Chapter 6 - § 6.1 PRIORITY AND RANKING OF LIENS

• Jurisdiction: Colorado

§ 6.1 PRIORITY AND RANKING OF LIENS

"Priority of liens" refers to the order in which liens will be paid if more than one lien (or other encumbrance such as a deed of trust or transcript of judgment docket) is recorded against real property. Mechanics' liens "relate back to" — have priority from — the time of the first work on the project. This "super priority" under C.R.S. § 38-22-106 overrides the usual "race-notice" priority found in the Colorado Recording Act, C.R.S. § 38-35-109. Mechanics' lien claimants' priority is the same day; however, a different "ranking" between them in the satisfaction of the claims is established in C.R.S. § 38-22-108.

The super priority of Colorado mechanics' liens makes the liens a powerful collection tool. The mechanics' lien is usually superior to the security interest in the property recorded by the construction lender and is therefore frequently a first lien. There are two exceptions. The first applies to a construction deed of trust, with certain limitations. The second applies to a prior public trustee sale, also under limited conditions.

1) Construction deed of trust. A construction deed of trust may be prior to a mechanics' lien if the construction deed of trust expressly and correctly recites its purpose as a construction loan, is recorded before the mechanics' lien, and only to the extent that the proceeds from the loan were "used for construction purposes."¹
2) Public Trustee Sale. If an intervening public trustee's foreclosure has occurred, "a certificate of purchase holder generally takes title to the property in question free and clear of all liens and encumbrances junior to the lien foreclosed" — voiding all junior liens.² However, if the architect's work resulted in an enforceable mechanics' lien, the architect's lien would be a superior lien upon any improvements or structure. "Under those circumstances, the lien claimants . . . could relate back their work to the date of the architects' filing of the master plan."³

The priority date for a mechanics' lien relates back to the date that the first work was done on the project. C.R.S. § 38-22-106(1) states:

All liens established by virtue of this article shall relate back to the time of the commencement of work under the contract between the owner and the first contractor, or, if said contract is not in writing, then such liens shall relate back to and take effect as of the time of commencement of the work upon the structure or improvement . . . .

The case of Sontag v. Abbott⁴ states that the lien of a mechanic or material man begins with the commencement of the work or furnishing of the material under an express or implied contract with the employer and attaches upon whatever estate the latter may have at the commencement of such work or the furnishing of such materials. The case also states that a lien relates back to the time an architect commences plans and drawings for a proposed building and is not limited to the time of commencement of actual work on the structure.⁵ Therefore, if the claim;ant (or first contractor or architect on the project) performed work for the improvements to the project before the construction deed of trust was recorded, the lien may have priority over the construction deed of trust even though the lien is actually recorded after the deed of trust.

However, a claimant who commences work on a project with knowledge of an unrecorded deed of trust cannot claim priority over that deed of trust when the deed of trust is recorded after the claimant's first work on the project. "Actual notice" or knowledge is the key to this exception to the...