- Real Estate
On its face, a lien is a straightforward concept with which most people are familiar. In short, a lien is a type of collateral for a debt that usually takes the form of an interest in real or personal property that is recorded with a government authority. This interest in property is often referred to as an “encumbrance.”
The existence of encumbrances will likely hinder the owner’s ability to obtain loans or sell the property, which can create substantial burdens on the property owner. The essential characteristic that makes a lien valid is that it exists by virtue of an outstanding debt or obligation.
Common examples of liens are mortgages and mechanics’ liens. Mortgages grant lenders an interest in property as security for their loans, and mechanics’ liens give laborers and material suppliers an interest in property on which they worked as security for payment. Both of these, as well as other common liens, are described and governed by state statute.
However, valid liens are not limited to those explicitly governed by statute as long as they function as security for an existing debt or obligation, which raises an important question. How does one challenge a lien that does not appear in any statute and does not appear to secure an existing debt? Colorado law provides for a procedure through which a person can dismiss what the law calls a spurious lien. This law is codified at C.R.S. § 38-35-201 et seq.
Is The Lien Groundless?
Let’s look at an example. You live in a neighborhood governed by a Homeowners’ Association that enforces covenants and restrictions regarding the use of your property. The Association requires you to pay fees so that it can hire workers and material suppliers to fix roads and other common areas in the neighborhood. If you fail to pay these fees, the Association will likely pay for this work regardless but will place a lien on your property to secure your outstanding debt. Provided it is properly recorded and you receive notice of it, this is a valid lien.
By contrast, imagine that the Association informs you that you are in violation of a covenant because you built something extra on your property (e.g., a toolshed, a fence, etc.) without proper permission. The association can demand that you remove these things at your own expense, but can they file a lien on your property in this situation? The answer is most likely no.
The essential difference between these two examples is the existence of an actual debt. There is nothing wrong with the Association enforcing their rules in the latter example, but the Association has not provided any service that creates a debt. Another way of looking at it is that the Association has no means of specifying an actual amount owed in this situation and would have to simply pick an arbitrary amount.
How to Protect Yourself Against a Spurious Lien
When a person or entity files a spurious lien, Colorado law provides for an expedited process whereby a property owner can dispose of this lien. Under this law, a property owner can file a petition in Court, and the Court will issue an order to the person or entity that filed the lien to explain why the lien is valid. If this person or entity fails to justify the lien, the Court will dispose of it and award attorney’s fees to the petitioner. See C.R.S. §38-35-204.
Another important component of the spurious lien law is that it only applies to liens not already governed by statute. For instance, a mechanic’s lien cannot be “spurious” under the statute because a separate statute exists that governs mechanic’s liens and their validity. The case Tuscany, LLC v. W. States Excavating Pipe & Boring, LLC, 128 P.3d 274 (Colo. App. 2005) explains this important distinction between mechanic’s liens and other types of liens. Mechanic’s liens are really a distinct legal issue, as are mortgages, and this post does not cover the many intricacies of these other liens.
As noted earlier, a lien is a type of encumbrance that has the effect of clouding one’s title to property, making receiving loans more difficult and hindering one’s ability to sell the property. However, a lien is not the only type of document that can have this effect. For example, if someone else wrongfully claims ownership of property and attempts to convey the property to someone else, recording such a conveyance will also cloud title by casting doubt on who actually owns the property. For this reason, the spurious lien statute also applies to any spurious document that affects one’s interest in their property, and the above-described process can serve to nullify this conveyance.
Another aspect of this law worth highlighting is that if one succeeds in disposing of a lien or other document as spurious, that individual is entitled to attorney’s fees. In other words, a property owner ultimately does not have to pay the expenses of having the lien or document declared spurious. This law, therefore, provides property owners with an incentive to be proactive in clarifying and defending their property rights.
Need Help Protecting Yourself?
If you feel that a groundless lien or other document is harming your property interests, we can help you. Contact us at either (303) 678-0560 or (970) 304-0075 to discuss your case further.
This blog is intended to provide general information and, therefore, should not be treated as legal advice. You should contact a qualified attorney for questions about legal issues.