By James Reed
Lien Claims and Stop Notices are at their most effective when they are both used on the same project. Here’s why you should use both, if you want to maximize your chances of recovery.
When must you file suit on Lien Claims and Stop Notices? In Arizona, lien claimants have 120 days from project completion to record a lien claim if no Notice of Completion is recorded, and 60 days if an NOC was recorded. If you still aren’t paid after recording your lien claim, you have six months from the date of recording the lien claim to file a lien foreclosure lawsuit in Superior Court, at which time you must also record a Notice of Lis Pendens.
The time to serve a stop notice (a device to freeze the flow of money – from an owner to the contractor or from a construction lender to an owner – until the stop notice claimant has been paid) is the same as the deadlines to record a lien claim: 60 days after project with an NOC and 120 days without one. You have three months after the last day to record a lien claim in which to file suit (there is a 10 day waiting period after stop notice service, during which a stop notice lawsuit is not allowed).
A comparison between Lien Claims and Stop Notices – Lien claims are recorded and stop notices are not.Stop notice claimants must file suit in court on stop notice rights or else lose them in half the time available for lien claimants to do so.The first point favors the use of stop notices, since they do not impair the transfer of real property and are less likely to damage customer relationships.However, the shorter time involved for filing suit means that a stop notice claimant may be more frequently in a position than is a lien claimant of having to sue on stop notice rights or otherwise lose them. Because lien claimants have six months from recording the lien to file suit on their rights, the claimant is much more likely to know the intentions of the general contractor with respect to final payment of subcontractors and suppliers before the time to sue has expired. Thus, the second point favors the use of lien claims.
So what is the best strategy? Use both.First, unless you know that you are going to lose a very valued and dependably-paying customer, always use a preliminary notice when providing materials or labor to a construction site.Secondly, anytime you would consider recording a lien claim, serve a stop notice also. The stop notice gives you extra pressure to apply without having to cloud title and potentially be liable if you do so improperly. If you haven’t been paid within three months of the last day to record a lien claim – and IF you timely and properly recorded your lien claim – then you can simply let your stop notice rights expire instead of a stop notice lawsuit, and then fall back on your lien claim rights. You then have about three more months of negotiating time with the owner or general contractor to get paid before you have to file suit to foreclose on the lien claim.
In sum, in most situations when you would consider recording a lien claim, you should also serve a stop notice. And anytime you fear that a lien claim will injure a business relationship, remember that a stop notice is an easy alternative device to spur collection of your receivable without clouding the title of property being improved.Good luck with both.
James B. Reed is a partner at Baird Williams & Greer and heads the firm’s construction lien and bond section.He is renowned for his expertise in lien and bond law, and was a presenter at the 2004 NACM National Congress. Click here to schedule a consultation with Attorney James Reed.