Articles

Filing or Avoiding the Materialmen's Lien

A. Arkansas Construction Lien Law: General Overview.

Arkansas, like most states, has a statutory system to aid providers of materials or construction services that is beyond those remedies normally offered by common law. This statute is located at Title 18. Property, Subtitle 4. Mortgages and Liens, Chapter 44. Mechanics' and Materialmen's liens.

In general, a construction contractor who is unpaid for work performed on a job can, after meeting certain notice requirements, file a lien on the real property of that job which will secure payment. After the notice and other procedural requirements are met and the lien is filed, the owner or general contractor will normally pay the invoice directly. If no payment is made, the contractor will pursue a judgment on the lien in court. This judgment will enable the contractor to recover the amount due not only against the real property of the job, but also any other asset of the owner. Because the Arkansas materialmen's lien offers such extraordinary remedies, courts demand strict compliance with the procedural requirements of the statute.

B. Who may impose a lien?

Arkansas lien laws are intended to protect contractors, subcontractors, material suppliers, and anyone who supplies labor, services, machinery, or fixtures, to include landscapers, architects, engineers, surveyors, appraisers, abstractors, and title insurance agents.

C. What property interests may be subject to a lien?

The materialmen's lien will apply to the improvement to real estate (the structural improvement) along with up to one acre of land on which the improvement is situated. If the improvements are to the land, then the lien shall apply to the entire amount of improved land regardless of the acreage limitations. The property subject to the lien can be jointly owned or not. A signature of one of the parties is sufficient to enforce the lien.

D. How is the lien perfected?

Every contractor who performs services and is not paid for those services has an equitable lien on the property. This means that the contractor owns a claim against the owner for the value of the improvements and may sue to recover that value.

The materialmen's lien gives the contractor a short cut to filing this equitable lien on the property by following a series of steps. These steps are intended to give the owner the opportunity to learn that subcontractors or material suppliers are not being paid so that the owner may take necessary steps to protect himself and ensure all service providers are being paid. For this information to be useful to the owner, he must learn that information very quickly so that the owner can divert payments from the general or subcontractor who is not paying his bills directly to the service provider. Therefore, some of the procedural steps have surprisingly short deadlines.

NOTICE TO OWNER

The first notice to be filed is the notice to owner. The following initial notice is required to assert a materialmen's lien against owners of residential real estate containing four or fewer units. The notice is required to be delivered prior to supplying any materials, labor, or fixtures. Any contractor working on the job may deliver the notice to the owner by personal delivery or certified mail.  Further, the notice must be conspicuous and affixed or incorporated into the contract.  Additionally, Arkansas law states that "any contractor who fails to give the notice required by this subsection shall be guilty of a violation and upon conviction shall be punished by a fine not exceeding one thousand dollars ($1,000)."

The notice is not required for any contractor who is dealing directly with the owner or for commercial projects or residential real estate of four or more units.  However, because the statute is strictly construed by the courts, the safest practice is to always include the initial notice and any subsequent notices despite any exceptions. If you're a subcontractor working on a residential project, you should either directly send the owner this notice, or obtain a written representation that the general has sent the owner this notice.  The statute provides for a right to inquire of the general contractor or other subcontractors as to whether the notice has been duly delivered. The notice is required to read as follows:

IMPORTANT NOTICE TO OWNER

I UNDERSTAND THAT EACH PERSON SUPPLYING MATERIAL OR FIXTURES IS ENTITLED TO A LIEN AGAINST PROPERTY IF NOT PAID IN FULL FOR MATERIALS USED TO IMPROVE THE PROPERTY EVEN THOUGH THE FULL CONTRACT PRICE MAY HAVE BEEN PAID TO THE CONTRACTOR. I REALIZE THAT THIS LIEN CAN BE ENFORCED BY THE SALE OF THE PROPERTY IF NECESSARY. I AM ALSO AWARE THAT PAYMENT MAY BE WITHHELD TO THE CONTRACTOR IN THE AMOUNT OF THE COST OF ANY MATERIALS OR LABOR NOT PAID FOR. I KNOW THAT IT IS ADVISABLE TO, AND I MAY, REQUIRE THE CONTRACTOR TO FURNISH TO ME A TRUE AND CORRECT FULL LIST OF ALL SUPPLIERS UNDER THE CONTRACT, AND I MAY CHECK WITH THEM TO DETERMINE IF ALL MATERIALS FURNISHED FOR THE PROPERTY HAVE BEEN PAID FOR, I MAY ALSO REQUIRE THE CONTRACTOR TO PRESENT LIEN WAIVERS BY ALL SUPPLIERS, STATING THAT THEY HAVE BEEN PAID IN FULL FOR SUPPLIES PROVIDED UNDER THE CONTRACT, BEFORE I PAY THE CONTRACTOR IN FULL, IF A SUPPLER HAS NOT BEEN PAID, I MAY PAY THE SUPPLIER AND CONTRACTOR WITH A CHECK MADE PAYABLE TO THEM JOINTLY.

I HEREBY CERTIFY THAT THE SIGNATURE ABOVE IS THAT OF THE OWNER OR AGENT OF THE OWNER OF THE PROPERTY AT THE ADDRESS SET OUT ABOVE.

75 DAY NOTICE

The next notice that must be filed for either a commercial or residential project is known as the 75 day notice. This notice must be sent to the owner via either a process server or registered mail, return receipt requested, before 75 days have elapsed from the time that labor was supplied or the materials was furnished.  Material suppliers, laborer, and subcontractors are required to provide this notice.

