Colorado law provides a powerful tool to contractors, subcontractors, and other home improvement workers, assisting them in obtaining payment for their work. If a property owner stiffs your company for labor or services, you can use a legal mechanism called a mechanic’s lien. A mechanic’s lien is a statutory device that essentially functions as a cloud on the owner’s title to the land. Often, the mere filing of a lien is enough to convince an owner (or general contractor, if you are a subcontractor) to pay. As a contractor or sub in Colorado, you should be aware of some basic information on mechanic’s liens.
Before jumping into a discussion of mechanic’s liens in Colorado, let's remember that liens should never be your first step. Most disputes between contractors and owners can instead be resolved through negotiation. You will usually save time and money by dealing directly with the property owner or general contractor, rather than initiating a legal action.
Imagine that your company performed tiling work in a home and the owner “forgot” to pay the last $1,000 of the bill. First, you should mail copies of the final invoice and/or statements to the homeowner’s home and business addresses. If that receives no response, telephone the owner. Send an email, even if it’s repetitive, in order to create a paper trail. And then try writing a formal demand letter on your company’s letterhead.
If your communications are still being ignored, you might consider investing in a few hours of a lawyer’s time to write a demand letter, on law firm letterhead. Sometimes, property owners or general contractors take you more seriously if they believe that you are willing to get an attorney involved. While attorneys' rates differ (rates in metropolitan areas like Boulder will generally be highest), having a lawyer write a simple demand letter will probably cost no more than a few hundred dollars.
More often than not, some combination of the above steps will be enough to push the property owner to pay the balance owed, or at least come to the negotiating table to pay some substantial portion of it. These steps can also help you avoid the time and expense of liens and lawsuits.
Negotiation and demand letters might not always suffice. You will not be surprised to learn that Colorado law allows you to sue a homeowner who has not paid you, on grounds of simple breach of contract, or based on other related causes of action (such as quantum meruit). The same theories apply if you are a subcontractor or supplier suing a general contractor.
But mechanic’s liens are another important tool in your arsenal. Liens offer a way to pressure an owner to pay by clouding the title to the property. Liens are the result of a specific statute known as C.R.S. § 38-22-101, et seq.
Under C.R.S. § 38-22-101(1), many different types of entities can file liens, including “Every person who furnishes or supplies laborers, machinery, tools, or equipment in the prosecution of the work, and mechanics, materialmen, contractors, subcontractors, builders, and all persons of every class performing labor upon or furnishing directly to the owner or persons furnishing labor, laborers, or materials to be used in construction, alteration, improvement, addition to, or repair…."
Significantly, the statute also includes “architects, engineers, draftsmen, and artisans who have furnished designs, plans, plats, maps, specifications, drawings, estimates of cost, surveys, or superintendence, or who have rendered other professional or skilled service.” Unlike in many states, Colorado allows all of these design professionals to file liens even though they generally do not perform physical labor or provide physical materials to the construction project.
Under C.R.S. 38-22-109(3), a potential lienor such as yourself must file a few preliminary steps. The lienor must serve a Notice of Intent to File a Lien Statement upon the homeowner, as well as any general contractor if the one filing was a sub. As you can see, this is a fairly simple document. The law requires that the Statement include:
You will see that your signature needs to be notarized, meaning that this form is a sworn statement—the legal equivalent of swearing to the veracity of the contents in court.
Not only can you recover the monies owed to you, but you can also collect interest. How much, according to C.R.S. § 38-22-101(5), depends on the terms of the contract, or “in the absence of an agreed rate, at the rate of twelve percent per annum.” As you can imagine, a 12% interest is a fairly good deal for lienorsm and a good incentive for owners and general contractors to pay quickly!
In most situations, an entity seeking to file a lien must do so within four months of the date that work was last performed or that materials were last supplied to the property. C.R.S. 38-22-109(5) provides that “the lien statements of all other lien claimants must be filed for record at any time before the expiration of four months after the day on which the last labor is performed or the last laborers or materials are furnished by such lien claimant.” For example, if your roofing company last performed work on a house on January 1, you would have until July 1 to file your lien.
Note that under C.R.S. 38-22-109(4), those who provide only labor (but not materials) can have a two-month limitation period.
These short periods underscore the need for you to quickly identify any unpaid monies and file a lien accordingly.
Within ten days after serving the owner (and general contractor, if any), the Notice along with the affidavit of service must be filed with the office of the county recorder (more colloquially known as the “county clerk”), usually near the Colorado district court. This ten-day period gives the owner or general contractor the opportunity to settle with you prior to the formal filing of the lien.
Once filed, liens do not last forever. C.R.S. 38-22-109(10) provides that (unless previously dealt with) they “automatically terminate six months after the date said notice is filed."
The statute goes on to explain that, "In the event that said structure or other improvements have not been completed prior to the termination of said notice, a claimant, prior to said termination date, may file a new or amended notice which shall remain effective for an additional period of six months after the date of filing or four months after the date of completion of said structure or other improvements, whichever occurs first.” In other words, you must generally sue the owner (commonly known as a lien foreclosure action) within six months of the filing of the lien.
If you are paid by the owner or the general contractor after you file the lien (which is common), you are not permitted to let the lien still sit on the property docket. You must file a form known as a Satisfaction of Claim with the county recorder's office within ten days. If you do not, you could face monetary penalties of $10 per day under C.R.S. 38-22-118.
For contractors and subcontractors in Colorado, liens are an important tool. But they are not necessarily the first or best means of achieving payment for construction projects.
Remember that merely filing a lien will not force the property owner to pay you (nor will it force the general contractor to pay you if you are a subcontractor). The owner will receive notice of the lien, but unless you file a further lawsuit to foreclose on the lien, then it will merely sit on the property docket. In other words, you will likely need to spend some amount of money on legal fees in order to “force” payment.
However, filing a lien will send an aggressive message. If you take this step, it might put the homeowner on the defensive, and encourage him or her to get lawyers involved, or to retaliate by publicly claiming that you did shoddy work. Perhaps this is the direction that you need to take, unfortunately, if the homeowner is refusing to pay. But be aware that you may quickly escalate the dispute by filing a lien.
Finally, remember that the lien laws in Colorado are highly complex. If you are owed a substantial sum of money, it might be worth your investment in a consultation meeting with an experienced construction attorney in your area who can advise you of your rights. Check out Nolo’s Guide to Finding an Excellent Lawyer for assistance in identifying the right person.