Arkansas Land Title Association 2012. (a) Every contractor, subcontractor, or material supplier as defined in § 18-44-107 who supplies labor, services,

Arkansas Land Title Association2012

"Const r uct ion, P r ior it y of L iens and Bonding Requir ement s”

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

(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 Pre-Construction 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 tothe land, building, erection or improvement upon land unless and until the lien is dulyfiled 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 inthe 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 andsubcontractors?A.C.A. § 18-44-117 provides that a lien must be filed 120 days after the thingsspecified in this subchapter shall have been furnished or the work or labor done orperformed.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 becommenced within 15 months after filing the lien and prosecuted withoutunnecessary delay to final judgment. No lien shall continue to exist by virtue of theprovisions 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 agreementsubordinate 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' LiensCan the Construction Loan Mortgage have initial priority over mechanics' liens?

Generally, construction mortgages will have priority over mechanics' andmaterialman liens provided the construction mortgage was filed prior tocommencement of work and provided that any advances made for the purposes ofpurchasing the land is adequately disclosed on the face of the mortgage. Also, theconstruction loan mortgage must contain language that advances are obligatory andnot 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 proceduresare followed?No information is available at this time.

If priority is lost, can it be regained?No.

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.

“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.”

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.

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.”

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

04/10/23

Thank You!

Questions?

Special appreciation to ALTA for slides

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