A contractor files a mechanic's lien for $25,000 but later accepts $18,000 as payment in full. The property owner demands the lien be released. What must the contractor do?
Correct Answer
C) File a full release of the lien
Once payment is accepted as satisfaction of the debt, the contractor must file a full release of the mechanic's lien under A.R.S. 33-981.
Why This Is the Correct Answer
Under A.R.S. § 33-981, once a contractor accepts a payment as full satisfaction of the debt — even if it is less than the original lien amount — the underlying debt is extinguished. The contractor is then legally obligated to file a full release (satisfaction) of the mechanics lien. A partial release would be inappropriate because the entire debt has been settled. Failure to release the lien after receiving full settlement can expose the contractor to additional liability.
Why the Other Options Are Wrong
Option A: Maintain the lien for the original amount
Maintaining the lien for the original $25,000 after accepting $18,000 as payment in full would be improper and potentially fraudulent. Once the debt is settled, the lien has no legal basis to remain. The contractor cannot hold a lien for an amount the parties have agreed is no longer owed.
Option B: File a partial release for $7,000
A partial release for $7,000 (the difference between $25,000 and $18,000) would imply there is still an outstanding balance. However, the contractor accepted $18,000 as FULL payment — meaning the entire debt is discharged. A partial release mischaracterizes the settlement agreement.
Option D: Reduce the lien amount to $18,000
Reducing (amending) the lien to $18,000 is not the correct remedy. Since $18,000 was accepted as full payment in satisfaction of the entire claim, the lien must be fully released, not simply reduced. An amended lien would still assert an ongoing claim, which contradicts the settlement.
Memory Technique
Key phrase: 'Payment in full' = Full release. Any time a contractor accepts money 'in full satisfaction' of a lien, the word 'full' applies to both the payment AND the release. Partial releases are only for when partial payments are made without settling the full debt.
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