Cheryl Jennings-Sauer Oxford Cheryl Jennings-Sauer Austin, Tx.
Residential Project Exception Under Arizona Lien...
Transcript of Residential Project Exception Under Arizona Lien...
1ThisArizonaMechanics’LienUpdatewaspreparedbyJamesL.Csontos,apartnerwiththePhoenix,ArizonalawfirmofJennings,Haug&Cunningham,LLP.Jennings,Haug&Cunninghamisafullservicelawfirmrepresentinglenders,contractorsandothermembersoftheconstructionindustry.Formoreinformation,visitthefirmatwww.jhc-law.com.
3
Construction Lending NewsVolume 23, Second Quarter 2008
Residential Project Exception Under Arizona Lien LawByJamesL.Csontos1
Granite, 10770 E. Briarwood Ave., Suite 280, Centennial, CO 80112 866.710.4087
continued on page 2
Arizona law allows for mechanics’ liens to be recordedon commercial and residential projects, but not on publicworks projects. However, there are limitations placed onwhomayrecordamechanics’lienandwhatconditionstheymustmeet.There is also a significant limitation applicabletoowner-occupiedresidentialprojects,wherelienrightsareveryrestricted.
A. Who May Record a Mechanics’ Lien?A lien may be recorded by “every person who labors
or furnishes professional services, materials, machinery,fixturesor tools in the construction, alterationor repair ofany building, or other structure or improvement.…” Thisprotectionextendstothosewhoprovidesuchlabor,servicesormaterialsattheinstanceoftheownerortheowner’sagent.Thestatutorydefinitionofagentgenerally limits lienrightsto thosewhohaveadirectcontractwith theowner,primecontractor or any of the prime contractor’s subcontractors.TheseprovisionsarefoundinA.R.S.§33-981.Thisdefinitionofeligibleclaimantsappliestoallcommercialandresidentialprojects,subjecttothelimitationsdiscussedbelow.
B. Lien Law Notice Requirements.Ifeligibletorecordalien,theclaimantmustsatisfythe
statutory requirements before being entitled to record amechanics lien.Oneof therequirements ispreliminary20-daynotice.
Exceptforpersonsperformingactuallaborforwages,everypartywhoprovides labor,professionalservices,materialsorequipmentmustservetheowner,theprimecontractorandthe construction lender, if any, with preliminary 20-daynotice.Thestatutory form is foundatA.R.S.§33-992.01.Service may be made by mailing, with a certificate ofmailing,orbyregisteredorcertifiedmailsenttotheparty’sresidence or business address. A claimant need give onlyonepreliminarynoticewithrespecttoalllabor,professionalservicesandequipment,suppliedunlesstheactualtotalpriceexceedsby20percenttheestimatedtotalprice,inwhichcaseanadditionalpreliminary20-daynoticemustbegiven.Thefailuretoservepreliminary20-daynoticemayrenderinvalidalater-recordedmechanics’lienclaim.
C. Deadlines and Definition of Completion.UnderA.R.S.§33-993,primecontractors,subcontractors,
materialmenandprofessionalsallarerequiredtorecordtheirnoticeandclaimforlienwithintheearlierof120daysaftercompletionor,ifanoticeofcompletionhasbeenrecordedand
served,within60daysaftersuchrecordation.Forpurposesofestablishingalien,completionmeanstheearliestof:
• Thirty days after final inspection and written finalacceptance by the governmental body issuing thebuildingpermit.
• Cessationof labor for aperiodof60consecutivedays,exceptwhensuchcessationisduetoastrike,shortageofmaterialsoractofGod.
If the improvement consists of the construction forresidential occupancy of more than one separate building,eachbuildingisaseparateworkandthetimewithinwhichtorecordalienbeginstorunuponthecompletionofeachbuilding.A separatebuildingmeansone structureandanygaragesorother appurtenantbuildings in amulti-buildingresidentialprojectorsubdivision.
If the work performed is an improvement at the sitethat isnot included inacontract for theconstructionofabuilding,theimprovementisaseparatework.Thedefinitionof a site improvement is found at A.R.S. § 33-992(E).Siteworkwill have a separatedateof commencement andcompletionfor thepurposesofcalculatingthedeadline forrecordingalien.
