Recovery of Money Owed for Contracting Work and Service Work
Authored By: Colorado Legal Services
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Recovery of Money Owed for Contracting Work and Service Work
Mechanic's Lien - Construction Work +
A Mechanic’s Lien is created by Colorado law. It is essentially security for a debt owed by the owner of a property to people that build or improve property. It is a way of ensuring that people building or improving property get paid for their labor or materials. When you file a Mechanic’s Lien on property, it means that the property owners will not be able to sell or refinance the property without paying off the lien or posting a bond.
Mechanic's liens are only filed to place a lien against the owner of real property, including work performed and materials furnished for work done on a house or commercial unit.
However, if you worked for a contractor, or were a subcontractor of a contractor, you can still recover directly from the contractor or subcontractor without filing a mechanic's lien.
What if you've performed labor or furnished materials for a construction site or building and you are not paid what you are due? +
If you have performed labor or furnished materials (see more details below) for a construction site or building, and are not paid what you are due, you can record a Lien Statement on the property in the County Clerk and Recorder’s Office. You can start a lawsuit to foreclose on the lien, force the sale of the property, and use proceeds from the sale of the property to get paid what you are owed. If you are going to file a Mechanic’s Lien, you will have to follow certain procedures carefully and within the right amount of time, in order to turn your lien into a court judgment that could result in payment of what you are owed. If you don’t follow the procedures and deadlines, you risk losing your right to a lien or risk owing money to the owner of the property.
DO NOT file a Mechanic’s Lien if the contractor has a payment bond. (To find out if there is a payment bond, check with the county Clerk and Recorder’s Office, or look for a notice posted at the job site.) If there is a payment bond, you should send a demand for payment to the contractor and the owner(s) of the property owners within six months of the completion of work at the job site. If you are still not paid, you should file a court action against the bond company.
Who is entitled to a Mechanic's Lien? +
Under Colorado law, a very broad class of people may be entitled to a Mechanic’s Lien.
People or companies entitled to a Mechanic’s Lien include: any person who furnishes, supplies, or performs labor, laborers, machinery, tools, equipment, mechanics, materialmen, contractors, subcontractors, builders in the construction, alteration, improvement, addition to, repair of the whole or part of any building, mill, bridge, ditch, flume, aqueduct, reservoir, tunnel, fence, railroad, wagon road, tramway, or other structure or improvement on land.
Other people or companies entitled to a Mechanic’s Lien include architects, engineers, draftsmen, and artisans who have furnished designs, plans, plats, maps, specifications, drawings, cost estimates, surveys, or have rendered professional skill, bestowed labor, or supervising work.
What is the value of the lien? +
The value of the lien is generally the value of the labor, machinery, tools, equipment supplied or services rendered. You should have proof of the amount of money you are owed. Time records, other pay stubs showing the hours you normally worked, and witnesses who saw you at work will help. A copy of the invoice or bill for materials will help if you are asking to be paid for materials you provided.
If there is a written contract for more than $500 between the contractor and the property owner and the contract is recorded, the property owner’s liability to all lien claimants will be the contract price.
In addition to the value of the lien, lien claimants are entitled to interest on the lien at the rate specified in the contract, or if the contract does not state an interest rate, at 12% annually.
If you record a Lien Statement for an amount greater than the amount due with the intent to defraud, the entire lien is void. If you file a lien in an amount greater than the amount due with knowledge of that fact, the entire lien is void and you may be liable for costs and attorney’s fees.
How do I file a Mechanic's Lien? +
Step 1: First, you need give written notice to the property owners and principal contractor that you intend to file a Mechanic’s Lien. This is called a “Notice of Intent to File a Lien Statement.” You can send the "Notice of Intent to File a Lien Statement" by registered or certified mail, return receipt requested, to the property owner and principal contractor. Or, you can serve the "Notice of Intent to File a Lien Statement" on the property owner and principal contractor by the Sheriff or a private process server. You will need an Affidavit of Service or Mailing.
To find the property owner’s name and address, check the county building department, the title insurance company, the county tax assessor’s office, or the county Clerk and Recorder’s Office. To find the principal contractor’s name and address, check with the county building department. The information you need will be on the building permit for that property. To figure out the correct legal description of the property, you should check with the county Clerk and Recorder’s Office.
