HOW CONTRACTORS GET PAID USING MECHANIC’S LIENS
What is a Mechanic’s Lien?
Contrary to what its name implies, a Mechanic’s Lien provides an avenue for contractors, subcontractors, suppliers, and others involved in the construction or trades businesses to collect outstanding invoices. If a contractor, plumber, electrician, or mason files a mechanic’s lien against the owner of the property to which they provided labor or materials, a hold will be placed on the property, that effectively prevents the owner from selling or refinancing the property until the dispute is resolved. For instance, if a homeowner hires a general contractor to remodel their kitchen and the GC doesn’t pay the supplier who provided the material for the countertops, then a lien can be filed by the countertop supplier against the home to recover the missing funds.
So even if the homeowner has paid the contractor for the countertops, if the countertop supplier has not been paid, then a mechanic’s lien can still be placed on the home. In this way, any party that has contributed value to the property can legally hold the homeowner and their property accountable for any outstanding balances, even if it’s the general contractor who was at fault.
How Does a Mechanic’s Lien Work?
While all states have their own laws regarding mechanic’s liens, most states will require the supplier or subcontractor to do as follows:
- The subcontractor or supplier (a party that does not have a direct contract with the homeowner) must give the homeowner notice of the additions made (for instance, the countertops), usually within 20-30 days of the addition.
- If the subcontractor or supplier doesn’t receive payment, they are required to file a “claim of mechanic’s lien” in the same county as the property receiving the work.
- The subcontractor or supplier often has a two to six-month period to come to an understanding with the owner of the property or can choose to file a lawsuit.
Again, these steps will vary depending on the state where the property is located. While Colorado doesn’t require a notice to be filed before beginning work on a project, a mechanic’s lien claimant in Colorado must present the property owner or owner’s agent with a Notice of Intent to Lien, as well as a copy of the Statement of Lien that will be filed, at least 10 days before filing the lien.
Similar to giving notice of a lien, the deadline to file a mechanic’s lien also varies state-by-state. In Colorado, mechanic’s lien filing deadlines are laid out as the following:
- For all claimants (except laborers) who did not contribute any materials to the job, Colorado law states that a Statement of Lien must be filed no later than four months after the final day that either work or materials were contributed to the job.
- If the project takes place in a one or two family household, the typical four-month filing deadline may be shortened to two months, if a legitimate party is interested in purchasing the property.
- For laborers who did not contribute materials, liens must be filed no later than two months after the date the last work on the job was completed.
One important distinction to note about mechanic’s liens relates to the type of property the lien is filed against. For private construction or repair jobs, the mechanic’s lien becomes attributed to the property itself. However, for work done for public construction projects, i.e., those which occur on land owned by the state or federal government, the lien often attributes itself to the project’s bond.
How Do I File a Mechanic’s Lien?
To successfully file a mechanic’s lien, there are five steps you should follow:
Step 1: Decide If You Can Legally File a Lien.
A crucial step in the lien-filing process is to make sure you’ve met all the legal requirements necessary before you begin the lien filing process. Certain states have restrictions that prevent some individuals involved in the construction process from filing a lien. For instance, certain states bar the suppliers of suppliers from filing a mechanic’s lien.
You should also make sure that you gave preliminary notice of the filing (if required) and that you are within the filing deadline for your state.
Step 2: Draft the Lien Document.
Once you have determined that you are legally eligible to file a mechanic’s lien, the next step is to create the actual lien document. Laws regarding liens are very detailed and peculiar, so it’s important you read your state’s lien statue thoroughly and include all the information specified. The majority of states publish a statute detailing how to file a mechanic’s lien, including details regarding the information you are required to include in your lien filing.
Because filing a lien is often a complicated process laden with complex laws, many claimants choose to hire a law firm specializing in construction law to draft the document. Hiring a lawyer ensures that specific requirements are met without risking rejection of the lien or incurring additional filing fees.
Step 3: File Your Lien.
Once you have properly drafted the lien, you’re ready to send your lien to the recording office. Contact the recording office in the county where the property is located and make sure you follow their rules exactly to minimize the chance of your lien getting rejected. It’s also important to note that you may be required to file your lien in person. If you are unable to do so, you can typically give the lien to a messenger who can file it on your behalf.
Step 4: Inform Relevant Parties.
After filing the lien, you are responsible for informing the parties involved. For most states, this means notifying only the owner of the property, but some states also mandate that you inform the general contractor and any construction lenders involved.
Step 5: Enforce, Prolong, or Remove Your Lien.
The final step is enforcing the lien. Colorado state laws require that a mechanic’s lien is enforced within six months of the job’s date of completion (or labor or materials were provided to the job). If this period ends without an action filed to enforce the lien, the lien will expire. Regardless of whether the lien expires or not, the majority of title companies will still require the lien to be withdrawn before a clear title can be given to a new buyer. The easiest way to do this is to have the lien holder file a Release of Lien.
If the task of filing a mechanic’s lien seems daunting, get in touch with us. We can help you draft and file a legally correct mechanic’s lien so that you can start collecting on your outstanding invoices.