Chapter 19 - § 19.9 • BONDING LIENS

• Jurisdiction: Colorado

§ 19.9 • BONDING LIENS

Often, it is imperative to clear title to a mechanics' lien while preserving the right to dispute the lien claim. For example, a general contractor may wish to dispute a claim filed by a subcontractor but might be contractually obligated to keep the property free and clear of liens by subcontractors. The lien statute provides a mechanism for doing so. A mechanics' lien may be substituted by a corporate surety bond or similar security or undertaking.²⁶⁸

The bond or undertaking must be for at least one-and-a-half times the amount of the lien.²⁶⁹ And because it serves as substituted security for the mechanics' lien, if the lien claimant proves entitlement to a lien, then the bond principal and surety are bound to pay under the terms of the surety bond.²⁷⁰ Any action to enforce or foreclose on the bond must be commenced within the same time allowed for the commencement of an action upon foreclosure of the lien.²⁷¹ Additionally, substituting a lien for a bond or other undertaking does not excuse any prior non-compliance with the requirements for the filing of a mechanics' lien. "Because recovery on the bond is a part of the process for enforcing the mechanic's lien, . . . a cause of action to foreclose a mechanic's lien is substantially the same whether relief is sought against the liened property or against a bond which has been substituted for the property."²⁷²

One misconception is that simply acquiring the bond itself, or recording the bond with the clerk and recorder's office, results in the lien's being cleared. This is not true. Instead, the bond or undertaking must be filed with the district court of the county where the lien is recorded.²⁷³ Once the court approves the bond, the court clerk then can issue a certificate of release, which should be recorded with the clerk and recorder where the property is located.²⁷⁴ The recorded certificate of release is what serves as notice to the public that the referenced mechanics' lien has been discharged.

It is best to present the court with a complete and easy-to-use package that includes a petition to approve the bond and clear the lien, a draft order approving the bond and directing the issuance of a certificate of release, and a draft certificate of release. If a mechanics' lien foreclosure lawsuit is already pending, then it is also possible to file a motion in the pending case seeking the approval of the bond and issuance of the certificate of release.

Occasionally, a lien claimant will increase the amount...