D. Contents of Notice and Claim of Lien.AsrequiredbyA.R.S.§33-993,aNoticeandClaimof
Lienmustbemadeunderoathbysomeonewithknowledgeandmustcontainthefollowingitemsofinformation:
1. Thelegaldescriptionofthelandandimprovements.2. Thenameoftheownerorreputedownerandthename
ofthepartybywhomtheclaimantwasemployed.3. Astatementofthetermsofthecontractiforaloracopy
ofthecontractifwritten.4. Astatementoftheclaimant’sdemand,deductingalljust
creditsandoffsets.
The information and opinions expressed by contributing authors and advertisers within the Construction Lending News do not necessarily reflect those of Granite Loan Management, LLC or its affiliates or their respective employees (“Granite”) and should not be considered as endorsed or recommended by Granite.
Residential Project Exception Under Arizona Lien Law(cont’d)
However, if the improvement involves owner-occupiedone-family or two-family residences as defined at A.R.S. §33-1002, there is a major limitation to who may properlyrecorda lien.This is foundatA.R.S.§33-1003(B),whichprovides:
No lien provided for in this article shall be allowed orrecordedbythepersonclaimingalienagainstthedwellingof a person who became an owner-occupant prior to theconstruction, alteration, repair or improvement, except byapersonhavingexecutedinwritingacontractdirectlywiththeowner-occupant.
A residential project is “owner-occupied”if a natural person owns the property atthe time construction begins, and if thatperson intends to reside in the home uponcompletion.Tohavearighttorecordavalidlien,theclaimantmusthaveawrittencontractwhich must have the owner-occupant’ssignature.This limitationgenerally excludessubcontractorsfromhavinglienrightsunlessthesubcontractorcontractsdirectlywiththeowner,andobtainstheowner’ssignature.
H. The Lien Avoidance Bond Exception.Under A.R.S. § 33-1003, if a payment
bondintheamountof100%oftheprimecontractamountisrecordedwithacopyoftheprimecontractandthelegaldescriptionof the project, no further mechanics liensmay be perfected against the property byany claimant other than the principal on
thebond,whichisnormallytheprimecontractor.Onsuchcommercialorresidentialprojects,claimsofsubcontractorsand supplierswillbe coveredby thepaymentbond just asiftheprojectwasapublicworksprojectcoveredbyaLittleMillerActpaymentbond.
I. Penalties for False and Invalid Mechanics’ Liens.ApersonwhorecordsafalseorotherwiseinvalidNotice
andClaimofLienissubjecttothepenaltiesdescribedunderA.R.S.§33-420,whichincludesapenaltyof$5,000ortrebleactual damages, plus costs and attorney fees. This penaltycan be imposed for recording a mechanics’ lien against anowner-occupiedresidentialprojecteveniftheclaimantwasnot aware the project was owned by the person intendingto reside at the completed project.Because it canbedifficult toknow ifa personowning aproject intends tooccupy theproject as opposed to sellorleasetheproject,aclaimantonanyresidentialprojectownedbyanaturalperson should error on the side ofcaution and not record a mechanics’lienunlesstheownerhasindicatedheorshedoesnotintendtoresideontheproperty.
2
5. Astatementofthedateofcompletion,asdefinedabove.6. Astatementofthedatethepreliminary20-daynoticewas
servedandacopyofsuchnoticeandproofofservice.
E. Perfection of Lien Rights.As found at A.R.S. § 33-993, a lien claimant perfects
its mechanics’ lien claim by recording a notice and claimof lien with the county recorder of thecounty in which the property or somepartofthepropertyislocatedand,withina reasonable time thereafter, servingacopyupontheowner.Servicemaybe made by first class registered orcertifiedmailorbyanymannerthata summons and complaint may beserved.
Everymechanics’ lien, if properlyrecorded and perfected, relates backto and attaches on the first daylabor was commenced or materialswere furnished to theproject.Thismeans a mechanics lien shouldhave priority over any mortgages,deedsoftrustorotherencumbrancesrecorded after the start of construction.Under A.R.S. § 33-992, a construction lender’smortgageordeedoftrustwillhavepriorityoveramechanics’lienaslongasitisrecordedwithintendaysafterthestartofconstruction.
