For a contractor unaware, a mechanics’ lien is a useful legal tool for both securing and collecting on unpaid debt for services and/or materials that you have provided for a project. A lien is made against the property that the construction work took place on and doesn’t allow the owner to sell or refinance the property until the debt is paid. While being a relatively successful tool, contractors must follow state guidelines to have a lien secured. Often, many contractors succumb to various pitfalls because they are either unaware or ill-prepared when filing a mechanics lien. Don’t be a cautionary tale. If you are thinking about filing, then avoid these common mistakes.
- File on time. For contractors that only provided labor, the deadline to file is 2 months after the last day of labor was performed. For contractors that also provided materials, they have 4 months after the last day the materials or labor was provided.
- Must contact property owner before filing. Colorado requires that a contractor notify the property owner of the Intent to Lien 10 full days prior to filing. This can be accomplished by sending the Notice of Intent to Lien, along with a copy of the Statement of Lien that is to be filed.
- Don’t overstate what your owed. If the lien amount is overstated or found to be inaccurate then not only is it rendered invalid, but the contractor can be forced to pay the opposing party’s legal fees.
- Avoid Technical mistakes. Even the smallest mistakes can result in a lien being denied. Errors such as an inadequate property description or signing blunders can result in the lien being invalidated.
- Abide by the foreclosure deadline. After a lien is awarded, it is valid for only 6 months. A contractor must file for the lien’s foreclosure/enforcement within that time frame, or risk forfeiting their lien rights.
There are limitations to a mechanics lien, such as it does not apply to public projects, and contractors can run into problems if the Notice of Intent is not properly served. If a contractor is unable to follow legal procedure when filing a mechanic’s lien, not only can the request be denied, the contractor can be ordered to pay for the property owner’s legal fees. Increase your likelihood of success and come to Robinson & Henry’s contractor event in June 2017 for further information.