What is a mechanics' lien?
A mechanics' lien is a method of ensuring that parties who supply materials, labor, or services to a construction project are paid for their work. When a construction professional records a mechanics lien, the professional is granted a security interest in the property. The ability to file a mechanics' lien protects the professional that supplied materials or services to enhance the property's value.
Who can file a mechanic's lien?
In Colorado, general contractors, subcontractors, material suppliers, equipment lessors, laborers, and design professionals can all record a mechanics' lien when they are not paid for their work.
What effect does a mechanics' lien have?
When a construction professional records a mechanics' lien, the lien will appear on a title search of the property and create an encumbrance. If the property is sold while the lien is still attached, the lien will continue with the property and the new owner will be subject to the lien. However, typically when a lien is discovered the sale or refinancing will not occur until the lien has been removed. A mechanic's lien recorded against the property where the work was performed creates issues for all parties involved, not just the homeowner. For example, recording a mechanics' lien for an excessive amount (i.e. an amount you are not entitled to) could result in forfeiture of the entire lien claim and an award of attorneys' fees and costs. Additionally, Colorado statutes applicable to recording a mechanics lien require strict procedural and timing compliance. This is another example of how a lienor may lose its lien rights.
Often homeowners and general contractors will require their subcontractors and vendors to execute lien waivers upon or as a condition precedent to payment. For a more in-depth analysis into the types of lien releases and waivers, as well as, the risks associated with such waivers see BOG's article titled: Unconditional Lien Releases Versus Conditional Lien Releases.
Many construction contracts include provisions that obligate the general contractor to keep the property free and clear of liens. If a lien is placed on the property, the contractor will be in breach of the contract and subject to certain penalties. The general contractor will have to extinguish the lien to cure the breach, and this would likely require payment to the subcontractor to remedy the issue.
Homeowners can find themselves in a sticky situation due to a mechanics lien being recorded against their property. The same can be said for contractors recording the mechanics' lien.
The information contained on this blog is intended to be general information only and not legal advice. This blog topic is not intended to be fully comprehensive. For these reasons, we suggest you seek a licensed attorney to help you review your agreements and your facts. If you have any questions about the contents of this blog or if you need legal advice regarding mechanics' liens, please contact the Beavers O'Connell Group at (720)538-0363, [email protected] or fill out a form under our Contact page.