F. Foreclosing the Lien.A.R.S.§33-998providesthatmechanics’ liensproperly
recordedwillexpireontheirownsixmonthsafterrecordingunlessanactionto foreclosethemechanics’ lien isbroughtwithin such time.Tomaintain thepriority enjoyedby themechanics’ lien, a lis pendens or notice of pendency ofactionmustberecordedtogivenoticethatthelienhasnotexpired.ThisisrequiredatA.R.S.§§12-1191and33-998.Iftheownerorprimecontractorprovidesamechanics’liendischarge bond as allowed under A.R.S. § 33-1004, theclaimantmustamenditscomplainttoincludetheprincipalandsuretyonthe liendischargebondwithin90daysafterreceiptofthebond,andrecordareleaseofthelispendens.
G. The Owner-Occupied Residential Project Exception.Themajorityofresidentialconstructionisperformedby
nationallyknowndevelopers,buildingthousandsofhousesayear.Asmallerbutstillsignificantportionofnewresidentialconstruction in Arizona is performed by local developers,somebuildingasfewasoneortwohomesayear.Thesameclaimantswhowouldhavelienrightsoncommercialprojectswouldhavelienrightsonthesetypesofresidentialprojects. James L. Csontos
3
Coasttocoast,LennarCorp.’spotentialhomebuyersseedifferentscenery,buttheymightencounterthesamekitchenfaucets.
The nation’s second-largest homebuilder is whittling down optionsand moving toward a one-faucet-fits-similar-price-points model, seeingstandardization and simplification astools in a cost-cutting drive aimed atsaving millions of dollars and survivingthehousingslump.
Otherhomebuildersaretakingsimilarsteps.BeazerHomesUSAsaysitreduceditscarpetofferingsby85%.PulteHomescut back to 400 floor plans from morethan 2,000, and Centex cut its roughly4,500plansinhalf,andmorereductionsareunderway.
Variety, builders have realized, costsmoney. That wasn’t much of a problemduring housing’s heyday, when grossmargins were as fat as 25%. Now margins are thin, andbuilders’ stocks are in tatters; one index has them downmorethan55%inthepastyear.Savingmoneyhasgainedurgency.
“WhenyoucanraisepriceseveryMondaymorning,likeitwasduringtheboomtime,it’shardtogettheorganization’sattentiononsomethingasmundaneas loweringcost,” saidPulteChiefExecutiveRichardJ.DugasJr.
With home prices not likely to increase soon and thelimited pool of buyers demanding more discounts andfreebies, construction is a logicalplace forpenny-pinching.Excludingthelot,theaveragesingle-familyunitcostsabout$219,000tobuild,accordingtotheNationalAssociationofHome Builders. Cabinets and countertops eat up 5.7% ofthat total, while tiles and carpet command 5%. Windowscostnearly3%andappliancescomeinat1.7%.
The savings potential goes beyond simply substitutinglower-quality kitchen cabinets or cheaper carpet. Limitingthenumberoffaucetstyles,forexample,letsbuildersorderearlier and negotiate bigger bulk discounts from suppliers.Cutting countertop choices reduces the risk of installingColorado red granite when the buyer specified Imperial
red. Reducing and simplifying floor plans requires fewerarchitectsandfees,andspeedsproduction.
Pulteprojectstypicalsavingsof$10,000to$15,000perhouse.
Thecompanysold18,826homesinthefirstninemonthsof2007atanaveragepriceof$324,000,buttimesaretough,industrywide. The builder lost $2.05 billion, as its marginturned negative and the company ate substantial land andgoodwillwrite-downs.
“If you don’t like cookie-cutter housing, you’re notgoing to like the next several years,” said Eric Landry, aMorningstaranalyst.
Thesimplificationapproachhasdetractors,though.
“Builders are lookingat every typeofoption rightnowin sort of a desperate mind-set to increase profitability,”said John Fioramonti, senior managing director of MeyersBuilder Advisors, a real-estate consulting concern. “I thinkthatwhentheygetasortofcoolerheadandreallylookatthe
Return of the Cookie-Cutter HouseAs home builders feel the squeeze from the housing slump, they are aiming to save money by reducing the choices they offer to buyers.ByDawnWotapka,TheWallStreetJournal2
continued on page 4
2Copyright2008DowJonesandCompany.Allrightsreserved.Thismaterialmaynotbepublished,broadcast,rewrittenorredistributed.
