To learn how to file a mechanic’s lien, see HERE.
The goal of a Colorado mechanic’s lien is for the claimant to be paid for work performed. In some cases, once the claimant files the mechanic’s lien, the parties can work out payment and the lien can be satisfied. However, there are also cases where the claimant is still not paid despite a mechanic’s lien being properly filed. In these situations, the claimant must enforce the mechanic’s lien. Enforcing a mechanic’s lien simply means filing a lawsuit to force the sale of the real property (“foreclose”) with the proceeds of the sale being used to pay off the claimant’s mechanic’s lien.
STEP 1: Prefiling Research
Prior to filing the lawsuit, it is beneficial to know (1) what other liens/mortgages have higher priority than the mechanic’s lien and (2) the value of the property. This information is helpful because an enforcement lawsuit may eventually end with the property being sold and the proceeds from the sale being paid to lienholders in order of priority. For the claimant to be paid, however, there must be enough equity in the property to pay the mechanic’s lien and all other liens that have higher priority. In Colorado, recent changes to the residential real estate homestead law also provides to some homeowners a $250,000 to $350,000 equity exemption before the claimant is paid.
STEP 2: File the Lawsuit Within the Deadline
Colorado has specific deadlines a claimant must adhere to in order to enforce their mechanic’s lien. A missed deadline could make the mechanic’s lien invalid.
Important Deadline: The enforcement lawsuit must be filed no later than six months after the later of (1) the last day that work was performed, (2) the last day materials were provided, or (3) the date that the building or improvement on the property was completed.
STEP 3: File a Notice of Lis Pendens
In addition to filing the enforcement lawsuit, the claimant must also file a notice of lis pendens with the county clerk and recorder where the property is located. The lis pendens provides notice to the public that a lawsuit is pending that could affect the interest in and title to the property.
STEP 4: Litigation
Once the enforcement lawsuit is filed, litigation begins and can take several different paths toward resolution. In Colorado, property owners are allowed to post substitution bonds. These bonds are usually 150% of the mechanic’s lien amount. By posting a substitution bond, the title to the property is cleared, and the enforcement lawsuit continues with litigation. The parties can then litigate to determine if the claimant gets some or all the mechanic’s lien amount paid from the bond.
If the owner decides not to post a substitution bond, the case will then move forward with the court deciding whether the property will be sold at foreclosure. The primary factors the court must consider are whether the mechanic’s lien had proper notice, met all deadlines, and the amount is allowed by law. Assuming all requirements have been met and the owner has no valid defenses, the court will then authorize the property to be sold, and the proceeds go towards paying the mechanic’s lien if enough non-exempt equity exists in the property after payment to the prior lienholders.
Colorado provides property owners with various defenses to enforcement lawsuits. Some common defenses are:
- Improper Amount: A mechanic’s lien can be found invalid if the claimant knowingly claims an amount more than the amount reasonably owed.
- Untimely: A mechanic’s line can be found invalid if all filing deadlines are not followed.
- Homeowner’s Defense: If the property is a new single-family dwelling, the homeowner is relieved of the mechanic’s lien if they paid the general contractor the full contract price for the work performed.
Enforcement of a mechanic’s lien requires the claimant to understand foreclosure procedure and general Colorado Court Rules. These actions should be undertaken with an experienced attorney as a mistake can result in the loss of the mechanic’s lien with no payment made.
The construction and real estate lawyers at Burnham Law have the experience to enforce a mechanic’s lien. Burnham Law provides representation that gets our clients paid for the labor and materials they provide to construction projects. These cases have strict deadlines and procedures, so contact one of our construction lawyers today to assist with your mechanic’s lien.