“I was employed as a (laborer, carpenter, etc.) at”, or “I provided (describe materials) to” *the property at (street, city, county and legal description)” “and worked at the property from (date you started working there) to (last date you worked there)” or “and provided these materials on (dates when you provided the materials)”. To date, I have earned, but not been paid, (amount of money you are owed). If my claim for (wages/payment for materials) is not paid within ten (10) days, I will file a mechanic’s lien on the above-mentioned property. This notice is given pursuant to Colorado Revised Statutes Section 38-22109(3).”
If you don’t want to write a letter, you can use a form called “Statement of Lien with Notice of Intent to File a Lien Statement and Affidavits of Service.” (NOTE - this form is available here - http://bit.ly/2E8RuZc - but there is a charge for the form.) Complete the form using the information you have obtained about the owner(s), the principal contractor, and the legal description of the property. Mail or serve this form to the owner(s) and the principal contractor.
While a letter may be acceptable notice, the Notice of Intent to File a Lien Statements and Affidavit of Service is the preferred form of notice. Failure to include any required information in the notice may invalidate the lien. You should be sure to have your signature on your letter, or on the Statement of Intent to File a Lien Statement, notarized.
Step 2: Ten days after serving the Notice of Intent to File a Lien Statement, you can record the Lien Statement in the Clerk and Recorder’s Office in the county where the property is located. Along with the Lien Statement, you will need to record the Affidavit of Service or Mailing of the Notice of Intent to File a Lien Statement.
The Lien Statement must state: (a) the name of the property owners, or if you don’t know their names, a statement to that effect, (b) the name of the person claiming the lien, the name of the person who furnished the laborers or materials or performed the labor, the name of the principal contractor, (c) a description of the property (use the legal description as well as the street address), and (d) the amount of the lien. The Statement must be signed and notarized by the person claiming the lien.
What are the deadlines for filing a lien? +
As explained above, you must give a ten days notice to the property owner and to the principal contractor before you record your lien in the county Clerk and Recorder’s Office
How long you have to record the lien depends on what type of work you did. Generally, you must record your Lien Statement within 4 months after the day that the last labor was performed or last laborers or materials were furnished. In order to be within the four month deadline to record the Lien Statement, you must serve the Notice of Intent to File a Lien Statement no later than 10 days before the end of the four month period.
If you provided labor by the day or by the piece (a day laborer), but did not furnish laborers or materials, you must record your Lien Statement after your last labor but within 2 months after the completion of the building, structure, or improvement. “Completion of the construction project” usually means the date on which a Certificate of Occupancy (CO) was issued, or the date when all work by anyone was completed.
How long is the lien valid? +
The Lien Statement is only valid for a limited period of time. No lien will be valid against the property for more than one year after the date that the Lien Statement is recorded, unless (a) a lawsuit has been started or (b) within 30 days after the anniversary of the recording of the Lien Statement, an affidavit of non-completion is recorded. You can do this by filing an Affidavit with the county Clerk and Recorder’s Office saying that the work has not yet been completed. If you don’t file a lawsuit or don’t file an affidavit of non-completion , your lien is no longer enforceable.
No lien will be valid against the property for more than (a) six months after either the last work or labor is performed or laborers or materials are furnished or (b) six months after the completion of the building, structure, or improvement, unless a lawsuit is filed before the end of the of the six month period. That means you must file a lawsuit within six months of the work being completed.
What do I do if I am paid after I record the lien? +
If you are paid after you have recorded a lien, you must file a form (Satisfaction of Claim) with the county Clerk and Recorder’s Office within ten days. If you don’t file this statement, and the lien remains on the property after you’ve been paid, you may have to pay a penalty of $10.00 (ten dollars) per day for each day after ten days that the statement is not filed.
What do I do if I am NOT paid after I record the lien? +
If you are not paid after you have recorded a lien, you will have to file a lawsuit to foreclose on the lien. Make sure to file the lawsuit while the lien is valid (detailed above). If you need to file a lawsuit, it is strongly recommended that you talk to an attorney. Everyone who has an interest in the property or lien on the property needs to be named as parties to the lawsuit. Errors (such as not naming everyone with an interest in the property as a defendant) could result in legal claims being filed against YOU.
