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Mechanics' Liens in Colorado.

NATURE OF LIEN RIGHTS

In Colorado, a mechanic's lien is only obtained when the claimant strictly follows the requirements of the mechanic's lien statute, C.R.S. [sections] 38-22-101, et seq. In general, any person who furnishes labor or materials for use in the construction of any improvements on the real property sought to be charged with the lien is entitled to file a lien based upon the labor and/or materials furnished.

PERSONS ENTITLED TO LIEN

Those persons designated in C.R.S. [sections] 38-22-101 are entitled to claim a mechanic's lien. The general contractor is also entitled to a lien.

* Each subcontractor or supplier should file their own lien and not rely on the general contractor. If this is not done, the owner can offset any claims against the general contractor, which can be to the detriment of the subcontractors.

* An architect is entitled to a lien for the preparation of plans even though the improvements are not constructed.

* A party furnishing contract labor is entitled to a lien.

* A second tier material supplier (a supplier to a supplier) is not entitled to the benefits of a mechanic's lien.

SPECIFIC ITEMS WHICH MAY OR MAY NOT BE LIENABLE

C.R.S. [sections] 38-22-101 sets forth those items that are lienable. In general, any person who furnishes labor or materials for use in the construction of any improvements on the real property sought to be charged with the lien, is entitled to file a lien based upon the labor and/or materials furnished.

A. Tools

Tools, which would not be consumed on the job, are not lienable. However, tools, which would be used and consumed on the job, are probably lienable.

B. Rentals

Rental equipment or machinery is a lienable item.

C. Interest

Interest is allowed at the rate provided for under the terms of any contract or agreement under which the labor or materials were supplied, and if no rate is specifically provided for, interest is allowed at twelve percent per annum. No matter what the applicable interest rate is, interest charges commence to run on the date that the in personam account becomes due. Post-judgment interest continues to accrue at the prejudgment rate.

D. Supervision

The services of a construction superintendent are lienable. However, such services performed off-site, e g., expediting material shipments to the job, may not be lienable.

E. Off-Site Work

Work need not be done on the job site to be lienable. A claimant is entitled to a mechanic's lien for material actually furnished under the contract to be used, although not actually placed in the building (the materials must, however, be delivered to the job site, except in the case of special materials).

F. Corrective Work

Work done by a lien claimant to correct defects in his construction is not lienable. However, extra work done by a lien claimant that was caused by the act of another subcontractor may be lienable. In addition, work done to correct defects cannot extend the six month period.

G. Fixtures

Fixtures are lienable.

H. Expenses

Some expenses are lienable.

I. Attorney's Fees

Attorney's fees are not lienable.

J. Architects

Architects who provide plans and drawings at the owner's request or authorization are entitled to the benefits of the mechanic's lien statute.

PERFECTION OF LIEN RIGHTS

C.R.S. [sections] 38-22-109 sets forth the requirements for the perfection of a valid mechanic's lien.

A. Notice of Intent to File Lien

i. In order to preserve the lien, notice of intent to file a lien statement must be served upon the owner or reputed owner of the property or his agent, and the principal or prime contractor or his agent, at least ten days before the time of recording the lien statement with the County Clerk and Recorder. Service of the notice of intent is effected when the notice is either delivered in person or deposited in the US mail, certified mail, and return receipt is requested. It is the date of mailing, not the date of receipt, which establishes the ten-day waiting period prior to recording the lien statement.

ii. The notice of intent shall be served by personal service or by registered or certified mail, return receipt requested, and addressed to the last-known address of the owner or reputed owner of the property and the principal contractor.

iii. An affidavit of such service or mailing shall be filed for record with the statement of lien and shall constitute proof of service. Courts have strictly construed the notice requirement by requiring service upon the proper party.

B. Mechanic's Lien Statement

The required information in a Mechanic's Lien Statement is set forth in C.R.S. [sections] 38-22-109.

i. The name of the lien claimant.

ii. The owner or reputed owner if known, and if unknown, a statement to that effect. Reputed owner is defined as one who has all appearances of the title to the property.

iii. The description of the lien claimant in the lien statement as a subcontractor is not binding.

iv. The name of the contractor if known, and if unknown, a statement to that effect. If the lien claimant had a direct contract with the owner, the lien claimant is a principal contractor.

v. A description of the real property to be charged with the lien sufficient to identify the same.

vi. A "blanket lien" covering more than one lot may be filed where the lien claimant furnished labor or materials for two or more buildings when they are constructed by the same person under the same contract.

vii. The amount claimed to be due and owing must be shown.

