Don’t Let Your Mechanic’s Lien Expire

One of the most useful collection mechanisms available to contractors is the mechanic’s lien. I have previously talked generally about what a mechanic’s lien is and how your attorney goes about drafting and recording it. Getting the lien recorded against the recalcitrant homeowner’s property is not the end of your duties, however.

A mechanic’s lien encumbers the property you performed work on, but only for a limited amount of time. You have only six months from the last day of work to get a lawsuit filed to foreclose it. The last day of work is not necessarily the day the job passes inspection — it is more likely the last day your crew legitimately “put hammer to nail” on the property subject to the lien as part of the same job. You did remember to have your crew write down that date so you could record it in your customer files, right? Until this six month deadline runs, your lien is enforceable.

If the homeowner tries to sell or refinance the home while the lien is enforceable, the title company will likely notice the lien and ask for a payoff figure before the transaction can close. Some title companies will still ask for payoffs to clear liens that are stale or have expired, just to be safe, but some will simply ignore a stale lien.

To be safe, don’t let your lien expire. Within the six months, hire an attorney and start a lawsuit. It has to be filed in a particular kind of court in a particular jurisdiction, and you need a special document called a “Notice of Lis Pendens” drafted and recorded, as well. I will discuss some of the details on this issue in future blog posts.

This post does not constitute legal advice. If you need legal advice, please contact our office to set up an appointment.

Keeping the Mechanic’s Lien Alive

If you have properly recorded a mechanic’s lien, you have a lien against the property. However, you need to take additional steps after recording the lien, or your rights go away by operation of Colorado statute.

In Colorado, no mechanic’s lien can encumber a property longer than six months after the last day work was performed on the property. To keep your lien alive beyond this point, you need to start a lawsuit to foreclose the lien in the Colorado courts. You also have to go back to the Clerk and Recorder’s office and record a notice that the lawsuit has been filed on the lien. Attorneys (still in love with latin) call these notices “Notice of Lis Pendens.”

The Lis Pendens document is not itself a lien on the property. Instead, it is notice to the world that there is a dispute pending over who owns the property. In this case, it tells people that you are foreclosing your mechanic’s lien. The owner is still technically free to buy and sell the property, but he or she will find it very difficult to find a buyer. That is because the new buyer will be bound by the lawsuit, and will lose the house if you win the foreclosure! Similarly, title companies and lenders typically will not help someone buy a house stuck in a lawsuit over ownership.

There are times where, due to mis-communication or clerical error, your staff will not get a mechanic’s lien filed on time. This is particularly true where you do not have corporate or collection counsel handling these issues. In that case, all is not necessarily lost. You still have options, and a good attorney can even show you how to go after the value your company has sunk into the house even without a mechanic’s lien. I will talk about this issue in future blog posts.

Priority and Your Mechanic’s Lien

If a homeowner has not paid you for your work on the property, you can use a mechanic’s lien to secure payment as a lien against the property. Your lien is only as good as its place in line against the property, however.

Typically, a mechanic’s lien is “junior” to all previously filed liens against the same property. (There are times, of course, when the mechanic’s lien actually is “senior” to the other liens.) I usually see this come up when a homeowner has first or second mortgages pre-dating the mechanic’s lien. If your lien is junior, then you have some problems. If any of the parties holding a senior lien forecloses against the property, they might wipe out your lien entirely. And, before you foreclose your lien, you have to make sure there is enough equity left in the property after these liens to make dealing with the foreclosure worthwhile. Finally, if you do foreclose, you might be stuck having to service the senior liens – pay the mortgages – if you want to keep the property.

Thus, there are times when you have the right to file a mechanic’s lien, but it might not make economic sense to actually sue to foreclose the lien. This is particularly true since 2008, after the housing market crashed and took many people’s equity with it.

Even if your lien is junior to other liens against the propoerty, it still might make sense to record your mechanic’s lien. The lien is an encumbrance on the homeowner’s title to the property. If done properly, a recorded mechanic’s lien typically will prompt title companies to require that the homeowner pay it off before they can convey the property to a new owner or refinance. Title companies will typically ask for payoff figures when they see a live lien on property.

Recording the mechanic’s lien is not the end of the story in keeping your lien “live,” however. If you simply record the lien and do nothing, it may end up unenforceable. I will talk more about that in future blog posts.

This post does not contain legal advice. If you need legal advice, please contact the real estate attorneys at Underhill & Underhill, P.C. to set up a consultation.

Recording Mechanic’s Liens

I have previously talked about what a mechanic’s lien is, and some of the basics in drafting one. Today, I want to discuss how you go about recording a mechanic’s lien. Only when the mechanic’s lien is recorded in the right office, on time, does it become effective. The easiest way to record the lien, of course, is to hire an attorney or other professional to handle the details for you.

