One remedy available to those who perform construction work is the Mechanic’s Lien. In Colorado, this is a security interest in real property that is given to laborers or materialmen who do work on that property. It is a useful tool in ensuring payment on projects for a variety of reasons. It is a statutory lien and thus more difficult than a regular judgment to avoid during a bankruptcy. It provides a warning to third parties about the unpaid balance by a filing in the clerk and recorder’s office. It is a good intermediate step before a collection lawsuit to drive home the seriousness of a customer’s delinquency.
Deadlines in a Mechanic’s Lien
There are deadlines involved in preserving a Mechanic’s Lien, though. A lien must be recorded no later than four months from the last day of work. Already, this gives a lot of room for confusion. Most deadlines in Colorado are calculated by days and some time management software systems might not even be able to set automatic deadlines by “month.” You can probably get away with a 120 day deadline if you don’t mind being a bit early (even if short February is in the four months, that month is flanked by 31 day months in January and March) but technically that’s not correct.
The other point of confusion is the last day of work. The statute doesn’t define exactly what constitutes the last day of work. But, it does explain that “no trivial imperfection or omission” shall be deemed a lack of completion or extend the deadline to record a lien. So, whether a punch list or subsidiary part of the project counts as the last day of work or not might depend on the particular contract, work being done, and other facts of each project. It is also possible that the work never gets done either because the contractor abandons the job or the property owner refuses to let the contractor finish. If this occurs, then the statute suggests that the lien deadline starts running three months after the last time any work is done.
Where does that leave a contractor? Well, if lien rights are important, a contractor might consider noting each time work is done on the project and the date seven months hence (three months for abandonment plus four months for the lien filing) to record a lien. Then, when the project is completed, the deadline would need to be moved ahead to four months from that date. Ideally, the contract should spell out the completion date. This is a complicated process that not all companies have the time or patience to implement!
Another frequent point of confusion is exactly what the amount of the lien should be. According to the statute, the lien amount is for “for the value of such laborers, machinery, tools, or equipment supplied, or services rendered or labor done or laborers or materials furnished” and may also include interest. Disputes frequently arise over exactly what constitutes the “value” for the lien. Some argue that the contract price establishes the value and the amount of the lien. Others argue that the value must be the actual costs to third parties or the value of the improvements as installed on the property. Yet others may argue that an insurance scope listing the Replacement Cost Value should be the proper number. As with other issues under mechanic’s liens, this determination may end up being fact specific and depend on the particular contract at issue. For very large liens, it might be wise to even seek the opinion of a third party before filing the same.
Is Your Business Protected
Its worth thinking about whether your business is properly managing its mechanic’s liens. Since there may be grey areas in the timing and amount created by the circumstances of a particular roofing job, thinking about this well in advance ensures that your company has time to maximize its lien protection and avoid the risks that come with rushing to file at the last minute with what you have handy. If your business has questions about this process or would like legal advice on the same, feel free to reach out to our office for a consultation. If your company wants someone to help manage the deadlines and file the liens, then consider looking into our attractive LegalPlan flat fee representations for the Contractor Edition.