In a lawsuit to foreclose a lien, if the court rules in your favor, the court causes the property to be sold to satisfy the lien.
In a foreclosure lawsuit, the Court may give you a judgment for the amount of money you are owed. If you are not paid after the judgment, then the property can be sold by the Sheriff and you will be paid from the proceeds of the sale. Usually, since the amount you are owed is probably a lot less than the value of the property, the owner will pay you to avoid having the property go to a Sheriff’s sale.
If there is a lender who is making payments to the contractor under a construction loan, you can notify the lender of your lien and ask the lender to withhold enough money to pay you, or to hold enough money until you can go to court and get a court decision about how much money is owed to you. The lender will be called a disburser. The contractor can tell you who the disburser is, or you can locate the disburser’s name and address at the Clerk and Recorder’s Office in the county where the property is located. You must give them a written notice explaining the work that you did or the materials that you supplied and the estimated value of your work or materials. You can also give this notice to the owner of the property or to the principal contractor.
Can I recover attorney's fees? +
You cannot recover attorney’s fees for filing or foreclosing a mechanic’s lien even if you have the right to recover your attorney’s fees from your contractor as an employee or as a subcontractor. You will need an attorney to foreclose a mechanic’s lien. Even if you have filed the lien yourself, unless your lien is large enough (at least $15,000 to $20,000), it may still not be practical to hire an attorney to foreclose the mechanic’s lien.
Sometimes it may be cheaper to spend $200 to $300 to hire an attorney to file a demand letter and a mechanic’s lien.
How do I recover my attorney's fees? +
You should always keep in mind that if you are in a position to recover your collection costs and attorney’s fees for construction or service work, you have a much better chance of collecting on what is owed, too. This is for the reason that a contractor or owner will be much more eager to pay you if he knows that he may have to pay a large amount for your legal fees even if you have a relatively small claim.
In order to recover your costs and attorney’s fees, you must have an agreement in writing with the owner or contractor. You can protect yourself by simply adding the following language to any contract, agreement, bid estimate, or service order: "In the event of any dispute, the prevailing party can recover all costs, including its reasonable attorney's fees incurred." Always include this in writing and have it signed by both parties.
How do I get interest on what is owed to me? +
You can only recover an amount greater than statutory interest (8% or 12%) if you have a written agreement to this effect. This is the same as the payment of attorney’s fees. Also, it is easier to get paid if the owner or contractor knows he is going to have to pay a large amount of interest. Generally, 18% to 21% is the maximum amount of interest.
Always include the following language in any contract, agreement, invoice, bid estimate, or service order, and make sure it is signed: "Interest on the amount owed shall be payable at the rate of 18% (21%) per annum from due date (10 days after date of billing) to date of payment."
What else do I need to know? +
If you file a lien for more money than you are due, or don’t follow the time limits for each step of the process, or some other part of your lien action is done incorrectly, the owner of the property could file a claim against you. This claim is called “slander of title.” You may have to pay the owner’s costs and attorney’s fees.
If the owner of the single family home, used as a primary residence, has paid the principal contractor the full contract amount for the purpose of paying subcontractors and suppliers, the owner will have an “affirmative defense” to the lien. This means that a lawsuit against the owner to enforce a lien will not be successful.
There may be other liens, encumbrances, or deeds of trust recorded against the priority that may take priority over your Mechanics’ Lien.
If you decide you don’t want to file a lien or pursue a foreclosure proceeding, you can file a case in Small Claims Court, County Court or District Court. (To get to the instructions and forms for filing in Small Claims on the Colorado State Court website, click here.) Claims up to $7,500 can be filed in Small Claims Court. Claims of up to $15,000 can be filed in County Court. Claims of greater than $15,000.00 have to be filed in District Court. You can learn more about filing in Small Claims Court by watching the videos here.
Small Claims Court has easier rules of procedure than the other courts. If you get a judgment in Small Claims Court, you can garnish bank accounts, wages, or other payments made to the person who owes you money. You can also “attach” property—even property that was not involved in the construction job.
Collection agencies will sometimes buy debts. They will pay you a portion of what you are owed, and then try to collect the debt themselves. You will need to have proof of what you are owed.
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