Each County in Colorado has an office called the Clerk and Recorder. This office maintains a list of documents, such as deeds, showing who owns real property within the County. They also keep records of who has an interest in each parcel of property, including liens against real property. They do not record documents by the property address or legal description, because these things can change over time. Instead, they record documents by “Grantor,” the person giving away the property, or the debtor in the case of a lien, and by “Grantee,” the person receiving the property, or the creditor in the case of a lien.

Once your mechanic’s lien is properly drafted and a copy has been timely sent to the property owner, you need to record (or, formally file it) with the Clerk and Recorder. Recording it in the right Clerk and Recorder’s office is essential. To do this, you bring two copies of the lien to the Clerk and Recorder in the County where the property is located. The Clerk will then charge you a nominal recording fee based on the number of pages you are recording, and give you a file-stamped copy of the lien for your records. At that point, the world has notice of your lien against the property.

People frequently make the mistake of filing their lien in the wrong County. If the property is in Arapahoe County, but you recorded your mechanic’s lien in Denver County, the lien is no good. That is because it was filed in a different County than where the property is located. The purpose of the public records system is to give the world notice of interests in real property. No one looking for a lien against the Arapahoe County property will be searching the records of the Clerk and Recorder of Denver County.

Some Counties allow you to record mechanic’s liens by mail, but there are advantages to doing so in person that I will discuss in future blog posts.

This post does not contain legal advice. If you need legal advice, please contact the real estate attorneys at Underhill & Underhill, P.C. to set up a consultation.

Drafting a Mechanic’s Lien Statement

I have previously talked about some of the basics of mechanic’s lien rights under the Colorado mechanic’s lien statute.  I want now to talk a little bit about some of the concerns involved in drafting the actual lien itself.   This is, of course, all best handled by an attorney who is familiar with the statutory requirements and can keep track of the filing deadlines.

First, you need to determine the total amount the homeowner owes for work you did on the property.  Typically, this is going to have to do with the amount the homeowner owes you per your contract.  Did you agree to do the work for a flat fee?  Are there change orders?   If so, were they approved?  Does the contract allow you to charge more for hidden defects?  Have you provided a final invoice?  These are only a few examples of the questions you need to deal with.  You must get your arms around all of the charges related to the contract before drafting the lien.  Once you record the lien, you might have trouble collecting any different amount later.  And there can be consequences for claiming too high a dollar amount owed.

Next, you need to use the proper form of lien under the Colorado law.  While you can undoubtedly find a form online, your business or real estate lawyer is going to be the best source for this information.  The lien has to be signed and notarized in several places for different purposes at different times, and you have to do all of it right, and in the right order, to protect your right to collect.

Make sure all of the information on the lien statement is true and accurate!  In the past, I have seen problems where a lien has an incorrect property description or an incorrect owner.  This gives the homeowners arguments they can use to make trouble when you try to foreclose on the lien.  It might even invalidate the lien altogether!

Many times, giving notice of your intent to file a mechanic’s lien prompts the homeowner to make payment.  In future blog posts, I will discuss what can be done if the homeowner does not pay.

This post gives legal information only.  If you need legal advice specific to your situation, please contact us for a consultation.

New Colorado Roofing Law Requires New Contract, May Cause Problems

If you own or operate a roofing company, or work with them, you need to be aware of a new Colorado law just signed into law by Governor Hickenlooper.  The Consumer Protection / Residential Roofing Act now requires roofing contractors in Colorado to operate under written contracts that must include many specific terms.  These terms may already be included in some roofers’ contracts.  But, if the roofing contract does not have these terms, it may not be enforceable.  If you own or operate a roofing company, you may need to re-draft your contracts.  Now.

Even if a roofing company does rewrite its contract to comply with the new law, its problems are not necessarily over.  Some of the new contract provisions may expose roofing companies to new problems and create new opportunities for customers to avoid payment.  For example, roofing contracts must now permit the customer to cancel within seventy-two hours if the insurance company denies the insurance claim, in whole or in part, unless the denial was based on damage that was not reasonably foreseeable.

Roofing companies often get paid by a customer’s insurance company, and often have to submit supplements for work required for code upgrades, profit, and overhead, among other items.  Yet, this new law does not include exceptions for any of these items. So, if an insurance company initially denies a supplemental claim – even just as a negotiating tactic – the customer might now argue the whole contract is void.  We expect that this issue will evolve as collection lawsuits move through the courts.

More information about the new Colorado roofing law can be found on our website.

In the meantime, our firm has developed some strategies to help roofing companies and contractors deal with this new uncertainty.  Like so many other things, a properly drafted contract can help reduce problems.

This post provides general legal information only.  If you need legal advice specific to your situation, or need to re-write your contract to comply with Colorado’s new law, please contact us to set up a consultation.

