Mechanic's Liens- Know the Facts
So you want to build a redwood deck on the back of your home? You contact Joe Contractor and he agrees to build it for $15,000.00. You pay him $5,000.00 down, make progress payments to him and pay the remaining amount at the time the project is finished. You love your deck.
Two weeks later, you receive a notice from ABC Lumber Company. Joe Contractor did not bother paying for the 2x4s and other lumber which he used to build your deck, and the supplier now wants his $10,000.00 for the lumber. The supplier is threatening to place a mechanic’s lien on your property unless he is paid.
A mechanic’s lien is a tool used by contractors, workers and suppliers for payment for work that has been done on your property which improves it. You are obviously upset because you paid the full amount to Joe Contractor, and expected him to pay his supplier, only he did not.
Well, Colorado law has protected you. In residential properties, as long as the contractor is paid, any lien placed upon your property by a subcontractor or supplier is invalid and any suit brought on that lien will be dismissed. Still, it is a nuisance and could take up to a year for a title company to remove the lien from your property.
If you own a commercial property, the Colorado statute discussed above does not apply. However, commercial landowners are also protected thanks to the so-called “trust fund” statute. That law states that any money paid to a contractor is held in trust by that contractor for the specific purpose of paying all of his subcontractors and suppliers for that particular job. If he uses the money for other purposes, he commits theft and could face criminal charges. A letter to the non-paying contractor pointing out that he is in violation of the trust fund statute usually brings results.
Another glitch in the lien process is when you are the property owner, and your tenant tries to make improvements without your permission, leaving you holding the bag for the $15,000.00 redwood deck. In such cases, in order to avoid a lien on your property, you must post a notice of non-liability on the site of the property in a conspicuous place within five days after you have learned what your tenant has done and the work has started.
The claimant, of course, has rights as well whether it be the primary contractor, subcontractor, or supplier. However, he must be careful not to overstate the lien amount. If he or she knowingly exaggerates the claim, he could lose the entire amount of the lien and pay the property owner’s attorney fees in addition.
Also, the lien statement must be complete and accurate, and must be served on the owner of the property and the general contractor at least ten days before it is recorded in the office of the clerk and recorder of the county in which the property is located. Failure to be accurate and to serve the right parties renders the lien invalid.
Timing is also important for the lien to be valid. It must be recorded no later than four months from the time the last substantial work is done on the property, if labor and materials are involved. If the lien is for labor only, then it must be filed no more than two months from the time the project is completed. Finally, the lien expires unless suit is brought on the lien no later than six months after the lien is recorded.
So whether you are a property owner concerned that liens could be placed against your property and result in a lawsuit, or a contractor, subcontractor or supplier who wants to get paid for the work he or she has done to improve your property, there are many rules and traps in the mechanic’s lien statute. There is little room for errors. We strongly recommend that you consult a competent real estate attorney if you find yourself on wrong end of this problem, whether you want the lien perfected, or you don’t want it on your property.