Mechanic’s liens can be highly effective tools for contractors to get paid for their work. Recording a lien also carries risks for a contractor who does not follow the correct procedures. The lien may be forfeited, and the contractor may even have to pay the owner’s costs and attorney’s fees if the lien amount is deemed “excessive.” This is one of the main reasons why it is important to hire an experienced attorney if a contractor is considering filing a lien, or if an owner receives notice that a lien will be filed. Failure to follow the rules may have severe consequences.
The Colorado Court of Appeals recently clarified some of these rules, in a way that lowers the risk somewhat for contractors. In JW Construction Company, Inc., v. K. Elliott (March, 2011), the Court held that an individual who signs an excessive mechanic’s lien on behalf of a corporation is not necessarily personally liable for costs and attorney’s fees under the excessive mechanics’ lien statute. Rather, the corporation itself is liable.
In this homeowner-builder dispute, JW Construction Co., Inc., a corporation, filed two mechanic’s liens against the homeowners’ property in pursuit of outstanding payments. The President of JW signed the liens on behalf of JW in his official capacity as an officer of the corporation. The Court of Appeals noted that Colorado’s excessive lien statute states that only the “person who files a lien” is liable for costs and attorney fees. Because a corporation has an independent legal identity, only the corporation is liable for costs and attorney fees, “not an officer of the corporation who has signed it in an official capacity.”
Absent piercing the corporate veil (where a court sets aside the limited liability of a corporation’s members), only JW, the corporation, was liable for the homeowner’s costs and attorney fees.
The lesson for contractors is that, if you are acting for the company, you may not be personally liable for filing a lien for an amount greater than what is actually due. Nevertheless, the corporation may still be liable for those actions, which may include losing lien rights and liability for the owner’s fees and costs. The bottom line is: make sure the job-cost accounting records underlying any lien are accurate before you lien the job – and get experienced legal advice to make sure you follow all the rules.