Handling a Mechanic’s Lien
What Is the Effect of the Recording of the Lien Statement?
The recording of the lien statement makes it effective for one year from the date of its filing. But, this is subject to the time limits imposed when the work is complete – more on this later.
A contractor may also record a Notice to Extend Time to File Lien Statement. This notice gives the contractor additional time to file the lien statement.
When Will a Mechanic’s Lien Terminate?
A mechanic’s lien does not have a perpetual life span. Its duration is limited by a number of different time frames, which can be confusing. The general rules for the termination of the mechanic’s lien are:
Payment in full or part:
The owner pays the amount due to the contractor in exchange for a waiver/release of the contractor’s lien rights. The waiver can be a complete waiver of all lien rights. This is usually done when the contract price is paid in full. If the owner makes a partial payment, based on the work done to date, the contractor will issue a partial lien waiver, and preserve its lien rights for work done but not yet paid. The lien waiver usually will be conditional on the check being paid by the owner’s bank, and not dishonored. Typically, these lien waivers are dated thirty days prior to the actual date of the payment to ensure that the contractor does not waive its lien rights without the security of payment.
The contractor will file a release/partial release of the lien statement if it has been recorded. In fact, there is a penalty of ten dollars for every day that the contractor neglects or refuses to file the release of the lien. This penalty is due and payable ten days after the written request for the release of the lien.
The contractor completes the work required by the contract:
The contractor may file its lien statement if there is any dispute about the payment. If the work supplied was for labor and work by the day or piece, then the contractor must file its lien within two months after the day on which the last labor was performed. If the work supplied was for any other type of work, labor, or materials, then the contractor must file its lien within four months after the day on which the last labor, work, or materials are supplied.
In any event, the lien of all contractors terminates six months after the day on which the last labor, work, or materials are supplied unless the contractor commences a court action to foreclose its lien.
Are There Special Rules for the Termination of the Mechanic’s Lien Where the Property Is a Single or Double Family Dwelling?
Yes, there are two special rules which provide protection to the homeowner. The first rule reduces the time limits to file a lien, and the second rule provides a complete defense to any claim brought by the contractor. Each of these rules has its limitations.
The first special rule reduces the time within which the lien must be filed to two months after completion of the improvements. This rule applies to single- or double- family dwellings. The two month period is not applicable (1) if the buyer has actual knowledge that the contractor has not been paid, or (2) if the lien statement has been recorded prior to the conveyance of the property to the buyer, or (3) if a notice extending the time to file the lien statement has been recorded within one month subsequent to completion or prior to the conveyance (whichever is the later).
For the purposes of this special rule, completion is deemed to occur when the property is conveyed and occupied by the buyer. Of interest, the rule is not limited to the primary residence of the owner and therefore will apply to second and vacation homes (unlike the second rule below).
The second special rule provides the owner with a complete defense to the mechanic’s lien if the property is a single-family dwelling unit intended for the primary use of the owner. They are a number of requirements before the owner can make use of this defense: (1) the property must be an existing single-family dwelling unit; (2) the property must be a residence constructed by the owner, or under a contract entered into by the owner prior to occupancy as the owner’s primary residence, (3), the property must be occupied by the owner as their primary residence, and (4), the owner has paid or caused to pay all amounts required to satisfy the construction contract amount. If you can meet these requirements, then you will enjoy the benefit of this affirmative defense.
What Happens If the Contractor Walks off the Job and Never Returns?
A contractor may never complete the contract and abandon the project. Colorado statute defines “abandonment” as the discontinuance of all labor, work, services, and furnishing of laborers or materials for a three month period.
Abandonment of the work will constitute completion of the work which then triggers the six month period to file a foreclosure action by the contractor for non-payment of the work completed, effectively creating a nine-month window before the property can be considered free of the possibility of a lien claim