How Colorado Property Owners Can Bond Around a Mechanic's Lien
If you're a property owner in Colorado, dealing with a mechanic's lien can be a stressful experience. A mechanic's lien can place a significant encumbrance on your property, potentially hindering your ability to sell, refinance, or otherwise manage your property. Fortunately, Colorado law provides a mechanism to "bond around" a mechanic's lien, allowing you to free your property from the lien while still addressing the underlying dispute. In this article, we’ll explore what a mechanic's lien is, the process of filing one, and how you can bond around a mechanic's lien to protect your property.
What is a Mechanic's Lien?
A mechanic's lien is a legal tool that contractors, subcontractors, suppliers, and laborers can use to secure payment for work performed or materials provided on a property. This lien gives the claimant a legal right to seek payment from the property's value if they are not paid for their services or materials. Essentially, it encumbers the property, meaning the property cannot be sold, refinanced, or transferred without addressing the lien.
When Can a Mechanic's Lien be Filed?
In Colorado, a mechanic's lien can be filed by any party that has provided labor, materials, or equipment to a property improvement project. However, certain conditions must be met:
Timely Filing: The lien must be typically be filed within four months from the last day work was performed or materials were supplied. For a detailed discussion on the timeline for filing a mechanics lien, see our blog article, Overview of Mechanics' Liens in Colorado.
Notice of Intent to Lien: Before filing the lien, the claimant must provide a Notice of Intent to Lien to the property owner at least ten days before filing the lien with the county clerk and recorder.
Lien Statement: The lien statement must include specific information, such as the amount owed, a description of the property, and the nature of the work or materials provided.
Once filed, the lien attaches to the property and must be resolved before the property can be sold or refinanced.
Why Bond Around a Mechanic's Lien?
When a mechanic's lien is filed against your property, it can create significant obstacles. The lien may prevent you from selling the property, obtaining financing, or completing a real estate transaction. Bonding around the lien allows you to remove the lien from the property while still ensuring that the claimant has security for their claim.
Common Scenarios Requiring a Bond Around a Mechanic's Lien
Pending Property Sale or Refinance: If you're in the process of selling or refinancing your property, a mechanic's lien can stall the transaction. Bonding around the lien allows you to proceed with the sale or refinance without delay.
Disputed Lien Claims: If you believe that the lien is invalid or the amount claimed is incorrect, bonding around the lien allows you to challenge the claim in court without the burden of the lien on your property.
Contractor or Subcontractor Issues: If a dispute arises between you and your contractor or subcontractor, bonding around the lien can provide time to resolve the dispute without affecting your property’s title.
How to Bond Around a Mechanic's Lien in Colorado
Bonding around a mechanic's lien in Colorado involves several steps, all of which are governed by Colorado Revised Statutes § 38-22-131.
Step 1: Determine the Amount of the Bond
The bond must be 1.5 times the amount of the lien claim. This additional amount covers potential legal costs and attorney fees that may be awarded if the lien is upheld.
Step 2: File a Petition with the Court
The party seeking to bond around the lien (usually the property owner) must file a petition with the district court in the county where the lien was filed. The petition should include:
A copy of the lien claim.
The bond amount.
An affidavit supporting the petition, detailing the lien claim and any defenses.
Step 3: Obtain a Surety Bond
First, the property owner must file a corporate surety bond or any other undertaking approved by a judge of the district court. The bond must be in an amount equal to one and one-half times the amount of the lien plus any costs allowed to date (C.R.S. § 38-22-131). This bond is conditioned to ensure that if the lien claimant is adjudged to be entitled to recover on the claim, the principal or sureties will pay the claimant the amount of the judgment, including interest, costs, and other recoverable sums (C.R.S. § 38-22-131).
Step 4: Court Approval and Discharge of the Lien
Once the bond is filed and approved by the court, the lien against the property is immediately discharged and released in full. The real property described in the bond is forever released from the lien and any related notices of lis pendens or actions to foreclose the lien. The bond or undertaking is then substituted for the lien (C.R.S. § 38-22-132). The clerk of the district court will issue a certificate of release, which must be recorded in the office of the clerk and recorder of the county where the original mechanic’s lien was filed (C.R.S. § 38-22-132).
Step 5: Action Against the Bond
The lien claimant may then bring an action upon the bond or undertaking within the same time frame allowed for commencing an action to foreclose the lien. The statute of limitations applicable to a lien foreclosure applies to the action upon the bond as if no bond had been filed (C.R.S. § 38-22-133).
In practice, courts have consistently approved surety bonds that meet the statutory requirements, thereby discharging the mechanic's lien and substituting the bond in its place. For example, in the case of Shamrock Painting v. Northington Denver Apts. Investors LLC, the court approved a surety bond and ordered the lien to be discharged and released, with the bond substituting the lien.
Conclusion
Bonding around a mechanic's lien is a powerful tool for Colorado property owners facing lien claims. By replacing the lien with a surety bond, you can protect your property and continue with your real estate transactions while still addressing the underlying dispute. If you find yourself facing a mechanic's lien, consulting with a legal professional experienced in Colorado construction law can help you navigate the bonding process and ensure that your rights are protected.
The information provided on this website is for general informational purposes only and should not be construed as legal advice or legal opinion. You should not act or refrain from acting on the basis of any information provided on this website without seeking legal advice from an attorney.