How Do I Fight A Mechanics Lien?
HOW DO I FIGHT A MECHANICS LIEN?
The best strategy is to prevent having the lien recorded with the county clerk and recorder. How do you do that? 1) A property owner can negotiate with the contractor threatening to record the lien and try to settle for a sum which is tolerable. The settlement amount you must pay may not seem fair, or right, but it may still be more practical than having to deal with the recorded lien. If you settle a disputed lien, make sure a lawyer helps you to obtain and record a lien waiver form. 2) Explain to the contractor clearly and forcefully why the recording of a lien is unlawful, and it will hurt the contractor more than it hurts you. Why is it unlawful? Perhaps the contractor failed to follow the detailed procedural requirements and deadlines which are in the Colorado mechanics lien statutes. Perhaps the lien is defective because the amount is inflated or unjustifiable, the property is described inaccurately, or for some other reason the threatened lien is wrong. In that case, an attorney’s letter can sometimes convince the person threatening a lien that recording the lien is folly. It is never going to be paid, and it opens the person who signed the lien to a lawsuit for damages, including attorney fees and even punitive damages. But be aware that many belligerent contractors will record a lien even though they have been warned. They know that the recording of a lien allows them to twist your arm.
Once the lien has been recorded, what can I do?
Just ignore it? In most cases, a lien claimant must file a lien foreclosure lawsuit within six months after his last real (not insignificant) work on the property. After six months, there is no right to foreclose the property in order to collect on the lien. However, six months is not a magic time when all the owners’ problems with the lien disappear. The recorded lien will probably still cause you as the property owner trouble refinancing your loan, selling the property, or obtaining a construction loan. Further, the lien claimant can sue you to foreclose the lien. Even if more than six months have passed and he sues to foreclose, you will incur costs to fight the lien in court, and to prove that the lien was too late.
In our experience, the lien claimant more often than not fails to file a lawsuit to foreclose the lien. He simply lets it sit in the official records, creating a problem for the owner. We advise clients that liens which have sat in the property records for 13 months will probably cause no problems. This is because title insurance companies feel safe in insuring against the lien when it is that stale. So, we sometimes advise clients to do nothing but wait for the lien effectively to disappear.
Sue the bastards.
Colorado statutes provide that owners may sue the lien contractor to have a lien removed from their property. The statutes give such lawsuits priority in docketing in the courts. They also provide that a successful owner who wins a lawsuit to set aside a lien may have a judgment for attorney fees, costs, and even punitive damages. If the owner wins, the court will remove the lien and award damages. But collecting those damages from contractors who have no real assets, or who are constantly changing their company names, is another problem. We seldom tell clients that they can expect riches from suing for a wrongful lien. We often tell them that we will successfully remove the lien and get them a judgment against the contractor.
If the contractor starts the fight, by suing to foreclose the lien, then you should countersue to void that lien and for your damages.
Bond Around The Recorded Lien.
The following information about bonding around a lien comes from the website of NFP, a national insurance and bonds broker.
How a mechanics lien bond actually works
When a property owner purchases a mechanics lien bond, it can free up the property from the lien so it can be used again commercially, or perhaps even sold. However, in purchasing the bond, the owner agrees that he/she will pay all costs associated with labor and materials if a judgment or court case finds in favor of the contractor. In an odd legal sense, the lien is nominally discharged by purchasing the bond but is transferred to the surety bond, which then acts as a guarantee of payment to the contractor.
If the property owner fails to live up to the terms of the mechanics’ lien release bond, the contractor can then claim the bond, in the amount that labor and material costs they incurred. The surety company, which sold the bond to the property owner, would then, in all likelihood, pay the amount of the validated claim and pursue the property owner to recover that same amount.
The value of a discharge of a mechanics lien bond will always amount to 110% or more of the face value of the lien itself. That means that a lien of $100,000 will require a discharge lien bond of $110,000. But this is not the amount that a purchaser would have to pay in order to obtain the discharge bond. The premium (or price) paid for the bond, will be some percentage between 1% and 5% of the discharge bond amount. The exact percentage will depend on several factors.
The most important of these factors is your personal and business credit scores. If these scores are relatively low, that would cause you to be placed in a higher risk pool than purchasers with excellent credit, because you are more likely to default on payments. In such cases, you can probably expect to pay somewhere in the upper range of the percentages referenced, perhaps 10% to 15%. Assuming a discharge bond with a value of $110,000, and a 10% premium assessed by the surety company, the cost to you of purchasing a mechanics’ lien bond would be approximately $1,100.
Post Your Own Security Against The Lien Sometimes, the most expeditious and inexpensive way to deal with a lien is to put up funds to cover the lien amount, to be held in escrow until 13 months have passed. Say you are refinancing, but there is a $12,000.00 recorded lien. You might persuade the lender and the title insurance company to allow you to put $12,000.00 in escrow with the title company, to be paid out to you if 13 months pass without any foreclosure