In Colorado, a mechanic’s lien is a lien that can be filed against real property by an individual or business that provided labor, materials, equipment, tools or machinery that were incorporated into any structure or improvement upon land. The filing of mechanic’s liens in Colorado is governed by Colorado statute (C.R.S. §38-22-101 et. seq. (“Lien Statute”)), which provides very specific and detailed requirements that a party must fulfill in order for a mechanic’s lien to be effective and valid.
Today most mechanics’ liens are 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.
First the lien must be recorded within four months of the last work done or supplies delivered. Don’t wait until the four month period is about to expire to get started! You could run into problems delivering notice and thus be unable to comply with the timing requirements if you wait too late to get started. We recommend that you start approximately 75 days after the last work or materials supplied.
But before recording a lien the contractor must first provide formal written notice of his intent to record a lien to the property owner. This is done by serving or mailing the property owner with written “Notice of Intent to File a Mechanic’s Lien” (hereafter “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.
Tip – Many times the party to be noticed will simply refuse to accept the notice. This is why it is important to use certified mail, return receipt requested. Then if the addressee refuses to accept or sign for the certified letter, it will be returned. Keep the letter in its returned condition in case proof is later needed notice was served. It does not matter for purposes of serving the required notice that the mail was refused or never picked up by the addressee
The most common error found in mechanic’s liens is that the lien is recorded prior to the ten-day notice period expiring, thus invalidating the lien. In most cases the lien cannot be validly recorded after the discovery of this fault because the time period within which the lien must be recorded will in most cases 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 can invalidate the lien.
It is common to examine liens recorded that are 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 mechanic’s lien, the party claiming the lien must foreclose upon its lien. The first step here is to file a notice of lis pendens giving notice of the pending litigation. The Lien Statute provides a specific deadline for the commencement of litigation to foreclose a lien and the filing of a notice of lis pendens. Any failure to meet this deadline 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 is litigation and one can almost always expect the opposing party to vigorously defend against the foreclosure and forfeiture or their property. Thus, foreclosure is very powerful yet not a process that is recommended for the inexperienced.
Damages for Invalid Liens
Recording an invalid Mechanic’s lien can result in the claimant being held liable for the costs of defending against the invalid lien. Thus, it is extremely important that a contractor who records a mechanic’s lien to comply with the Lien Statute and to ensure the accuracy of the information in the lien. The Lien 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. Normally, a contractor has one chance to get this right before he or she runs out of time.
If you are not familiar with the process, consider hiring a professional. Donald Eby and the 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.