Solo Doctors and Medical Liens

I recently represented a doctor who was seeking to collect a debt owed by a patient.  The patient had a personal injury claim, and the doctor was willing to treat the patient and wait to get paid out of the eventual settlement of her claim.  When she got the money, however, the patient took the money and ran.  The doctor had a problem:  the lack of an enforceable lien over the insurance proceeds.

Some jurisdictions have statutes creating liens against insurance settlements in favor of hospitals and doctors.  This “hospital lien” is powerful, and can be enforced against insurance companies and attorneys who disburse funds to the victim without first ensuring that medical providers have been paid for their services.  The problem is that in Colorado, a solo doctor running his own practice might not qualify for such a lien.  Moreover, in order to enforce a hospital lien, the lien must be perfected by, for example, filing it with the Colorado Secretary of State.  If the lien is not perfected, you can’t enforce it!

A doctor in this situation can certainly sue the patient for non-payment on her contract with the doctor, as our client decided to do because of the large amount of money she owed him, but this basically puts the doctor in the same relative position as credit card companies or other unsecured creditors.  Among other things, this may require a lengthy lawsuit against the patient to collect his bill, and the doctor’s debt is potentially vulnerable to discharge in bankruptcy if the patient chooses this course of action.

So, if you are a medical professional in a solo practice, Colorado law is not necessarily going to ensure you are protected.  How do you protect yourself?  As is often the case, what Colorado law does not provide, a contract can.  Hiring an attorney to draft a patient contract specific to your business plan can help create a security interest to protect you in bankruptcy, obligate third parties to ensure you get paid, or otherwise help protect you.  If you are serious about getting paid for your work, do your contracts right!

This post provides general legal information only.  If you need legal advice specific to your situation, please contact us to set up a consultation.

The Basics of Mechanic’s Liens

We regularly represent contractors in collections against homeowners and commercial developers who do not want to pay their bill.  If your company performed labor or provided materials or services for a construction project or a home improvement job, such as a roof replacement, a remodeling job, or hardscaping, you are probably entitled to a mechanic’s lien.  This is a powerful piece of paper that acts as a lien against the owner’s property if they do not pay.  The mechanic’s lien is similar to the deed of trust (mortgage) against the home or construction project.  You can use a mechanic’s lien to foreclose the property in a lawsuit, similar to how a mortgage company can foreclose a property if the homeowner fails to pay the mortgage.

However, you have to take certain basic steps to protect your lien rights.  To begin with, you should document the last day of work on the job – usually but not always the last day you put hammer to nail on the customer’s house.  A mechanic’s lien has to be recorded (filed) in the Clerk and Recorder’s Office of the appropriate County a specific period of time after this critical date.  A copy also has to be served or mailed, return receipt requested, before you record it so that the owner gets notice of your intent to file the lien before it is recorded.  Finally, the lien is only effective for a certain period of time after the last day of work unless you take additional steps to protect your right to payment.  If you miss any of these deadlines, your lien rights may be lost forever.

There are many other considerations and pitfalls related to your mechanic’s lien rights, and I will address some of them in future blog posts.

This post provides general legal information only.  If you want legal advice for your specific situation, please contact us to set up a consultation.

Collecting from Your Customer’s Insurance Companies

From roofers to chiropractors, many professionals sell services to customers with the understanding that the customer does not have the money to pay today, but will pay once an insurance company gives them an award.  By their very nature, these kind of insurance claims tend to involve a lot of money.  Sometimes, the customer’s temptation to put the money to other purposes is too much.

We have seen many situations where the customer, after getting service, simply decides not to turn over the insurance proceeds. This is particularly true today, where unemployed customers might be desperate to save their homes or cars from repossession, or, they need a new car, a new refrigerator, or a vacation.  When this happens, what can the company do to collect?

The insurance company may not help you; it usually has no direct obligation to you, the contractor, doctor, or other professional.  It only has a contract with its customer.  Once it issues a check to the customer, the insurer will typically wash its hands of the situation.  It may not even talk to you at all.

So, what do you do?  You always have options, including suing your customer.  But, it’s best not to have the problem to begin with at all.  Some companies have had an attorney draft their contracts in such a way that there is a remedy under the contract for non-payment.  For example, medical provider’s contracts can require the patients’ attorneys to commit to turning over funds received from an insurance company or face their own liability.  A contract can contain instructions directly from your customers to their insurers regarding your payment.  We also draft contracts for construction contractors that set up a “trust fund” in favor of the contractor.  Remedies need to be set up before you get into trouble.

In future blog posts, I will discuss some of the other big advantages you can garner from proper contract planning, including options to multiply the damages you can recover against recalcitrant customers, or even prevent a customer from dodging your debt by filing a bankruptcy.

This post provides general legal information, but does not constitute legal advice.  If you want legal advice specific to your situation, contact us to set up a consultation.