Fighting Back Against Contractor’s Liens and Protecting Your Property
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. Liens are often used by those who provide labor and materials in the home improvement field as well. For instance, if you’ve ever hired a contractor to remodel your bathroom, add on a room, or repair your roof, you may one day find that a subcontractor (or even their supplier) has filed a Mechanics’ Lien against your property! As a result, your home, rental property, or commercial building is now in danger of foreclosure to pay this subcontractor or supplier even though you paid your contractor in full. If a lien is filed, the contractor may initiate a foreclosure of your house, and you cannot sell or refinance your home without first removing any liens.
What is a Mechanic’s 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 a creditor is owed a few thousand dollars he may legally file a Mechanics’ Lien against real property with a value of hundreds of thousands of dollars.
The bottom line is that Colorado law protects mechanics, tradesmen, labor providers and material suppliers; and you as a property owner may be forced to pay for these services or supplies twice. If the property owner refuses to pay the debt, the lien holder (i.e., the supplier) may foreclose upon the property, just like a lender, to recover the amount owed.
How a Mechanics’ Lien Works
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 the supplier may undertake the legal process of “perfecting” (making official and legal) and enforcing his or her Mechanics’ Lien.
A Mechanics’ Lien is a very powerful tool to enforce payment for the supply of labor or materials used to improve property. However, the contractor or supplier has a very short window of opportunity to perfect his or her claim. The Mechanics’ Lien statute only allows, at most, four months from the completion of the improvement project for the lien to be perfected and recorded.
However, before the Mechanics’ Lien may be recorded the suppliers must provide the property owner notice and an opportunity to resolve the situation. This notice is generally referred to as a Notice of Intent to File a Lien Statement. The notice must be served upon the property owner at least 10 days before the Mechanics’ Lien is recorded.
Once the lien is recorded it is valid only for a maximum of six months, with a few specific exceptions. This time limit is strictly enforced because this is such a powerful tool. The strict enforcement of this time limit has saved many property owners from the harsh realities of suppliers demanding payment by asserting their rights under the Mechanics’ Lien statute.
What to Do If a Mechanics’ Lien is Recorded Against Your Property
The first and best action you can take when a Mechanics’ Lien is filed against you, or you receive a Notice of Intent to File a Lien statement, is to contact a knowledgeable real estate attorney in your area. If you live in Colorado, the attorneys at Robinson & Henry can help.
Your attorney will determine the validity of the Mechanics’ Lien and your best course of action in fighting it. Perhaps the work is not yet finished, or the materials were not actually delivered to your property or were not part of the plans or contracts you signed. Maybe the supplier signed a lien waiver limiting or prohibiting his ability to record a Mechanics’ Lien on the property.
In addition, contractors and suppliers often fail to meet the strictly enforced timelines required to file a valid Mechanics’ Lien, thus invalidating their demands. The lien may be found to be excessive or spurious. Your lawyer will examine the lien to ensure it contains the statutorily required information. For instance, does the lien statement clearly list:
- The name of the property owner;
- the name of the creditor (the person or company seeking payment);
- the name of the person or entity who furnished the labor or materials;
- the name of the primary contractor, when the lien is claimed by a subcontractor;
- the address or a description of the property where the work was performed;
- the amount owed; and is
- the claim signed by the claimant?
If not, the Mechanics’ Lien may be found invalid. If the claimant has begun a foreclosure lawsuit to force the sale of the property in order to be paid then the lawsuit must also have been initiated during the valid period of the lien.
Finally, you may qualify for an “affirmative defense” offered to homeowners who reside in a single family home upon which a claimant is attempting to enforce a Mechanics’ Lien. This just means that even if the supplier or contractor was in fact not paid and the papers were filed properly, some other condition could exist that makes the case not valid, such as lack of jurisdiction, bankruptcy of one of the parties, or fraud.
Once the lien expires, is settled, or is determined to be invalid you will need to take action to have it removed. Until it is removed it will be virtually impossible for you to sell, refinance or even establish a line of credit for your property.
If you find yourself mired in the technicalities of a Mechanics’ Lien on your property contact the Mechanics’ Lien professionals at Robinson & Henry. Call 303-688-0944 for an assessment.