Protecting Your Home with the Colorado Homestead Exemption: What You Need to Know When Facing a Mechanic’s Lien
If you’re a Colorado homeowner dealing with construction issues like poor quality of work or unauthorized change orders, and the contractor is threatening to file a mechanic’s lien, you may be wondering how the Colorado homestead exemption can protect your property. Understanding this exemption and how it interacts with mechanic’s liens can help you navigate these challenges and safeguard your home from a mechanics' lien and foreclosure lawsuit.
What is the Colorado Homestead Exemption?
The homestead exemption in Colorado is a legal provision that protects a portion of your home’s equity from creditors, offering a financial safety net in case of bankruptcy or certain legal judgments. This exemption is found in Colorado Revised Statute 38-41-201 and allows homeowners to protect up to:
$250,000.00 of equity, if the homestead is occupied as a home by an owner or an owner's family; or
$350,00.00 of equity, if the homestead is occupied as a home by an owner who is elderly (age 60 or older) or disabled.
This exemption applies to a variety of primary residences, including houses, condominiums, and mobile homes. While the homestead exemption provides significant protection against many types of creditors, it has limitations when it comes to mechanic’s liens.
What is a Mechanic’s Lien?
A mechanic’s lien is a legal claim that a contractor, subcontractor, or supplier can file against your property if they have provided labor, services, or materials for your home improvement project and have not been paid. This lien can lead to a forced sale of your property to satisfy the debt. However, homeowners have several options to protect themselves from unfair or unjustified mechanic’s liens.
How Does the Homestead Exemption Affect Mechanic’s Liens?
While the Colorado homestead exemption offers substantial protection for homeowners, it does not automatically prevent a contractor from filing a mechanic’s lien against your property. However, the exemption can impact the amount of equity available to the contractor if they pursue foreclosure. Here’s how it works:
If a contractor files a mechanic’s lien and attempts to foreclose, they must first satisfy the homestead exemption amount before accessing any remaining equity.
For example, if your home has $275,000 in equity and you qualify for the $250,000 homestead exemption, only $25,000 of the equity is potentially available to satisfy the lien.
This means that if the equity in your home is equal to or less than the exemption amount, it may not be financially viable for the contractor to pursue foreclosure.
Steps to Protect Your Home from a Mechanic’s Lien
If you are facing threats of a mechanic’s lien, consider these strategies to protect your property:
Ensure All Work is Authorized: Review your contract to ensure that all work and any change orders are clearly documented and authorized. If the contractor performed unauthorized work, they typically cannot file a valid lien for those charges.
Request a Lien Waiver: After you have made a payment, ask the contractor to sign a lien waiver. This document relinquishes their right to file a lien for the work or materials covered by the payment.
File a Notice of Contest of Lien: Under Colorado law, specifically C.R.S. 38-35-204, any person whose real or personal property is affected by a recorded or filed lien or document that they believe is a spurious lien or spurious document may petition the district court in the county where the lien or document was recorded or filed, or the federal district court in Colorado, for an order to show cause why the lien or document should not be declared invalid
Bond Around the Lien: You can bond around the lien by obtaining a mechanic’s lien release bond. This transfers the lien from your property to a surety bond, allowing you to sell or refinance your home without the lien clouding the title. For a detailed discussion as to how to bond around a mechanics' lien, see our article How Colorado Property Owners Can Bond Around a Mechanic's Lien
Consequences of Filing an Excessive Mechanic’s Lien
In Colorado, a contractor must be careful not to file an excessive mechanic’s lien, which occurs when the lien amount claimed is intentionally inflated beyond the actual value of the work performed or materials supplied. Filing an excessive lien can have serious consequences for the contractor, including:
Lien Invalidity: An excessive lien may be deemed invalid by the court, and the contractor could lose their right to collect any payment through the lien process.
Attorney Fees and Costs: If a court determines that a lien was filed with an excessive amount, the contractor may be liable for the homeowner’s attorney fees and court costs. Colo. Rev. Stat. 38-22-128.
Homeowners who believe they are facing an excessive lien should consult an attorney to challenge the lien and potentially recover damages.
What If the Quality of Work is Substandard?
Under Colorado law, "trivial imperfections or omissions" in the work performed does not invalidate a mechanics' lien. Colo. Rev. Stat. 38-22-109(7). Having said that, a homeowner may have grounds for their own claim against the contractor and leverage in negotiating the removal or reduction in a mechanics' lien when they are faced with substandard work following a construction project. A homeowner should consider the following actions:
Document the Issues: Keep detailed records of the problems, including photographs and notes. An independent inspector can also provide a professional assessment of the quality of the work.
Provide Written Notice: Notify the contractor in writing of the issues and allow them a reasonable opportunity to correct the deficiencies.
Seek Legal Advice: If the contractor refuses to address the issues, consult with an attorney to explore your options. This may include filing a complaint with the Colorado Department of Regulatory Agencies (DORA) or pursuing a legal claim for breach of contract or defective workmanship.
Can the Homestead Exemption Be Waived?
Be aware that the homestead exemption can be waived in certain circumstances, often as part of a mortgage or loan agreement. Colo. Rev. Stat. 38-41-212. If you have signed an agreement waiving the homestead exemption, this protection may not apply in a dispute over a mechanic’s lien. Always read and understand any documents before signing, and consider seeking legal advice if you are unsure of your rights.
Conclusion
The Colorado homestead exemption provides valuable protection for homeowners, but it does not automatically prevent a contractor from filing a mechanic’s lien. If you are facing construction disputes and potential liens, understanding your rights under the homestead exemption and other legal protections is essential. Taking proactive steps to manage your construction project and resolve disputes can help protect your home from unfair or unjustified claims.
If you have more questions about the homestead exemption, mechanic’s liens, or construction disputes, contact our firm. We specialize in helping Colorado homeowners defend their rights and protect their properties. Contact us for a free consultation today.
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.