When the owner of real estate hires someone to perform construction on their real property or provide materials that will be used in the project, the individuals and businesses that provided the labor and materials need to be paid. But what happens when payment is not made? An unpaid creditor who has furnished labor, machinery, tools, or equipment in a private construction project may file a Mechanic’s Lien Statement with the clerk and recorder of the county in which the property is located.
The Mechanic’s Lien Statement establishes the unpaid creditor’s security interest against the owner of the real estate that was improved. However, many people who would otherwise be entitled to such a security interest get into trouble because they do not follow the correct statutory procedures required to perfect their mechanic’s liens and foreclose on the real property. In fact, failure to correctly draft the mechanic’s lien or follow the correct procedures can even result in the court requiring the lien claimant to pay the property owner’s legal fees in defending against the improper mechanic’s lien.
A Mechanic’s Lien Statement must contain the name of the owner or reputed owner of the property, the name of the lien claimant, the name of the person who furnished the material or performed the labor, and the name of the contractor. § 38-22-109(1). The Mechanic’s Lien Statement must be filed within four months of the day on which the last material or labor was furnished by the lien claimant. C.R.S. § 38-22-109(4). Punch list or minor fixes do not count for the deadline – it must be substantial work.
A Notice Extending Time to File Lien Statement may also be filed within that four-month timeframe, which will extend time for filing the Mechanic’s Lien Statement up to six months after filing the notice or four months from project completion (whichever is earlier). § 38-22-109(5). At least 10 days before filing the mechanic’s lien statement, the lien claimant must serve a Notice of Intent to File a Lien Statement to the property owner and the principal contractor. C.R.S. § 38-22-109(3). This means that the four months from the last work is actually four months less ten days in order to do the proper notice.
After the mechanic’s lien statement is filed, the lien claimant must foreclose within six months after the last materials were delivered or the improvements were completed. § 38-22-109(6). Usually, this means the date of the Certificate of Occupancy is issued on the project. A Lis Pendens, which gives notice to the public that the foreclosure action has commenced, must also be filed with the clerk and recorder in the county where the property is located simultaneously with the foreclosure pleadings. Id. The foreclosure is a Judicial Foreclosure (commonly known as a “Sheriff’s foreclosure”) and is not the same as a streamlined Trustee’s Foreclosure with its abbreviated C.R.C.P. Rule 120 hearings.
The Colorado Mechanic’s Lien Statute does not include any provision for attorney’s fees. Since most mechanic’s liens are filed by sub-contractors or materialmen, they generally do not have a contract with the owner of the real property from which a fee shifting agreement can be utilized. Consequently, foreclosing small value liens usually does not make any business sense and a small claims court case is a good option. Mechanic’s Liens are, however, a powerful coercive tool since they hold the property for at least six months, freezing the owner’s access to lending or sale without paying off the lien. That is why Jorgensen, Brownell & Pepin, P.C. recommends the filing of a Notice to Disburser with any lien filing when there is a construction lender. Often, the construction lender will simply pay off the lien to unencumber the title and then back charge the owner.
There are many other rules and nuances to mechanic’s liens that, if discussed herein, would turn this blog into a full blown treatise. For example, in some instances Colorado allows blanket liens on entire subdivisions, liens on leased property, and liens on oil and gas properties. Colorado also has rules regarding when materials can and cannot be claimed on a mechanic’s lien, as well as rules for leased equipment. Lien claimants may even be eligible to claim more interest than the contract provides. Indeed, the world of mechanic’s liens is vast and complicated.
While the attorneys at Jorgensen, Brownell & Pepin, P.C. have many years of experience handling mechanic’s liens, the information provided herein is not legal advice and should not be used to assist you in handling your mechanic’s lien issue on your own. Just as each construction project is different, the needs of each lien claimant or real property owner will be different. It takes a skilled construction attorney to evaluate the facts of your case and ensure your mechanic’s lien issue gets handled properly.
Whether you are an owner or a potential lien claimant, the Longmont construction attorneys at Jorgensen, Brownell & Pepin, P.C. are available to offer guidance and representation to sort out your mechanic’s lien issues. Contact us today to schedule a consultation: (720) 809-8310.