In my experience as a Colorado construction law attorney, few things are as misunderstand in construction disputes as mechanic’s liens. In principal, a mechanic’s lien is simple: a contractor or subcontractor (I will refer to both as a contractor) who has not been paid on a project can file a lien against the owner’s property. The lien is a recorded claim against an owner’s interest in real property and the owner’s property serves as security for the contractor’s claim. In practice there are numerous technical requirements about which all parties should be aware. Failing to know your rights involving a mechanic’s lien can create problems for both owners and contractors. For a contractor, it can result in losing your lien rights and possibly even being assessed an award of attorney’s fees. For an owner, it can result in paying an otherwise invalid lien claim or even paying for the same work twice.
A mechanic’s lien is a statutory creation designed to aid contractors in getting paid for work on construction projects. The legislature has given contractors the right to record a lien against an owner’s property before there has been any ruling that the contractor actually is owed money. Colorado’s Mechanic’s Lien statute contains a provision allowing the mechanic’s lien to “relate back” in time to the date of the first work performed on the project. This is especially important where the owner has taken out a construction loan because of the law concerning priority of encumbrances. Normally, with a few exceptions, Colorado law provides that a lien’s priority is based upon when the encumbrance was recorded. A lien recorded on a date and time after another encumbrance against the same property is said to be inferior and subordinate to the earlier-recorded lien. The earlier lien is said to be in “first position” and is prior and superior to later-recorded liens. Generally, if a property is encumbered by one or more liens, the liens are to be satisfied in the order in which they were recorded. The “relation back” provision of the mechanic’s lien statute can allow a later-recorded mechanic’s lien to relate back in time to the date of the first work on the project and take priority over earlier recorded encumbrances if the date of the first work on the project precedes the date the other liens were recorded. This may allow a contractor’s mechanic’s lien to be superior to the encumbrances of other lien holders even though the mechanic’s lien was recorded later. The question of whether a mechanic’s lien has priority over other liens which were recorded before the mechanic’s lien is a fact question that will differ in each instance.
Since the legislature has conferred upon contractors the right to record a lien against an owner’s property before the contractor is adjudicated to be owed money, it required the contractor to “perfect” its lien. A normal encumbrance such as a mortgage loan deed of trust or a judgment lien can remain a lien against the property for a long time. However, a mechanic’s lien does not remain in place indefinitely; rather, the contractor must timely bring a lawsuit against the owner in order to “perfect” the lien. In the lawsuit, the contractor must show that it is owed money for its labor and materials provided to the project in the amount claimed in the lien and that the contractor complied with all of the statutory requirements for recording the lien. If it does so successfully, a court will issue an order allowing the contractor to foreclose upon its lien and be paid from the proceeds from the property’s sale. In my experience, many contractors are unaware of the requirement to file a lien foreclosure action. They mistakenly believe that they can just leave the lien in place and they will eventually get paid.
There are several important deadlines under the mechanic’s lien statute. The contractor has four months from the date of its last work on the project within which to record the lien. At least ten days prior to recording its lien the contractor must provide proper written notice that a lien will be recorded. The contractor must file its lien foreclosure lawsuit within six months of the date the project is completed or abandoned. A contractor’s failure to meet any of these deadlines or properly fill out the lien form can void the lien.
There are numerous other issues that owners and contractors need to be aware of in this process. I have seen many liens invalidated because the liens were not done properly. When representing owners I always check to determine whether the contractor has complied with all of the statutory requirements. If not, we seek to void the lien. When representing contractors, I make sure that my client gives me all of the necessary information in order to timely record the lien. It is a good practice for owners and contractors to consult with an attorney concerning the lien process to ensure they fully understand their rights under the Colorado Mechanic’s Lien statute.
Ken Golden is a partner with the law firm of Gregory, Golden & Landeryou LLC, in Durango. Reach him at 247-3123.