Granite Loan Management to affiliate with Homebuilding Power Analyst Ivy Zelman
Granite Loan Management (GLM) is pleased to announce that they are collaborating with Ivy Zelman, CEO of Zelman and Associates with the creation of “Zelman’s Corner,” to be featured both on Granite’s website at www.graniteloan.com and in their quarterly news publication, Construction Lending News (CLN). In addition, Zelman will be hosting a quarterly conference call focusing on industry trends and hot topics.
Event Details:
Who: Ivy Zelman—CEO, Zelman & Associates
What: Homebuilding and Construction Outlook
When: Tuesday, August 5, 2:00pm (ET)
Visit “Zelman’s Corner” at www.graniteloan.com to reserve your space for Zelman’s Quarterly Industry Call.
Ms. Zelman has over 15 years of experience covering the homebuilding, building products, furniture and manufactured housing industries at various points in her career. Prior to the founding of Zelman & Associates, a housing research boutique, Ivy worked at Credit Suisse Group from 1998 to 2007, the last seven years as a Managing Director. She has established herself as the leading industry source for homebuilding related equity research and is widely recognized as one of the preeminent figures in the entire industry.
Look for more from Ivy Zelman each quarter in “Zelman’s Corner” featured here in the Construction Lending News (CLN) newsletter and on Granite Loan Management’s website at www.graniteloan.com.
4
Return of the Cookie-Cutter House(cont’d)
longtermofwhatworksinthisindustry,they’llrealizethisdoes not work. When somebody’s spending a half-milliondollarsforahouse,theywanttobeabletoselectsomethingsthatpersonalizeit.”
Whentheydo,hesaid,theytypicallyadd10%to12%to thebaseprice.That’swhyKBHome, thenation’sfifth-largestbuilder,doesn’tplantoabandonitsnationwidedesignstudios,which,inthethirdquarter,helpedboostrevenuebyabout$31,000perunit.InOrlando,Fla.,oneofthecompany’s largest studios, the thousands of choicesinclude270carpetsand166countertops.ThereareevenexclusiveDisney-themedproductsandMarthaStewartdoors.
“It’s the age of customization and consumer-driven choices,” said Wendy Marlett, senior vicepresident of sales, marketing and communicationsatKBHome.
Hovnanian Enterprises, the sixth-largest publicbuilder by 2006 closings, thinks amenities “canmakethedifferencewhethersomeonesitsoutinthismarket or jumps in and buys a home,” spokesmanDougFenichelsaid.
Miami-basedLennar,whichdidn’tcomment forthis story,has tried itbothways.Thecompanyhasusedsomeformofthe“everything’sincluded”modelfor years. It switched when it bought U.S. HomeCorp. in 2000 and kept the former competitor’sdesign studios.By last year, however,Lennar optedtophasethemout.
“‘Everything’s included’ was born in times thatweremorelikethese,”ChiefExecutiveStuartMillersaid in an earnings conference call last summer. Itbrings “better value to the ultimate purchase pricefor the home, and that’s going to work well in thedecliningmarket.”
Thesedays,Lennar,whosestockhasfallenmorethan65%in thepastyear, says it aims tooffer the20% of options that 80% of its customers favor.Selection is increasingly limited and simpler. Theplanistoprovidealmostnochoices,sothedaysofsimilarkitchenfaucetsnationwidearen’ttoofaraway,peopleclosetothecompanysay.
“Ithinkacertainamountofsimplificationisgood;it’s better not to offer 10,000 SKUs (stock-keepingunits)ifpeopledon’tbuy10,000(SKUs),”saidDavidGoldberg,aUBSanalyst. “I thinkyouhave toofferenoughchoicessothatyoudon’tlosedemand.”
That’s what Pulte aims to do. Like Lennar, it noticedcustomersusuallywentforthesameoptionsandupgrades.Soitmadethosestandardfeaturesandcutitsofferings,givingbuyersonlyahandfulofchoicesforkitchencountertopcolors,for example. At the Del Webb active-adult communities,choiceswereslicedfrom10,000toseveraldozen,saidPulte’sDugas.Pultealsohasstandardizedwindowsizes,goingfromseveralhundredwindowSKUsto28.
