The Basics: Important Things to Know About Mechanics’ Liens in Colorado

Mechanics’ liens are legal claims intended to provide protection in the form of security to those who supply labor, materials, and equipment to improve real property for private construction projects.[1] The idea behind a mechanics’ lien claim is that a party who increases or enhances the value of property by virtue of providing labor or materials on a private construction project should have a security interest in the form of a lien against the property in the event the owner fails to pay. Mechanics’ liens are powerful tools for ensuring payment on a construction project.

Mechanics’ liens are governed by the Colorado Mechanics’ Lien Statute (the “Lien Statute”),[2] which sets forth detailed procedures, including timing and notice requirements, which must be strictly followed to perfect a lien claim. If the lien claimant properly and timely preserves and enforces its lien rights, it can then seek to force a foreclosure sale of the property to satisfy the owner’s debts on the project.

This article provides a general overview of the following: (1) who can file a mechanics’ lien; (2) what unpaid amounts may be included in a mechanics’ lien claim; (3) the procedure and timing for filing a mechanics’ lien claim; (4) the mechanics’ lien foreclosure process; and (5) practical considerations for potential lien claimants.

The Lien Statute defines who may assert a lien claim. Contractors, subcontractors, architects, engineers, material suppliers, providers of temporary labor, laborers, and those who render skilled or professional services for construction projects at the insistence of the owner (or an agent of the owner) may all file a mechanics’ lien in Colorado to secure payment for work, materials, or services. However, parties that sell materials without knowledge of where they are going to be used do not have lien rights.

A lien claimant who has supplied materials or labor for a private construction project may assert a lien for the “value” of unpaid materials or labor at the time of the claim. This value is usually determined based on the price stated in the parties’ contract for the materials or labor. The following items should typically not be included as part of a lien claim (but may be pursued in a breach of contract action): (a) amounts for work not yet performed; (b) attorneys’ fees; (c) contractual penalties; (d) unrelated charges; (e) credits that should be applied to the amount owed; (f) charges that might fall under a prior lien waiver; (g) delay damages; or (h) defective work.

It is important to note that a lien claimant is prohibited from filing a lien for a sum greater than what is owed to the lien claimant at the time of filing the claim. Filing a lien for an excessive amount can result in forfeiture of the entire claim, even if a portion of the claim is legitimate. Excessive lien claims can also result in an award of attorneys’ fees and costs entered against the lien claimant.

What Are The Procedural and Timing Requirements for Filing a Mechanics’ Lien Claim?

The Lien Statute sets forth a specific process as well as strict deadlines that must be met or the lien claim will be forfeited. Given the need to strictly comply with the Lien Statute, assistance from a lawyer experienced with lien claims is advised, as each claim is unique and the nuanced rules and requirements can present a variety of pitfalls.

Serve the Notice of Intent to File a Mechanics’ Lien: First, a lien claimant must serve a notice of intent to file a mechanics’ lien on the property owner and, if applicable, on the principal or prime contractor. This must be done at least ten (10) days before recording the statement of lien in the county where the property is located. The notice of intent must be served by personal service or by registered or certified mail, return receipt requested, addressed to the last-known address of the property owner(s) and principal or prime contractor. An affidavit of service or mailing constitutes proof of service. Thus, lien claimants should leave themselves ample time to meet the statutory requirements in advance of the deadlines discussed below.

Record a Statement of Lien: Second, a lien claimant must record a statement of lien with the county clerk and recorder where the property is located. Day laborers who did not furnish materials to the project must record a lien statement within two (2) months of the last day that labor was provided. For all others, the lien claimant must record a lien statement within four (4) months after the last substantial work performed or the last materials were delivered to the project. Trivial imperfections or omissions in the work do not operate to extend these deadlines. Thus, the clock may start running before the punch list items are complete.

The deadlines for filing the lien statement may be extended if the lien claimant records a notice extending the time to file a lien statement with the clerk and recorder within the original, applicable time limit for recording the statement of lien. Once the notice to extend is recorded with the county clerk and recorder, the deadline for filing the statement of lien is four (4) months after completion of the project or six (6) months after the date the notice to extend was filed, whichever occurs first. However, if the project has not been completed by that time, then prior to the extension expiration date, the lien claimant may file an amended notice extending the time to file a lien statement which extends the deadline for filing the statement of lien another six (6) months or four (4) months after completion of the project, whichever occurs first.

The lien statement must include the following information:

• The name of the owner or reputed owner of such property, or in case such name is not known, a statement to that effect;
• The name of the person claiming the lien, the name of the person who furnished the laborers or materials or performed the labor for which the lien is claimed, and the name of the contractor when the lien is claimed by a subcontractor or by the assignee of a subcontractor, or, in case the name of such contractor is not known to a lien claimant, a statement to that effect;
• A description of the property to be charged with the lien, sufficient to identify the same; and
• A statement of the amount due or owing the lien claimant.

A lien statement must also be signed and sworn by the claimant based on the claimant’s best knowledge, information, and belief and this is typically done before a notary. A lien claimant should record the notice of intent and affidavits of service with the lien statement so that there is evidence that the lien claimant has complied with all requirements of the Lien Statute. 

