Contractor’s liens (called “mechanic’s liens” in Colorado) are not only a tool used by auto mechanics to ensure they are paid for labor and materials. Today most mechanics’ liens are filed by material suppliers and subcontractors that have not been paid for their work or materials. A validly recorded mechanic’s lien creates a lien on the real property in favor of the unpaid worker, making him or her a priority creditor. But, to record a valid lien many technical steps must be taken or the lien may be declared invalid and removed leaving the contractor with no quick means of forcing payment.
What is a Mechanics’ Lien
A Mechanics’ Lien is a legal claim of a labor provider or a material provider demanding to be paid for materials or labor which was provided to improve or repair property. The law allows that if a subcontractor or material provider is not paid then he or she may foreclose upon the property to which he or she provided supplies or labor and sell the property to pay the debt, even if the property owner paid the primary contractor who failed to pay the subcontractor and/or supplier. Thus even when you the contractor are owed a few thousand dollars, you may legally file a Mechanics’ Lien against real property with a value of hundreds of thousands of dollars in order to recover your loss.
Suppliers who have contributed labor or materials to improving or repairing property, even if the supplier did not contract directly with the property owner, have a right to be paid for that contribution. This right is derived from the concept of “unjust enrichment” — that the property owner would be unjustly enriched by not being forced to pay for the supplies which increased the value of his or her property. In order to enforce this right to be paid, you the contractor may undertake the very specific legal process of “perfecting” (making official and legal) and enforcing your Mechanics’ Lien.
The lien must be recorded within four months of the last work done or supplies delivered. Do not wait until the four-month period is about to expire to get started. You could run into problems delivering the notice and thus be unable to comply with the timing requirements. We recommend that you start no later then 75 days after the last work is completed or materials are supplied.
Before recording a lien the contractor must provide formal written notice of his intent to record a lien to the property owner. This is done by serving the property owner with written “Notice of Intent to File a Mechanic’s Lien,” or Lien Notice. This Lien Notice must be served on the owner of the property for which the work was done (or the materials supplied) at least ten days prior to recording the lien. After the notice period has expired then the a valid lien can be recorded with the Clerk and Recorder in the county in which the property is located.
Often the property owner will simply refuse to accept the notice, so it is important to use certified mail, return receipt requested. This way if the addressee refuses to accept or sign for the certified letter, it will be returned. You should keep the letter in its returned condition in case proof is later needed that notice was served. Even if the mail was refused or never picked up by the addressee, you will still have proof of having served the required notice if you have the returned letter.
The most common error with mechanic’s liens is that the lien is recorded within ten days of the Lien Notice, thus invalidating the lien. In most cases the lien cannot be validly recorded once this has been discovered because the time period within which the lien must be recorded will have expired.
The Lien Language
The Lien Statute provides that specific information must be set forth within the mechanic’s lien, including, but not limited to, the name and address of the party claiming the lien, the name of the property owner and general contractor, the street address and legal description of property charged with the lien, and the dollar amount of the lien. The mechanic’s lien must also include a sworn statement as to the information contained in the lien by the party claiming the lien, the sworn affidavits regarding the ten (10) day notice of intent discussed above. In many instances, failure to comply with the Lien Statute’s requirements for information that must be included in a mechanic’s lien invalidates the lien.
Many recorded liens are deemed invalid because the lien does not contain all of the statutorily required information. These invalid liens are easily removed leaving the contractor with very few options to obtain payment.
Foreclosure – Getting Paid
Once a mechanic’s lien is recorded with the Clerk and Recorder’s Office, the lien creates an encumbrance or lien against the property, but in most instances the mere recording of a mechanic’s lien alone will not result in payment of the amount claimed in the lien. To enforce the lien, the party claiming the lien must foreclose upon the lien. The first step is to file a notice of “lis pendent” (litigation pending) giving notice of the pending litigation. The law requires that litigation to foreclose a lien and the filing of a notice of lis pendent be separated by a specific period of time. Any action outside this timeframe results in the loss of lien rights and the expiration of the lien.
The foreclosure lawsuit to force the sale of the property must be initiated during the valid period of the lien. Foreclosing a lien often requires litigation, as the property owner is likely to vigorously defend against the foreclosure and forfeiture or their property. An experienced real estate attorney can help you through this complicated process.
Damages for Invalid Liens
Recording an invalid Mechanic’s lien can create liability for you, the contractor. If the lien is deemed invalid and the property owner has engaged an attorney to defend against it, you could be liable for the costs. Thus, it is extremely important that a contractor who records a mechanic’s lien complies with the statutes governing the process and ensures the accuracy of the information in the lien. The statute provides penalties for the assertion of liens that claim excessive amounts or that are filed against the wrong property, including, but not limited to, payment of any costs, attorney fees or damages incurred by parties affected by the lien.
Recording and foreclosing on a mechanics lien is a very powerful option for any contractor or supplier who has not been paid for their work or materials. However, because this is such a powerful option, the courts require the statute to be precisely followed or they will invalidate the lien. As a contractor, you have one chance to get this right before running out of time (and/or running up your liabilities).
If you are not familiar with the process, consider hiring a professional. The mechanic’s lien attorneys at Robinson and Henry, P.C., are experienced in all facets of real estate law, and even offer a low, flat-fee option for recording most mechanics liens. Contact us for a free, no obligation consultation at 303-688-0944.