January 27, 2014

Arizona could soon follow in Utah's footsteps by replacing its existing 20-day preliminary notice filing procedures with a central registry system instead. Sources within Arizona's construction community have noted that a rough draft of a bill expected to be introduced in the 2014 legislative session included language that would have Arizona adopt a computerized registry system for providing 20-day notices. Currently, under Arizona state law, as a necessary prerequisite to the validity of any claim of lien, such notice must be provided, in writing, to "the owner or reputed owner, the original contractor or reputed contractor, the construction lender, if any, or reputed construction lender, if any, and the person with whom the claimant has contracted for the purchase of those items."

The push for a registry system is primarily being driven by title companies, according to Michael Holden of Holden Willits PLC in Phoenix. The registry could simplify these companies' efforts to mitigate existing liens when offering refinancing to the owner of a job after it's completed by giving them a central system where they can find all of the 20-day notices filed on a project and identify all potential lien claims on the property. However, a registry system could also benefit contractors and subcontractors by simplifying Arizona's notice filing requirements, which Holden noted have been very stringently interpreted by judiciary. "Over the last several years the courts have really strictly construed the requirements for notices," he said, adding that a registry "would be...a much, much simpler way to send 20-day notices, and it would eliminate a lot of the technical defenses too."

All of this is contingent on Arizona lawmakers drafting legislation that avoids some of the pitfalls that characterized, and still characterize to this day, the system in Utah after which Arizona's system will presumably be modeled. The Utah system, according to Holden, created a number of problems for contractors and subcontractors by allowing title companies to influence lien priority by purchasing liens from companies with first priority as listed in the registry. "The problem is making a system that works. The Utah system wasn't very good to start and some people say it's still not working," he said. "They keep getting the registry changes to also adversely affect lien priority." While this is unlikely to happen in Arizona, Holden noted that issues still remain surrounding the subject of who is responsible for setting up a project in the registry and what information needs to be included. Ideally these are hammered out before the bill is actually filed.

Stay tuned to the Lien Navigator for updates on any changes to Arizona's lien statutes and filing requirements.


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