Mechanic's Lien Recovery

Contractors, subcontractors and suppliers entitled to recover amounts due them by asserting mechanic's liens are limited in their recovery to the value of their labor, materials, services and other lienable items.

This value is generally the amount by which any particular lien claimant enhanced the value of the owner's property. The legal theory involved is that the owner, through a lien against his real estate, should be required to pay the reasonable value of improvements made to his property.

That theory is not entirely logical in that the owner may be required to pay twice if he had already paid his general contractor who, in turn, had failed to pay subcontractors who assert liens against the property.

The solution to the threat that the owner may be required to pay twice is essentially the same as it is with respect to mechanic's lien risks generally: the owner must carefully monitor his general contractor's payment activities to assure that all potential lien claimants are paid before the contractor is paid in full.

The value which must be established by lien claimants is not necessarily their contract price. While that price would be strong evidence of that value, courts generally rule that the burden is nevertheless upon the lien claimant to establish the value he has contributed to the improvements - the contract price being the maximum to which the lien claimant would be entitled.

Value is certainly critical in those instances where the lien claimant's work was partially defective or not fully complete. Certainly in those instances it would be necessary for the lien claimant to prove what his work was actually worth and the extent to which it enhanced the value of the owner's property.

A very difficult situation may exist for lien claims on projects where the owner has agreed to a cost-plus arrangement with a guaranteed maximum (upset) price. In that situation, it is conceivable that the value of all subcontract work, materials, equipment and other lienable claims exceeds the guaranteed maximum price contracted by the owner.

Some courts recognize certain exceptions to the value-added theory discussed above. Mechanic's liens are sometimes awarded to claimants whose products were not actually built into the project.

Those claimants include those who had specially fabricated products for use in a particular project but, through no fault of theirs, their products were not actually used. In some states, those who rent construction equipment used in connection with the construction process are entitled to mechanic's liens even though technically they did not add "brick and mortar" type improvements to the property. Kobayashi v. Meerhleis Steel Co., 28 Colo. App. 327, 472 P.2d 724 (1970); 53 Am. Jur. 2d Mechanics Liens § 103, (1970).

In establishing value, lien claimants should be aware that they may well be required to prove not only the quality and quantity of their work but also the reasonableness of the price they charged. Careful attention to these requirements may save many dollars.