An equitable lien is a lien on property imposed by a court to achieve a fair result. Generally, a court will only impose an equitable remedy when there is no adequate remedy at law, which usually means a monetary remedy.
An equitable lien may arise from express contract where the parties indicate an intent to charge or appropriate particular property as security for an obligation. The need for an equitable lien typically occurs where some unintended error or oversight stands in the way of formalizing a traditional lien. Where a property was part of a transaction but the intention was not a formal lien, the court will not use equity to convert something that was never intended to be a lien into an equitable lien. Kalmanoff v. Weitz, 8 Ariz. App. 171, 444 P.2d 728 (Ariz. Ct. App. 1968).
Equitable lien issues also arise in the divorce context. Property that belonged to one spouse prior to the marriage remains the separate property of that spouse after the marriage. However, if the community contributes capital to a separate property, it has the right to an equitable lien on that property. Drahos v. Rens, 149 Ariz. 248, 717 P.2d 927 (Ariz. Ct. App. 1985)
Once a party has established an equitable lien against a particular property, usually by way of judgment or other judicial decree, the equitable lien protects the secured party’s interest in the property. If the judgment granting the lien also includes monetary relief, the creditor can execute on the judgment and enforce the lien. If the judgment grants only a lien and the amount of the debt remains unresolved, the creditor can sue to foreclose on the lien, as is sometimes done when a court finds the existence of an equitable mortgage. Wolfswinkel v. Superior Court, 145 Ariz. 154, 700 P.2d 852 (Ariz. Ct. App. 1984).
There are some situations where an equitable lien will not be permitted due to an adequate statutory remedy. For example, if a contractor furnishes services to a property owner, but the owner refuses to pay. Arizona permits the filing of a mechanic’s lien to secure the debt owed. This will be considered as an adequate remedy provided at law, in most cases, so a contractor who fails to follow the steps to obtain a mechanic’s lien will generally be precluded from asserting a claim for an equitable lien on the property. Equity is usually available only in cases where the law does not provide an adequate remedy.
Chernoff Law handles business and real estate and construction litigation cases throughout Arizona. Contact us by calling 480-719-7307 to talk to an experienced real estate attorney.