An Introduction To Mechanic’s Liens
When and how does a mechanic’s lien arise?
A mechanic’s lien enjoys a privileged status under Colorado statutes. Earlier, we described the concept of lien priority and the need to record the lien documents with the clerk and recorder for the county where the property is situated to create the lien and gain priority.
This is not the case with a mechanic’s lien. Under Colorado law, the right to a mechanic’s lien arises on the commencement of the work. This is a crucial concept to keep in mind. The commencement of work is not when the contractor starts to dig the dirt! The commencement of work can reach as far back as when pen is first put to paper, when you, the property owner, hire an architect, engineer, town planner, surveyor, or any number of behind the scenes professionals to assist in the design of the project (whether a new build, remodel, fix and flip, of whatever scope or size). The work that each of these professionals does falls under the statutory definition of work, and each one is entitled to a mechanic’s lien for the work which they perform.
Does a mechanic’s lien have any special priority?
Yes, a mechanic’s lien has a special priority. The contractors do not have to record a mechanic’s lien statement with the county clerk and recorder, until such time as they decide to enforce their lien. They have lien rights from the first day of the commencement of work without any further requirements for recording. These lien rights are superior to any other interests and rights in the property and will prevail over anyone else who may record a lien, without knowledge of the existence of the work being done.
Therefore, in the examples of common types of lien given earlier, the mortgage or deed of trust of a lender who lends you money to purchase your property will be junior to the mechanic’s lien. In the event of a foreclosure of the mortgage or deed of trust, the mechanic’s lien holder will be senior and retain its priority without being affected by the foreclosure.
Clearly, these special mechanics’ lien rules upend the concept of the recording statute and the priority of recording discussed earlier. The law provides the contractors with a powerful weapon to use in collecting payment.
This relation back to the commencement of work is often described as a “secret lien” in view of the fact that there is no record of its existence. It is peculiar to Colorado law. Other states usually require the recording of some form of notice to signify that work has commenced and to put third parties on notice of the potential risk for a mechanic’s lien.
Another peculiarity of the “relation back doctrine” is that a contractor who is one of the last to supply work, labor, or materials on a project (the painter or carpet installer as examples) still benefits from the fact that the priority of that contractor’s lien relates back to the commencement of the work. As a result, the contractor’s lien will be senior to any other lien.
- How much can a contractor claim under a mechanic’s lien?
The contractor can claim a mechanic’s lien to the extent of the entire contract price for the project. The contractor is entitled to receive interest at the rate specified in the contract, or in the absence of an agreed rate of interest, at the rate of twelve percent per annum.
A contractor cannot file a statement of lien for more than is due. If it is proved that the lien claimed exceeds the amount due, the contractor will forfeit its lien rights and be liable to the owner for the costs and attorney’s fees in proving that the amount claimed was excessive.
If a partial payment on the contract price is made, the contractor is required to file an amended statement of lien to reflect the amount now owing.
Note that the contract must be in writing and signed by the owner and the contractor (unless the contract price is less than $500).
- How do I know that there is a mechanic’s lien on my property?
The right to the lien arises on the commencement of the work, and does not require the recording of any notice to this effect. Because of this “secret lien”, it may be difficult to determine if any contractor is entitled to a mechanic’s lien, especially if the work done is behind the scene planning and surveying.
There are a number of situations which should put you on your guard to the possibility of mechanics’ liens. Examples include recent construction or work done to the property. If you purchase a newly constructed house, or recently remodelled house, then the existence of mechanics’ liens is very likely.
In contrast, in the typical residential sale, the seller may have caused repairs to the roof to be made (to repair recent hail and storm damage) or replaced carpeting or flooring or painted the house. This type of work is not as self-evident as the new build or remodel, but the work will still give rise to the possibility of a mechanic’s lien.