“Thewholeprocesshasstartedtounlockdollarsateveryturn,”Dugassaid.
ZELMAN’S
CO
RN
ER
IvyZelman
SAVE-THE-DATE and join Ivy Zelman, leading homebuilding analyst, for Zelman’s Quarterly Industry Call on August 5th!
53UsedwithpermissionofTheAssociatedPressCopyright©2007.Allrightsreserved
Housing Starts Up 8.2%, Biggest Gain in 2 YearsByMartinCrutsinger,APEconomicsWriter3
WASHINGTON—Construction of new homes postedthe biggest increase in more than two years in April andapplicationsfornewbuildingpermitsturnedupforthefirsttimeinfivemonths,ararebitofgoodnewsinwhathasbeentheworstdownturninhousinginmorethantwodecades.
TheCommerceDepartmentreportedFridaythathousingconstruction rose 8.2% in April to a seasonally adjustedannualrateof1.03millionunits.Abigjumpinapartmentconstructionoffsetfurtherweaknessinsingle-familyhomes.ThegainrepresentsarecoveryafterasteepslumpinMarchbuildingthathadpushedactivitytotheslowestpace in17years.
Permits—a gauge of future housing activity—gained4.9%to978,000ayearfromarevised932,000inMarch.
ThesurprisingreboundinAprilmaybetemporary,giventheheadwindsbuildersareconfrontingatthepresent—fromslumpingsalestosoaringhomeforeclosures.
“Single-familystartscontinuetoshowweaknessand(are)comingoffa17-yearlow,”saidGeorgeAdell,afixed-incomestrategist with Commerce Capital Markets in Jupiter, Fla.“Wecan’t saywe’vehit abottom,but it’sbetter thanwhatwe’veseen.”
AnotherreportFridayshowedthatconsumerconfidencetumbled to its lowest in 28 years in May as short-terminflationexpectationshittheirhighestsincethestagflationaryearly1980s.
TheReuters/UniversityofMichiganSurveysofConsumerssaiditspreliminaryindexofconfidencefellto59.5inMay,itslowestsinceJune1980.InAprilitwas62.6.Economistsexpectedareadingof62.0,accordingtoaReuterspoll.
“ConsumerconfidencecontinuedtoslipinearlyMayduetosurgingfoodandfuelprices,”theSurveysofConsumersstatement said. “Record numbers of consumers viewed theeconomyinrecessionandsawlittlehopeofrecoveryanytimesoon.”
One-year inflation expectations surged to 5.2%—theirhighestsinceFebruary1982—from4.8%inApril.Five-yearinflation expectations hit their highest since August 1996,edgingupto3.3%fromApril’s3.2%.
Thestrength inAprilhousing starts cameentirely from
a huge increase in apartment construction, which canbe extremely volatile from month to month. Apartmentbuilding,definedas twoormoreunits, jumped36%toaseasonallyadjustedannualrateof340,000units.
The larger single-family sector suffered continuedweakness, dropping 1.7% to an annual rate of 692,000units.
Economistsbelievethathousingconstructionwillremainunder pressure for some time to come until builders havemoresuccessinreducingahugebacklogofunsoldhomes.
Thateffortisbeingmademoredifficultbyarecordwaveofforeclosuresasmillionsofborrowersarelosingtheirhomesbecause they cannot keep up with escalating payments,particularly on subprime mortgages, loans extended topeoplewithweakcredithistories.
Byregionofthecountry,constructionpostedthelargestgainintheMidwest,anincreaseof24.4%whencomparedto March. Construction rose 18.5% in the West and wasup 3.6% in the South. Construction fell 12.7% in theNortheast.
Even with the improvement, housing constructionnationwidewas30.6%belowthelevelofactivityayearago.
The National Association of Home Builders reportedThursdaythatitsmonthlysurveyofbuildersentimentedgeddowninMaytoareadingof19,justabovetheall-timelowof18setinDecember.Thesurveyhadheldsteadyatthelowlevelof20fromFebruarythroughApril.