AMOUNT DUE

The lien will be valid even if nonlienable items are included if the nonlienable items can be separated from the lienable items. A lien claimant cannot perform a portion of his work, record a lien for the entire work and complete after the lien is recorded.

C.R.S. [sections] 38-22-128 provides that if a lien is filed for an amount greater than is due, without a reasonable possibility that the amount claimed is due, and with the knowledge that the amount claimed is greater than the amount then due, the entire lien is void, and the person filing the lien is liable for an amount equal to costs and all attorneys' fees.

SIGNED

The lien statement must be signed, verified and notarized.

RECORDING

Affidavits of service of the notice of intent to file a lien must be recorded in the county where the real property is located. In addition, the lien statement must be recorded in the same county. Recording the lien statement in the wrong county causes the lien to be void.

TIME TO FILE

A. Laborers, by the day or piece, must file after their last work and before two months after completion of the improvements.

B. All other lien claimants must have their liens filed before the expiration of four months after such claimant's last work or materials furnished.

EXCEPTION

C.R.S. [sections] 38-22-125 provides that for single and double family dwellings, no lien except those of laborers, by the day or piece, filed more than two months after completion of the building shall encumber the interest of a bona fide purchaser, unless: 1) the purchaser at the time of conveyance shall have actual knowledge of the amount due and paid; or 2) a notice extending the time to file a lien under C.R.S. [sections] 38-22-109(10) is filed within one month after completion or prior to conveyance, whichever is later; or 3) the lien statement has been recorded prior to conveyance.

NOTICE EXTENDING TIME TO FILE LIEN STATEMENT

The lien claimant may also file a notice extending the time to file a lien statement. The effect of the notice is twofold: a) first, it extends the time for the lien claimant to file the lien statement to four months after completion of the improvements; and b) second, the filing of the notice extending time avoids the effect of a conveyance to a bona fide purchaser. The notice automatically terminates six months after it is filed for record, unless the claimant files a new or amended notice extending time.

DURATION OF LIEN

No lien shall hold the property longer than six months after completion, unless an action to foreclose the same is commenced within that time. Completion is not a well-defined standard. It could mean actual completion or last work on the project to the issuance of a certificate of occupancy, either temporary or final.

The abandonment of all work for three months is deemed completion. Where there is such an abandonment, the six month time period for foreclosure of the lien starts to run at the end of the three months of abandonment. No lien shall hold the property for more than one year after the date it is recorded, unless within 30 days after the anniversary date the lien claimant records an affidavit of noncompletion.

DISBURSER'S NOTICE

C.R.S. [sections] 38-22-126 places a duty on a disburser to record a notice stating the name and address of the owner; the names, addresses, and telephone numbers of the principal contractor, if any; and the disburser and the legal description of the property.

A disburser is any lender who loans money to the contractor or owner, the proceeds of which are to be periodically disbursed as work on the construction progresses. The disburser may also hold retainage funds. A disburser may also include those who receive funds from an owner, contractor or lender for disbursement to pay for the construction draws. An example of this type of disburser is a title company. Any lien claimant may give notice to the disburser in writing. It then becomes the duty of the disburser, before paying out any funds to the general contractor, to ascertain the amount due the claimant, and to pay such amount directly to the claimant. If the disburser fails to comply, the disburser is liable to the claimant for the amount claimed to the extent of loss.

OTHER PROVISIONS

A. Trust Funds

C.R.S. [section] 38-22-127 provides that monies disbursed to any contractor or subcontractor are to be considered trust funds for the payment of other subcontractors, material suppliers or laborers, who have a lien or "may have a lien" against the property. The statute makes provisions for the posting of a bond, which makes the statute inapplicable and provides that it shall not be applicable if the owner of the property has executed a written release. It further requires the contractor or subcontractor to keep separate records of accounts for each project. The last subsection makes it a crime--"theft"--if any person violates Sections 1 or 2 of the Act. An owner/officer may be personally liable for violation of the trust fund statute.