It should be noted that a lien claim may not be stated against the bona fide purchaser of a single- or double-family residence unless: (1) the purchaser has actual knowledge of the claimed amounts due; (2) the lien claimant recorded the lien prior to the conveyance of the property to the bona fide purchaser; or (3) the lien claimant recorded a notice extending time to file a lien statement one month before the completion of the project or transaction.

File a Foreclosure Action: A lien claimant must file a lawsuit to foreclose the mechanics’ lien within six (6) months after the last work or labor is performed, or laborers or materials are furnished, or after the completion of the building, structure, or other improvement, or the completion of the alteration, addition to, or repair thereof. Completion by abandonment can constitute completion under certain circumstances. Failure to timely file the foreclosure action in court will result in a forfeiture of the lien claim.

How is a Mechanics’ Lien Foreclosed?

To foreclose on the property subject to the lien, the lien claimant must file a lawsuit in the District Court (not the County Court) of the county where the project property is located.

Commence Litigation: The lawsuit must be brought against all parties claiming any right, title, interest, or equity in the property (whose title or interests are to be charged with or affected by the lien), including the owner, the prime or principal contractor, other lien claimants, lenders with secured interests, and the Public Trustee of the county where the property is located. A foreclosure claim is an equitable action heard by the court and not by a jury. The Colorado Rules of Civil Procedure govern mechanics’ lien court proceedings, but the Lien Statute requires the court to advance mechanics’ lien foreclosure claims to the head of the docket for trial.

File a Lis Pendens: In addition to filing the lawsuit, the lien claimant must also file a lis pendens in the county clerk’s office where the property is located. A lis pendens is a public notice constructively alerting anyone who may be interested in the property that a lawsuit is pending against the property and may affect the title or possession of the property.

Owner May Bond Around the Lien: An owner of the property may procure a surety bond for 150% of the value of the lien and file it with the court for approval. The bond must be conditioned on the principal or surety being required to pay the lien claimant the amount of any judgment, together with any interest, costs, and other sums which the claimant may be entitled to recover upon foreclosure of the lien. If the court approves the bond, it is recorded in the chain of title with the county clerk and recorder, and the lien and the lis pendens are released. The lien claimant may then amend the complaint to bring a claim against the bond and add the principal or surety as a party to the lawsuit.

Defenses: The Lien Statute provides parties responding to a foreclosure claim with several defenses. For example, an owner may defend against a lien claim by arguing that it is untimely, suffers from procedural deficiencies, or the amount sought is excessive. The owner of a single-family residence may avoid the claim entirely by asserting payment of the principal or prime contractor in full. This can be done by recording a notice with the county clerk and recorder stating that the prime contract has been paid in full and demanding release of the lien. Furthermore, if the potential lien claimant waived its mechanics’ lien rights under the parties’ contract, it will not be able to pursue the lien claim and its remedies will be limited to those otherwise available under the law such as filing a breach of contract claim against the owner.

Judgment: A successful lien claimant is entitled to judgment for the full amount of the claim. Typically, the court will also order sale of the property to satisfy the judgment. If the sale is sufficient to cover all lien amounts and costs, then the remainder of the proceeds from the sale are paid to the owner. If the sale is insufficient to cover all lien amounts and costs, the owner may be liable to pay the balance of the unsatisfied claims.

Practical Considerations

There are practical considerations which a lien claimant should also consider when deciding whether to secure and foreclose a mechanics’ lien on the property.

Priority of Liens on the Property: The property may already be subject to prior recorded liens. Mechanics’ liens hold priority over other encumbrances recorded after the commencement of the work. However, they will have a lower priority than prior encumbrances   such as a prior recorded mortgage. All mechanics’ liens related to the project have the same priority date, but they are ranked in the following order: (1) laborers by the day or piece who did not supply materials; (2) subcontractors and suppliers; and (3) principal or prime contractors. Thus, a potential lien claimant should factor the lien claimant’s priority into its ability to recover on the claim.

Arbitration Clauses: Many construction contracts require the parties to resolve their disputes in front of an arbitrator rather than a court and this fact can complicate the mechanics’ lien claim. For instance, the lien claimant may need to file a foreclosure action in court to comply with the Lien Statute and avoid losing its foreclosure right and then ask the court to stay the litigation while the arbitration proceeds. An arbitrator does not, however, have the power to order sale of the property, so the matter would likely need to go back to the court for an order compelling the sale of the property after the arbitration is complete.

Attorneys’ Fees and Costs: A lien claimant should consider the cost of foreclosing on a mechanics’ lien claim. On the front end, lien claimants must cover the costs associated with serving the notice of intent to file mechanics’ lien and recording fees related to the statement of lien. If the lien claimant is forced to foreclose on the lien to obtain payment, it will also need to pay court filing fees, attorneys’ fees, and other litigation costs. Depending on the size of the claim, it may not be worth it to pursue foreclosure.

BHGR’s Construction Group represents architects, design-build firms, engineers, general contractors, insurers, owners, subcontractors, suppliers, and sureties. Our attorneys routinely advise our clients on all aspects of mechanics’ liens in Colorado.

 [1] This article does not discuss the rights of parties who supply materials or perform labor on a public (federal, state, or local government) project.

[2] See C.R.S. §§ 38-22-101 to 38-22-133.