Arkansas Land Title Association
2012
"Construction, Priority of Liens and
Bonding Requirements”
1. What is a Lien?
2. How Do Liens Arise?
3. What is the Priority of a Lien?
4. Residential vs. Commercial Liens
5. Defenses to Lien Claims
6. Methods to Avoid Liens by Bonding
7. Expired Liens
8. Exclusion Language in Commitments and Policies
9. Affirmative Coverage for Liens
10. Liens
11. Q&A
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(a) Every contractor, subcontractor, or material supplier as
defined in § 18-44-107 who supplies labor, services, material,
fixtures, engines, boilers, or machinery in the construction or
repair of an improvement to real estate, or any boat or vessel of
any kind, by virtue of a contract with the owner, proprietor,
contractor, or subcontractor, or agent thereof, upon complying
with the provisions of this subchapter, shall have, to secure
payment, a lien upon the improvement and on up to one (1)
acre of land upon which the improvement is situated, or to the
extent of any number of acres of land upon which work has
been done or improvements erected or repaired.
(b) If the improvement is to any boat or vessel, then the lien
shall be upon the boat or vessel to secure the payment for labor
done or materials, fixtures, engines, boilers, or machinery
furnished.
What is the time frame for filing a
cliam of lien?
Lien claimants must file a lien
(Statement of Account and Claim of
Lien) account with the circuit clerk
within 120 days of the last substantial
work or material provided.
Does Arkansas law require any notice or
filing prior to the performance of the
work?
Yes, clearly for “residential” property a
Pre-Construction Notice to Owner must be
provided to the property owner before
performance of work. The contractor is
obligated to provide the notice. The
penalty for a residential contractor’s
failure to do so is severe – the residential
contractor is barred from bring an action
either at law or in equity to enforce any
provision of a residential contract. Further,
a prudent subcontractor or material
supplier should likewise provide a PreConstruction Notice to Owner. There is no
requirement under the Law for any filing
with a clerk or court before construction.
What is the deadline
for filing suit to
initiate a lien
foreclosure action?
Lien claimants must
enforce the lien by
filing a foreclosure suit
within 15 months of
filing the lien.
Does the Arkansas law impose
mandatory notice requirements?
Yes, Arkansas has very specific notice and
filing requirements depending on whether
the project is residential or commercial. A
Pre-Construction Notice to Owner must be
provided on residential property, either by
the residential contractor or a lien
claimant, and then the lien compliant must
serve notice on the owners (Notice of
Intent to file a lien) 10 days before filing a
lien. Lien claimants on commercial
projects must provide Notice to Owner and
Contractor within 75 days of the last work
or material provided. Then, lien claimants
on commercial projects must serve notice
on the owners Notice of Intent to File a
Lien) 10 days before filing a lien.
When is a contractor or supplier deemed to have last performed
work or furnished material so as to trigger the start of the lien
filing period?
A contractor or supplier is deemed to have last performed work on the
last day substantial work or labor was actually done. Physical presence
on the jobsite without performing actual work on the project does not
constitute work or labor done. As to furnished material, the lien filing
period begins to run on the day the last item was actually
furnished. However, the Arkansas Supreme Court has held that
performance of labor of a trivial character, such as an adjustment
of equipment already installed, not expressly provided for by the
contract and after the contract has been substantially performed, will
not ordinarily extend the time for filing a lien beyond the date of last
delivery or for work done beyond the date of actual installation.
Does Arkansas law provide a procedure for
bonding or otherwise removing the claim of
lien?
Yes, any person wanting to contest a lien may
file a bond equal to the amount of the lien with
the circuit clerk with whom the lien is filed.
The party claiming the lien must contest the
bond within 3 days, or the lien will be
discharged
What construction project
participants are protected by the
lien law?
Arkansas lien law protects most
construction project participants,
including contractors,
subcontractors, material suppliers,
architects, engineers, surveyors,
appraisers, abstractors, title
insurance agents, and landscapers.
Providers of equipment, e.g.,
equipment rental providers, are not
specifically covered by the law.
What costs or damages
are typically not allowed
in a lien claim?
Arkansas allows for broad
recover, including the
indebtedness, along with
interest, and costs. The
successful party may be
entitled to attorneys’ fees.
Is there a difference between on-site and off-site work?
There are separate statutes governing surveyors, title insurance and architects' liens.
A.C.A. § 18-44-105 provides that an engineering or surveyor's lien does not attach to
the land, building, erection or improvement upon land unless and until the lien is duly
filed of record with the circuit clerk and recorder of the county in which the land,
building, erection, or improvement is located. The recorded lien will be enforced in
the same manner as a mechanic's or contractor's liens.
Is priority the same for all contractors and subcontractors on the same project?
Yes. A.C.A. § 18-44-110.
What is the time period for recording lien claims by original contractors and
subcontractors?
