How Colorado Mechanics’ Liens are Avoided or Prevented

Filed Under (Mechanics Liens) on 07-25-2013

Construction Lien, What is a mechanics lien, What is a lien waiver

The mechanics’ lien statutes in Colorado give those who work on construction projects an effective mechanism for collecting unpaid past due amounts. The Colorado statutes contain broad remedies and can help resolve many collection problems faced by general contractors, subcontractors, materialmen, and even manual laborers.

If you are an owner of the property or the General Contractor who uses subcontractors and material suppliers, having a mechanics lien filed on the property can be very problematic. There are several legal and practical ways to prevent or avoid having mechanics’ liens filed on your construction projects. The most obvious and well known is payment coupled with a waiver and release of mechanics’ lien rights. Most general contractors, construction lenders and others experienced in the building industry use a waiver and release to terminate mechanics’ lien rights. The waiver and release is normally placed on the back of checks and, accordingly, only affects and is binding on the person endorsing the check. There are also lien waiver forms available at Bradford Publishing Co.

Here are some other ways that result in the prevention or avoidance of a mechanics’ lien:

•    Posting a Bond
If the general contractor posts a bond before beginning a project, mechanics’ liens cannot be filed against the real property and improvements that make up the project. An owner or general contractor can also post a bond after a mechanics’ lien has been threatened or recorded. Lien claimants have the right to seek recovery of the amounts owed them from the bond and the insurance company that posts the bond. Because these bonds are required by Colorado statute to be in the amount of 150% of the cost of construction or the amount of the lien, it is actually preferable, in most cases, for a bond to be posted.

•    Bankruptcy
Mechanics’ liens may also be defeated by the filing of bankruptcy proceedings by the general contractor or the owner of the property. The interaction of the United States Bankruptcy Code, mechanics’ lien law, and Colorado real property law is a complex subject. You can be assured, however, that the filing of a bankruptcy will greatly complicate collection on a mechanics’ lien, and will greatly increase the costs involved.

•    Arbitration
The last situation, in which a mechanics’ lien can be forestalled, although not avoided, is when a written contract contains an arbitration clause. Such clauses mandate that the parties to the contract will resolve their disputes by binding arbitration. The American Arbitration Association, or another similar arbitration group, may be designated as the arbitrator by the contract. The standard form contracts issued by the American Institute of Architects contain an arbitration clause. If such a clause is present, a mechanics’ lien foreclosure lawsuit will be put on hold while the contract issues are arbitrated.

To learn how to file a mechanics’ lien, check out “Know Your Mechanics’ Lien Rights: A Guide to Colorado Law”, by Theodore W. Brin, Esq.