The reason for this notice is to protect the owner from being forced to pay twice for the same work. That could happen if the owner paid the general contractor who did not pay his subs or materials suppliers, and then the sub or supplier was able to enforce a lien on the owner's property. Therefore, this notice must be given quickly so that the owner will have time to joint check the general contractor, to require lien releases from the general and his subs and suppliers, or to take other steps to protect the owner's property from liens. Because of this need to protect the owner, this provision of the statute must be complied with precisely.

In my practice, the contractors who file liens themselves most frequently miss this notice. Without this notice, the materialmen's lien is unenforceable and the subcontractor may be barred from recovering against the owner.

The notice is as follows:

TO: [OWNER NAME AND ADDRESS]

Notice is hereby given that within 75 days of the date of this Notice, [name of contractor], whose address is ___________, performed labor and supplied materials used in the construction of _______ located at ______. [Contractor] is currently due $_____ for such labor performed and materials supplied, but had not been paid.

The name and address of the person or entity contracting with [contractor] for the performance of the labor or services to which reference is hereinbefore made is [Name and address of General Contractor.]

Pursuant to Ark. Code Ann. §18-44-115, you are hereby notified as follows:

NOTICE TO PROPERTY OWNER

10 DAY NOTICE

After the 75 day notice has been filed and no payment has been received, the next step for the contractor is to file the 10 day notice. All contractors, including general contractors, who wish to enforce a materialmen's lien must file this notice with the exception of the original contractor. The reasoning for this exception is that the owner has a relationship with the general contractor and should have adequate notice of any amounts due whereas the owner might not have knowledge of the subs not getting paid.

This notice must be served by a process server or mailed by return receipt and restricted delivery. If the owner refuses delivery, the contractor must obtain an affidavit from the postal employee showing the refusal of the notice.
The notice is as follows:

TO: [OWNER NAME AND ADDRESS]

Notice is hereby given that the undersigned has asserted a lien against the following described real property:

[legal description] together with the building thereon, which is the property of [owner] to secure the sum of $_____ due to the undersigned by [general contractor] for material or labor furnished for and used in the construction of [type of building or improvement] located on such property.

You are further notified that on or after the _____ day of ______, the undersigned will file with the Clerk of the Circuit Court of _______ County, Arkansas, an account of the sums due to the undersigned pursuant to the laws pertaining to the enforcement of mechanic's and materialmen's liens and thereby enforce payment of this indebtedness against the above-described property.

Pursuant to Ark. Code Ann. § 18-44-128, you are hereby notified that if the above claim has not been paid withing twenty (20) days from the date of this mailing, and if [name of contractor] is required to sue for the enforcement of the claim, the court shall allow the claimant in the action a reasonable attorney’s fee in addition to other relief to which they may be entitled.

After waiting the 10 day notice period and before 120 days from the final date from which materials or labor were furnished, the contractor is then able to file a lien on the property in the county where the improvement is located.

The lien is filed in the form of an affidavit of account an example of which follows:

ACCOUNT AND AFFIDAVIT OF ACCOUNT

MATERIALMEN'S OR LABORER'S LIEN

[Contractor], a corporation, of the state of Arkansas, the [officer's title] of such corporation, states on oath:

1. That [contractor] sold and delivered to [general contractor] the materials or furnished the labor listed an set forth in the statement of account which is attached hereto as Exhibit A and incorporated herein. The final delivery of such materials or furnishing of such labor occurred within the last 120 days.





2. That the attached statement of account is true and correct, and that there is now due and owing to [contractor] after allowing all credits, the sum of $_________.






3. That such materials or labor were furnished for and used in the construction of ____________, which was constructed on the following described property in _____________ County, Arkansas:





[legal description]

4. That [contractor] claims a lien on this property to secure the sum of $_______, plus attorneys’ fees and court costs.
   
   
5. The undersigned on oath states that all notices required by Ark. Code Ann. §§ 18-44-114—18-44-116 have been given as required by law and within the time required by law and a copy of each such notices is attached to the affidavit along with the true and correct statement of account.
   
   
6. In compliance with Act 1125 of 2001, the person authorized to release this lien is __________ (name), ________________(position and company name).

After filing a proper lien, the owner cannot transfer clear title to any potential purchaser. That is usually sufficient to garner payment from the owner. If the owner does not intend to transfer title any time in the near future, the contractor may have to pursue a judgment and force a foreclosure sale of the property.  Once this Statement of Account has been filed, the contractor has 15 months to foreclose on the lien.  Otherwise, the lien becomes ineffective.

E. What priority does the contractors lien have?

"Priority" means who gets paid first. All materialmen's liens have equal priority with respect to each other without regard to which materialmen's lien was filed first or when the services, labor, or materials was furnished. When these liens are competing against other types of liens, the first to file shall generally have priority. For this purpose, all materialmen's liens shall be deemed to have been filed as of the first day that there was visible activity of repairs or improvements being made to the property. This visible activity could include delivery of supplies, grading, staking, or demolition of prior structures.

With respect to the improvements and not to the existing structures or land, the materialmen's liens shall take priority over any existing liens on the property present at the commencement of the construction or repair and all liens filed subsequent to that date. However, the actual loan for the construction or repairs shall take priority over the materialmen's liens.

If the property is sold to pay the liens, and the proceeds are insufficient to satisfy all the materialmen's liens, then the materialmen's liens shall be paid pro-rata. This means that the total proceeds from the sale of the property shall be shared by each lien holder's proportional value as to all the materialmen's lien holders.

F. Will the attorney's fees and other court costs be recovered?

Yes, if the proper procedure is followed. The contractor is required to send notice to the owner of the filed lien via registered or certified mail. If the properly filed lien is not paid within 20 days from the date of mailing of this notice, and if the contractor, subcontractor, or material supplier is required to sue for the enforcement of his claim, then the court shall allow the successful party reasonable attorney's fees among other costs.

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