Can't get paid? Consider a mechanic's lien. But first, some words of caution.
In Colorado and most other states, those who furnish labor, services and materials used in construction may be entitled to mechanic's liens. The construction project must be privately owned. Certain steps must be taken within strict time limits.
On publicly-owned projects (local, state, federal, etc.), other remedies are available. Those remedies usually involve claims against surety bonds or monies withheld by the owner governmental entity. Creditors entitled to mechanic s lien remedies must perfect their lien rights by giving notices, timely filing of lien statements and timely law suit commencement. Failure to act on time will result in the loss of lien rights
The advantage of a mechanic's lien is that it creates a security interest (lien) against the land on which the construction work was done and the improvements. Frequently, a mechanic's lien is superior to other liens on the property and may be therefore like a "first mortgage."
Since the mechanic's lien attaches to the improvements (building or other structure) and the underlying land, the owner or another lien holder is usually "persuaded" to protect his interests by paying valid mechanic's lien claimants. Because this frequently results in double payments or the payment of another's debt, the law requires strict compliance with procedures fixed by statute.
On Colorado non-residential projects the lien statement must be recorded in the office of the clerk and recorder in the county where the property is located not later than four months after the particular lien claimant substantially completed his work or last furnished materials. At least ten days before recording the lien statement, written notice of intent to lien must be given to both the general contractor and owner. The recording time limit is shorter for residential property (single and double-family homes).
Suit to foreclose a mechanic's lien must be commenced no later than six months after completion of the project. If the suit is successful, the mechanic's lien claimant will recover a judgment for money due against his customer or client. Additionally, if the lien is valid, he will have the right to have the property sold by the Sheriff and the sale proceeds applied to his judgment to the extent of the reasonable value of the labor, materials or services he has furnished.
To be successful in the lawsuit, the mechanic's lien claimant must be able to fully document his claim. This requires careful maintenance and preservation of books and records designed with a view toward possible later use in court.
The right to a mechanic's lien may be forfeited if the claimant files a lien for an amount greater than the amount to which he is entitled. The guilty lien claimant may also be penalized by being compelled to pay the owner s attorney's fees and costs as well. Heating & Plumbing Engineers, Inc. v. H.J. Wilson Co.,Inc., 698 P.2d 1364 (Colo. App. 1984) (cert. denied). Lien rights may also be lost if the claimant has not properly documented his claim, if the lien instruments are not accurately prepared, or if required steps are not taken on time.
Careful attention to and use of the mechanic's lien remedy should substantially reduce construction-related credit losses. The governing Colorado mechanic's lien statute is Sections 38-22-101, et seq., C.R.S.
Since legal procedures and technical interpretations of applicable statutes are involved, careful consideration should be given to employment of a knowledgeable attorney sufficiently early to avoid loss of lien rights.