Now that I have your attention, please forgive. Sensing I may have a captive audience today thanks to the weather, I am compelled to step up on my soapbox for a moment and discuss getting paid.
For better or worse, the law is a tool. If you are not prepared, it will likely only be to your detriment. Unfortunately, too often it is esoteric or unwieldy and the expense of lawyers prevents many from seeking counsel when they could most benefit. Few things pain me more than meeting a client who lost a significant advantage in recovering funds rightfully owed, either through an aversion to the cost of legal counsel, inexperience or just plain ignorance.
Mechanic’s liens are an area this seems to happen time and time again.
State law (specifically Colorado Revised Statutes, Section 38-22-101) grants construction professionals the right to put a lien on property for unpaid services or materials rendered in the improvement of that property. In essence, this allows construction professionals to become a secured creditor; which infinitely better than merely hoping a hand shake and good will can get delinquent invoices paid.
Too often professionals hesitate to file a lien because they do not want to tarnish a “relationship” or other emotional reasons. I would implore any would-be lien holders to consider the business and financial implications of failing to file a Mechanics Lien. It is akin to a mortgage lender releasing security in the purchase property for fear of losing popularity. (And in the case of a mechanic’s lien, the debtor has already defaulted on payments – isn’t the relationship already going downhill?)
Because the Mechanic’s Lien is a creature of statute, there are certain “magic words” and deadlines that must be satisfied to preserve your legal rights. However, once you have completed the process a few times, it becomes rote. Every professional should have the forms, processes, and procedures in place before the necessity arises. In that way, a Mechanic’s Lien can be swiftly executed in the brief window after the work is completed before the opportunity to become a secured creditor has passed forever. Educate yourself and accounting department about the deadlines involved in filing a Mechanic’s Lien to take full advantage of the law.
Before you can file a lien, the owner(s) of the property and the principal contractor must be notified via registered or certified mail (return receipt requested) or via private process server. Information about the owners is readily available through the public records. The statute outlines precisely what you need to include in a Statement of Lien and Notice of Intent to File. Ten days after serving the Notice, you can file your lien.
Once you’ve filed your lien, you will have to file a court action to foreclose on the property within 6 months of filing the lien, or completion of the construction project, whichever is later.
Even if the debtor has become insolvent, Bankruptcy Code Section 362(b) allows a creditor “to perfect, or to maintain or continue the perfection of, an interest in property.” This exception has been applied to Mechanic’s Lien creditors to allow the filing of a lien even after bankruptcy proceedings have begun.
The next time accounts receivable get too aged, use a Mechanic’s Lien as a legal tool; do not allow emotions or hollow excuses to forfeit your legitimate business interest.