B. Bond

C.R.S. [section] 38-22-129 is a provision providing that the contractor may provide a bond prior to the commencement of the work in the amount of 150 percent of the contract price. This, in effect, takes away all lien rights and provides that the person having such lien rights shall proceed directly against the principal contractor and the surety. Any such action must be brought within six months after completion of the last work on the project. In order to be effective, notice of such bond must be filed with the Clerk and Recorder and the principal contractor must post a notice on the property that notice of such bond has been filed and make copies of the bond available upon request.

C. Bond to Discharge Mechanic's Lien

C.R.S. [section] 38-22-131 is a provision providing that, if a lien claim is filed, the owner may file a bond with the Clerk of the district court of the county wherein the property is situated and the lien is released. There are some conditions: 1) the bond or other undertaking must be approved by the judge of the district court; 2) the amount of the bond or undertaking must be at least one and one-half times the amount of the lien, plus costs; and 3) the bond or undertaking must be conditioned that, if the lien claimant will be finally adjudged to be entitled to recover upon his claim, he shall recover the amount of his judgment, together with any interest, costs, and other sums to which he would have been entitled upon foreclosure of his lien.

Time to File Foreclosure Action

In order to perfect a mechanic's lien foreclosure, the lien claimant must commence his action to foreclose within six months after completion of the last work or of when labor was supplied or completion of the building or construction, whichever occurs later.

PRIORITY

A. A trust deed takes priority as of the date it is recorded.

B. Generally, mechanics' liens relate back and take their priority as of the date of commencement of the first work under the contract between the owner and the first contractor, and if not in writing, to the date of first work on the structure or improvements.

i. First, work has been held to be the date the architect started work on the plans under the contract with the owner. Priority cannot be based on preliminary work and drawings done by an architect for the general contractor if the work predated the prime contract.

ii. The commencement of work by a surveyor can also constitute "commencement of work."

iii. Superintendence or project management has also been held to be first work.

iv. Where a person purchases a property under construction and contracts for work to be done, a lien claimant of the new owner will relate his priority back to the date of first work on the project if there has been no three-month abandonment.

C. Where a deed of trust is a "purchase money" mortgage or "land loan" and is recorded before work on an entire structure, the deed of trust is prior on the land and a mechanic's lien will be prior on the improvements. However, if work is commenced on the improvements prior to the recording of the trust deed, all lien claims will be prior to the deed of trust on the land--even a "purchase money" deed of trust.

D. A construction loan deed of trust should state it is being used for construction purposes, otherwise it may be found to be a land loan. Under a recent ruling by the Colorado Court of Appeals, a pre-existing construction loan deed of trust has priority over a mechanic's lien if the deed of trust is recorded prior to the attachment of the mechanic's lien and the loan proceeds are used for construction purposes.

E. If a construction loan deed of trust has priority, its priority is only to the extent of money used in the construction. Where money is advanced for construction purposes, but is not actually so used, the trust deed will not have priority for the funds not so used.

F. Where work has been commenced prior to the recording of the construction loan deed of trust, all lien claimants have priority over the construction lender on both the land and improvements, even where the lien claimants thereafter receive money from the construction lender knowing of the loan and its function in the construction. Where, however, the foreclosing lien claimant fails to join the holder of a deed of trust, within the six-month foreclosure period, the holder of the deed of trust's interest was not affected and the lien is not valid against the holder.

G. Where improvements are made to an existing improvement covered by a permanent loan deed of trust, the deed of trust will take priority over the mechanics liens.

H. Where the vendor on a contract for deed records his contract before first work and the lien claimant knows of the contract, the vendor is not required to post a notice of nonliability and his interest is not subject to a lien.

I. Where the holder of a deed of trust on the land only subordinates to a construction loan deed of trust, his deed of trust may be subordinated to any mechanics' liens that are filed and are prior to the construction loan deed of trust.

J. All lien claimants take the same date of priority; however, a different priority as between them in the satisfaction thereof is established in C.R.S. [sections] 38-22-108(1). The first priority among mechanic's lien claimants is with laborers or mechanics working by the day or piece who do not furnish materials; the second priority is to subcontractors and material suppliers; and the third priority is to the principal contractor.

K. Where there are different priorities on the land separate from the improvements, both the land and improvements should be sold together with separate appraisals made of each, and the proceeds of the sale should be paid out accordingly.

Mark D. Gruskin is an attorney in the law firm of Senn, Lewis & Visciano, P. C., located in Denver, Co.
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Author:Gruskin, Mark D.
Publication:Business Credit
Geographic Code:1USA
Date:Mar 1, 2001
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