (“EHV”), as the agent of the lot owners; (2) that Markham properly served the preliminary twenty-day notice on EHV as an owner/reputed owner or, alternatively, as an interested party; (3) that the beginning of the time period for recording the lien presents a genuine issue of material fact; (4) that Markham could correct documents filed with the lien within the time period for perfecting it, and that it substantially complied with the recording requirements in doing so; and (5) a lis pendens filed with a lien foreclosure action does not have to be notarized.

The Markham court re-affirmed the basic rule of law applicable to mechanic’s liens. Arizona’s lien statutes are remedial in nature and should be liberally construed to primarily protect laborers and materialmen who enhance the value of another’s property. Performance Funding, L.L.C. v. Ariz. Pipe Trade Trust Funds, 203 Ariz. 21, 24, ¶ 10, 49 P.3d 293, 296 (App.2002). At the same time, the statutory requirements for perfecting a mechanic’s lien must be strictly followed. MLM Constr. Co. v. Pace Corp., 172 Ariz. 226, 229, 836 P.2d 439, 442 (App.1992). These seemingly inconsistent principles are harmonized by requiring that all the statutory steps for perfecting a lien be followed, but permitting substantial compliance with any particular step so long as the purposes of the mechanic’s lien statutes are achieved.

The Markham case is important because it resolved several reoccurring problems for lien claimants and their counsel which trial court judges have troubled with in past years. First – a lien claimant can file supplements and amendments to correct an otherwise initially defective or deficient lien so long as the amendments are recorded within the statutorily mandated time period. Previously, it was not uncommon for property owners and their banks to argue that a defective or deficient lien claim, once filed, constituted a improper instrument, not capable of amendment or supplement, and thus subjected the lien claimant to statutory sanctions under ARS §33-420.

Second, that for purposes of service of the 20 day preliminary notice, the subdivision developer, here EHV, was considered the legal agent of the individual lot owners. In so holding, the court cited to Lewis v. Midway Lumber Inc., 114 Ariz. 426, 431, 561 P.2d 750, 755 (App.1977) (holding service on the owner of record sufficient even if the record owner is not the true owner) and concluded that service of the 20 day notice on EHV was therefore effective to give proper notice to the individual property owners,

Third, and probably the most important aspect of the case is the court’s discussion as to “completion” of the work for purposes of Markham timely recording its lien. ARS §33-993(A) provides the general rule that a lien must be filed within 120 days of “completion” In subsection C(1), completion is defined as 30 days final inspection and written acceptance by the governmental body which issued the building permit. In subsection C(2), completion is defined cessation of labor for a period of sixty consecutive days. When there is no building permit, or if the governmental body does not issue final inspections and written final acceptances, then “completion” for the purposes of subsection A of this section means the last date on which any labor, materials, fixtures or tools were furnished to the property.

These conflicting time periods are probably the single most confusing aspect of Arizona’s mechanic lien laws and are a common source of contention among practitioners. The statutory period could therefore be 60 days (in instances where a Notice of Completion has been recorded, see ARS §33-993(E), 120 days (when there is no building permit), 150 days (when there is a building permit and final inspection), or 180 days (when there has been a work stoppage).

Holding that Markham’s Lien was timely recorded, the court concluded that for purposes of subsection C(2), the ultimate question is not when Markham completed its work, but when the “improvement” was completed. Citing A.R.S. § 33–993(A) and S.K. Drywall, Inc. v. Developers Fin. Group, Inc., 169 Ariz. 345, 349, 819 P.2d 931, 935 (1991).

The last significant issue addressed by the Court was whether the Notice of Lis Pendens, required A.R.S. § 12–1191(A) must be notarized. While it is common practice for attorneys to have such notices notarized (acknowledged), nothing in A.R.S. §§ 33–998 or 12–1191 requires the lis pendens to be notarized. The court held that lack of notarization did not prevent the lis pendens from serving its intended purpose – giving constructive notice to interested parties of litigation that may affect title to the property – and therefore concluded that a lis pendens filed in conjunction with an action to foreclose a mechanic’s lien need not be notarized.

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