Mechanic's Liens
A mechanic's lien is one of the best ways to secure payment on a project. But it's complicated. And easy to screw up. Here are the rules:
Read the Statute.
If you are going to do this on your own, read the statute - Colorado Revised Statute 38-22-101, et seq (which means, "and what follows." What follows are several sections with very specific requirements). Mechanic's liens are a remedy created by statute. Accordingly, courts strictly interpret its requirements. Failure to meet a single requirement may render the lien invalid.
Confirm You Can Record a Lien.
Mechanic's liens cannot be recorded against public property. A party seeking compensation on public projects in Colorado improving state, city, or county property must seek recourse though the Public Works Act. More on that here. A party seeking compensation on a federal project (think military base) must follow the procedures of the Miller Act. More on that here. Finally, the owner of a project can post a notice precluding contractors from recording liens against the project.
Don't Be Late.
A mechanic's lien must be "filed for record at any time before the expiration of four months after the day on which the last labor is performed or the last laborers or materials are furnished by such lien claimant." C.R.S. sec. 38-22-109(5). Sounds simple. It isn't. First, the statute says "four months," not 120 days. What happens if your last day of work was on October 31st? There is no February 31st. Is the deadline February 28th or March 1st. This has not been tested, and it would not be wise to do so. There is no penalty for recording early. Next question: When was "the day on which the last labor [was] performed or the last laborers or materials [were] furnished by such lien claimant?" This is not necessarily the last day on the project. The clock begins ticking on the last day of substantive work or the day the last substantive materials were supplied. Punch list work often does not count. Again, there is no penalty for recording early. It is best to avoid this argument.
Send the Notice of Intent.
At least ten days before recording a mechanic's lien, the claimant must send notice of its intent to record a mechanic's lien. This notice must be sent to the owner and general contractor, if any. The statute dictates how the lien must be sent: "Such notice of intent shall be served by personal service or by registered or certified mail, return receipt requested, addressed to the last known address of such persons." Thus, there are only two appropriate methods of delivery - a process server or certified mail. An uncertified letter does not count. Email, text, or verbal notices do not count. Failure to send the notice of intent at least ten days prior to recording the mechanic's lien renders the lien invalid. Accordingly, the deadline to take action is not actually four months from the date of last work. It is four months minus ten days, no later than which the notice of intent must be sent.
Record the Lien.
The mechanic's lien must be recorded with the clerk and recorder of the county where the property is located. The statute requires very specific content: (1) the name of the owner of the property; (2) the name of the lien claimant and the general contractor (if any); (3) a description of the property against which the claimant is recording the lien (to be safe, include both the address and legal description); (4) a statement of the amount due and owing; (5) claimant's signature swearing to the amount claimed; (6) an affidavit affirming that the notice of intent was served on the owner at least ten days prior to recording the mechanic's lien; and (7) an affidavit affirming that the notice of intent was served on the general contractor (if any) at least ten days prior to recording the mechanic's lien. C.R.S. 38-22-109(1)-(3).
Don't Overreach.
Contractor's can create serious exposure if they inflate the lien. The statute provides: "Any person who files a lien under this article for an amount greater than is due without a reasonable possibility that said amount claimed is due and with knowledge that said amount claimed is greater than the amount then due ... shall forfeit all rights to such lien plus such person shall be liable to the person against whom the lien was filed in an amount equal to the costs and all attorney's fees." C.R.S. 38-22-128. In other words, if a contractor records a lien for an inflated amount, the contractor loses all lien rights and has to pay the attorney fees the other party incurs to remove the lien. The mechanic's lien statute also provides for an expedited hearing to test the sufficiency of the amount claimed. C.R.S. 38-22-113. A contractor should be prepared to defend every penny of the calculation of the amount claimed.
Foreclose.
Once the lien is recorded, the next step is to file a mechanic's lien foreclosure action. C.R.S. 38-22-110 sets forth the requirements of the mechanic's lien foreclosure suit. First, and most important, is the deadline. A claimant must initiate the foreclosure action no later than six months from the completion of the project. This is a different calculation than that used to calculate the deadline to record a lien. For the former, the deadline is four months from the date of last work on the property performed by the claimant. For the foreclosure action, the deadline is six months from the date of last work on the project by anyone. This can be tricky, as a contractor who has left the project may not necessarily know if work is still being performed.
In addition to filing suit, the claimant must record a lis pendens with the clerk and recorder, which notifies the public that the title to the property is in dispute. Failure to file a lis pendens within this time renders the lien invalid.
One final wrinkle: a mechanic's lien must be renewed every year. This becomes an issue for early trades such as excavators and site utility contractors. On larger projects, they could have completed their work over a year earlier. The mechanic's lien could expire before they reach the deadline to foreclose. In this situation, if the contractor fails to renew the lien, it becomes invalid.
The bottom line is this: the mechanic's lien foreclosure process is complicated and unforgiving but still one of the best ways to get paid on a project.