David Seiders, the group’s chief economist, said thatconditionsintheindustryhavecontinuedtodeteriorate.
6
Be a Part of NARCL!
NARCLisanonprofitnationaltrade association representingfinancial serviceproviders in theresidentialconstructionindustry.The Mission is to provideeducation, information, policydevelopment,developmentof standards&practices for thebenefit of consumers, lenders, investors and others in theresidentialconstructioncommunity.
An“ALLMEMBER”conferencecallishostedeachquarterat 2:00PM Eastern Time (1:00PM Central Time, noonMountainTime,11:00AMPacificTime).Thecallisalsoopentoanyinterestedparties.Toparticipate,pleaseemailExecutiveDirector,[email protected].
2008 Call Schedule:•July16,2008•October16,2008•December17,2008
For more information on NARCL contact:NARCL, Attn:Membership5445DTCParkway,SuiteP-4GreenwoodVillage,CO80111email:[email protected]
Place Your Ad Here!
Construction Lending News (CLN) highlights industry news and information for both the Commercial and Residential lending markets. CLN has become an
invaluable resource for statutory articles, economic trends, Construction-at-a-Glance and valuable information that
relates to the construction lending market.
CLN is offering advertising space in its upcoming editions. With a circulation of over 5,000 copies, your message will be presented directly to industry leaders who are
eager to learn more about your business.
Take advantage of this unique opportunity and place your Commercial or Residential ad here today! Contact our Marketing Department at 866.710.4087 or send an email to us at [email protected].
T: 1.866.710.4099 F: 1.866.380.9559 [email protected] www.granitecm.com
Navigatingasafepaththroughthecomplexworld
ofconstructionlendingisn’teasy,especiallyifyou’rein
thedarkaboutcriticalinformation.GraniteCommercial
Management(GCM)cansignificantlylessenyourrisk
exposurebyuncoveringallyouroptions.
Ourexpertscanguideyouthroughtheintricacies
ofstate-by-statelienwaiverlawstoavoidcostlyslip
ups.AndourWeb-basedcustomerserviceletsyou
lookatjobprogressinrealtime.
Takeofftheblindfoldsandseewhatyou’vebeen
missing.CallusatGraniteCommercialManagement
(GCM)today.
Avoid the pitfalls in construction lending.
7
After 10 years, our construction lending seminar will still illuminate your thinking.
10th AnnuAl SSCl SeminArDecember 2-4, 2008 • The Ritz-Carlton, New Orleans
Presented by the Granite Companies
www.SSCLSemiNAR.COm
HiGHLiGHTS iNCLUDe:• Regulatory Changes • industry Best Practices • SBA Regulations
• Secondary market Outlook • managing Distressed Assets• Compliance & Legal issues Solutions • economic Update
Early Bird & attEndEE SpEcialS!
In This Issue:-ResidentialProjectExceptionUnderArizona
LienLaw-ReturnoftheCookie-CutterHouse-HousingStartsUp8.2%,BiggestGain
in2Years-BeaPartofNARCL!
Construction-at-a-Glance
Apr 07 Apr 08
TotalMonthlyHousingStarts* 1,487 1,032OneUnit 1,198 692Multifamily 289 340
YTDPermits-SingleFamily* 1,078 646YTDPermits-Multifamily* 411 332MonthlyNewHomeSales* 907 526UnemploymentRate 4.5% 5.0%
*Thousands of Units
Upcoming EvEnts
Please Visit Us at These Upcoming Events:
2008 Mid America Lender’s Conference (MALC)August 11–13, 2008
Grand HyattSan Antonio, Texas
11th Annual CMBA Western States Commercial Real Estate Finance Conference
September 14–16, 2008 Wynn Las Vegas
Las Vegas, Nevada
AEI 2008 Architectural Engineering ConferenceSeptember 25–27, 2008
Hyatt Regency Tech Center Denver, Colorado
GRANITEL O A N M A N A G E M E N T
10770E.BriarwoodAve.Suite280Centennial,CO80112
Register today for the 10th Annual SSCL at www.ssclseminar.com!
Source:U.S.BureauoftheCensus,ConstructionReports,SeriesC-20,HousingStarts.U.S.BureauofLaborStatistics.