A.C.A. § 18-44-117 provides that a lien must be filed 120 days after the things
specified in this subchapter shall have been furnished or the work or labor done or
performed.
After what period of time can you waive a mechanics' liens if no suit is filed?
A.C.A. § 18-44-119 provides that all actions under this subchapter shall be
commenced within 15 months after filing the lien and prosecuted without
unnecessary delay to final judgment. No lien shall continue to exist by virtue of the
provisions of this subchapter for more than 15 months after the lien is filed.
Is there a statutory procedure for affidavits of completion or notices of
completion?
No.
Can a statutory bond terminate the mechanics' liens as an encumbrance on the
title?
Yes. A.C.A. § 18-44-118(b).
Can the original, general, or subcontractor's contract or waiver agreement
subordinate or waive mechanics' liens by general contractor and/or
subcontractors?
Whether this is contractually sound has never been ruled upon in Arkansas. There
is no statutory authority.
Can a bona fide purchaser or bona fide lender take free of mechanics' liens later
filed for earlier work?
No.
Mechanics' Liens
Can the Construction Loan Mortgage have initial priority over mechanics' liens?
Generally, construction mortgages will have priority over mechanics' and
materialman liens provided the construction mortgage was filed prior to
commencement of work and provided that any advances made for the purposes of
purchasing the land is adequately disclosed on the face of the mortgage. Also, the
construction loan mortgage must contain language that advances are obligatory and
not optional on the part of the lender. A.C.A. § 18-44-110.
Will initial priority as to future disbursements be retained only if certain procedures
are followed?
No information is available at this time.
If priority is lost, can it be regained?
No.
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The issue was commencement of the project.
Prior to the mortgage the contractor had equipment on
the property but had agreed not to “turn any dirt.”
The contract set commencement with a ‘Notice to
Proceed’ and the parties exchanged emails and other
assurances that they intended not to start before the
mortgage was filed.
The trial court found that all the parties intended not to
start before the mortgage and ruled the lien 2nd.
The appeals court ruled that the subjective intent not to
start did not trump the statute and remanded the case for
a proper finding.
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“However, under the plain language of section 18-44-110, the
subjective intent of the parties is not an element of the
commencement of construction. In our review of the statute, the
circuit court should have examined the "visible manifestation of
activity" on the property, including, but not limited to, any of the four
enumerated circumstances, to determine whether construction had
"commenced" at the time that Chambers filed its construction
mortgage. Ark. Code Ann. § 18-44-110(a) (2) . In other words,
"commence[ment]" of construction is the date upon which a "visible
manifestation of activity" has occurred "that would lead a reasonable
person to believe that construction . . . has begun or will soon begin. .
. ." Id. That "visible manifestation of activity" includes an objective
determination of construction activity on the property at any given
time.”
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The case concerned a contract to construct four chicken
house pads. After the first two were finished, rock was
encountered for the second two.
After the rock work had been underway the contractor
notified the owner the rock was not a part of the contract
and was on a T&M basis.
The contractor had signed lien waivers ‘to date’ twice after
the rock work had commenced .
The owner upset with the rock cost hired another contractor
to finish the rock removal.
The circuit court ruled that the original contract did not
mention rock and that rock the agreement was separate.
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Accord and Satisfaction.
The final check for the last two pads had “Payment in
Full” written on them.
◦ “Appellants' argument on appeal is that the mere acceptance
of the second $15,000 check containing the notation "paid in
full" constitutes an accord and satisfaction. Our court has
specifically held that it is not enough for the debtor to
merely write "payment in full" or similar language on the
check.”
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All of the Notices Sent and a copy of proof of service
A statement of account – such as the Invoice or a listing
of the amounts due and all payments made reaching the
balance now claimed as due.
No requirement of service of this but what’s the point if
this is not done.
How long does a party have to file a lien?
One hundred and twenty days (120) from the
date that labor or materials were furnished.
A.C.A. § 18-44-117. The original contractor
may file his lien at any time, but other parties
must give the property owner ten (10) days
notice (see notice below) prior to filing of a lien
claim. Accompanying this notice must be a
affdavit of notice verifying that the notice
required in A.C.A. § 18-44-114 –116 have also
been given. This ten-day provision does not
apply if the underlying improvements are part
of a direct sale to the property owner. A.C.A. §
18-44-114.
By what method does the law of this State
permit the release of a lien?
Arkansas law does not specifically set out the
method by which a lien my able released.
However, UsLegalForm AR-06-09 is a general
release form which may be used for this
purpose. Also worth noting, a lien must be paid
within twenty (20) days of its filing or the
attorney’s fees of the party claiming the lien
may be assessed against the property owner.
A.C.A. § 18-44-128.
Does this State permit the use of a bond to
release a lien?
Yes
4/13/2015
Thank You!
Questions?
Special appreciation to ALTA for slides
4/13/2015
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