Lien Discharge Bonds and Lawsuit
The Arizona Court of Appeals
rules that the state’s lien discharge
statute does not provide an extension for filing suit on a lien
This article appeared in the June 2012 issue of "The Construction Advisor"
published by Lang & Klain, P.C.
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Alliance TruTrus v. Carlson Real Estate
Company, et al.
In 2007, Carlson Real Estate Company started a commercial
construction project. One of the subcontractors on the project
set up an open account with Alliance TruTrus to supply trusses
and related materials.
On September 10, 2008, holding more than $31,000 in unpaid invoices,
Alliance recorded a mechanics’ and materialmen’s lien on the real
property. On February 17, 2009, Carlson executed a Discharge of
Mechanic’s Lien by posting a discharge bond in the amount of
$49,926. The discharge bond was served on Alliance three days later.
(A mechanic's lien discharge bond comes into play when the one of
the parties wants to keep the property free of
liens. Bonding a mechanic's lien does not extinguish the lien;
rather, the lien is removed from the property and attaches to the
On May 1, 2009, Alliance sued Carlson for payment on the discharge
bond. The trial court granted Alliance summary judgment, finding
that Alliance timely filed its lawsuit pursuant to
A.R.S. § 33-1004.
The trial court held that if a “claimant is served with the
discharge bond less than ninety days before the expiration of the
six-month period prescribed by A.R.S. § 33-998, the claimant has
ninety days from the date of service of the discharge bond to
commence suit against the surety and its principals.”
Carlson appealed, arguing that the trial court misinterpreted A.R.S.
§ 33-1004(D). The Arizona Court of Appeals found that Alliance’s
lawsuit failed to meet the deadlines set forth in the statute. The
Court ruled in favor of Carlson and dismissed Alliance’s suit.
About the Court’s Ruling
After a lien is recorded, a lien claimant has six months to file
suit, per A.R.S. § 33-998(A).
The lien-discharge statute,
A.R.S. § 33-1004, allows property owners
to discharge a lien against their property by securing a surety bond
in an amount equal to 150% of the lien claim (which Carlson did).
The bond can be recorded either before or after the claimant files suit to foreclose
on the lien. Once the bond is recorded, the
lien is discharged, and the claimant must pursue the bond (not
foreclosure on the property) for the lien payment.
Alliance recorded its lien on September 10, 2008, but did not file
suit until May 1, 2009 – almost two months after the statutory
At trial, Alliance had argued (and the trial court agreed) that
Alliance’s limitation period was extended by A.R.S. § 33-1004(D)(2)
in its provision that:
If the bond is served upon the claimant within less than ninety days
from the date claimant would be required to commence his action
pursuant to section 33-998, the claimant shall have ninety days from
the date he receives a copy of such bond to add the principal and
the sureties as parties to the lien foreclosure suit. (Emphasis added.)
This is where the Court of Appeals took issue with the trial court’s
ruling for Alliance. The Court of Appeals found that the statute
“does not grant a claimant an additional ninety days to file its
lawsuit, but allows an additional ninety days to amend any complaint
to add the principal and sureties.” (Emphasis added.)
In other words, starting from September 10, Alliance had six months
to file its lawsuit – period – and it failed to meet that deadline.
The Court ruled that the “extension” to which Alliance had pinned
its hopes simply allowed time for a claimant to “add the principal
and parties” to an existing lawsuit that had been timely filed.
If you are making a claim on a lien discharge bond,
you must file your lawsuit within six months from the date you record your lien.