You often hear of people claiming to give 110% effort. Whether someone can truly give more than a 100% effort is a philosophical question that is outside the scope of this blog. Arizona mechanics’ lien laws are, however, something in my wheelhouse. And, as many of you may know, 120% has historically been an important figure with respect to mechanics’ liens. This is because Arizona has long provided, and currently provides, claimants with lien rights of up to 120% of the estimated price stated in their preliminary twenty-day notices. Practically speaking, this means that those looking to preserve their lien rights need not provide additional preliminary notices unless and until the price for the labor and material furnished exceeds 120% of the amount in their original notice. But with the passing of SB 1304 earlier this year, this threshold for providing additional preliminary notices was increased to 130% of estimated total costs, and this increase applies to all projects where lienable activities are “first commenced to be furnished from and after December 31, 2019.” As a result, the effects of this change are right around the corner.
With regard to residential work involving “owner-occupants,” for instance, only contractors having a direct contract with the “owner-occupant” have lien rights. This exception, of which subcontractors that perform residential work are hopefully aware, was the subject of the recent Court of Appeals decision in Marco Crane & Rigging Co. v. Masaryk, 236 Ariz. 448, 341 P.3d 490, (App. 2014). Specifically, the court was asked to examine whether “owner-occupant” status was lost because an owner transferred title to her home to her limited liability company after the subcontractor’s lien was recorded and a foreclosure lawsuit filed.
In Marco Crane, Linda Masaryk (“Masaryk”) obtained and recorded title to a parcel of land in Paradise Valley in 2003. In 2006, she hired a general contractor to build a house on that parcel. The general contractor then entered into a subcontract agreement with Marco Crane & Rigging Co. (“Marco”) to erect structural steel for the house. Within 20 days of commencing work, Marco served a preliminary twenty-day notice of lien to the owner and general contractor.
In October 2008, work on the house was suspended. Marco record a lien against the house for the amount of its unpaid invoices in December 2008 and subsequently sued to foreclose on that lien in 2009. In February 2010, while the lawsuit was pending, the Masaryk transferred title to the house to her limited liability company (the “Company”), which she solely owned to hold personal investments. The home was completed and ready for occupancy in March 2010 and Masaryk lived there from April 2010 to October 2011.
Marco moved for summary judgment on its lien foreclosure claim in the trial court, arguing that Masaryk was not entitled to owner-occupant status because she transferred title to the house to her Company and did not intent to reside there. The trial court agreed and granted Marco’s motion. Masaryk appealed, arguing that Marco’s lien was invalid because she was an “owner-occupant” at the time it was recorded. Marco Crane, 341 P.3d at 491.
The Court of Appeals noted that “owner-occupant” protection arises out of A.R.S. § 33-1002(B), which provides that:
No lien provided for in this article shall be allowed or recorded by the person claiming a lien against the dwelling of a person who became an owner-occupant prior to the construction, alteration, repair or improvement, except by a person having caused in writing a contract directly with the owner-occupant.
The court also noted that to enjoy owner-occupant status, a natural person must: (1) “hold legal or equitable title to the dwelling by deed or contract for the conveyance of real property that has been recorded with the county recorder before commencement of construction;” and (2) “reside or intend to reside in the dwelling for at least 30 days during the twelve-month period following completion of the construction…and must not intend to sell or lease the dwelling to others.” Marco Crane, 341 P.3d at 492 (citing A.R.S. § 33-1002(A)(2)).
Against this backdrop, the court determined that whether the subject property was shielded against Marco’s lien hinged on Masaryk’s status as an “owner-occupant” before Marco commenced work on the house. Marco Crane, 341 P.3d at 492. The court relied on three facts in analyzing this issue. These were that, prior to Marco’s work, Masaryk: (1) personally owned the property; (2) recorded title to the property with Maricopa County Recorder; and (3) intended to reside in the house for at least 30 days following the completion of Marco’s work. Id. The court established this last fact through Masaryk “actually mov[ing] into the house approximately one month after it was completed and liv[ing] there for over one year.” Id. Based on these three facts, the court held that the Masaryk was an “owner-occupent” and that Marco’s lien was, therefore, improperly recorded in violation of A.R.S. § 33-1002(B). Id. Accordingly, the Court of Appeals reversed the trial court’s grant of summary judgment on Marco’s lien foreclosure claim. Id. at 493.
While Marco Crane involves a limited liability company owner, it does not stand for the proposition that such companies are entitled to “owner-occupant” protection under Arizona’s lien statutes. In fact, the court took special care to state that it was not addressing this issue “because the validity of Marco’s lien hinge[d] on whether Masaryk was an ‘owner-occupent’ at the time Marco recorded its lien, which she was” by virtue of, among other things, her then personal ownership of the home. Marco Crane, 341 P.3d at 492, n. 2. Thus, Marco Crane simply stands for the proposition that “owner-occupant” status is determined at the time the lien is filed, not afterwards.
The Court of Appeals’ opinion in Weitz Co., LLC v. Heth, 314 P.3d 569, 674 Ariz. Adv. Rep. 29 (App. 2013), which is the subject of this post from January 8, 2014, was vacated by the Arizona Supreme Court on August 26, 2014. As such, the case below is no longer good law. I will be drafting a post on the Supreme Court’s opinion in the near future.