Mechanics' Lien Claims Against Multi-Ownership Properties in Colorado: Blanket Liens and the Duty to Allocate

Mechanics' lien claims against multi-ownership properties, such as condominiums or multi-unit housing developments, are anything but straightforward. On these types of projects, the general contractor or subcontractor typically works under a single contract (with the owner/developer or general contractor), but performs work that will benefit multiple properties. For instance, in the case of a condominium project, each unit within the condominium is a separate property that will benefit from the work. Mechanics' liens in these situations raise several important questions, including:

• Are "blanket liens" (a single lien describing all of the properties benefiting under a single contract) permissible in Colorado?
• Is there a duty to allocate the total value of a lien claim among all units benefiting from the work? and,
• What is the effect of losing lien rights, or not filing a lien, against a particular property or unit within a multi-ownership property?

The Colorado Supreme Court addressed these questions in its 2005 decision Compass Bank v. The Brickman Group, Ltd., 107 P.3d 955 (Colo. 2005) ("Brickman"). In Brickman, the general contractor ("Brickman") provided labor and materials for the first phase of a development project, which work consisted of a main entrance and 48 town and manor homes (the "units"). Brickman filed a single mechanics' lien for the entire balance of unpaid labor and materials, describing the common areas and nine of the project's units (even though 21 of the 48 units remained unsold at the time). In exchange for partial payments towards its outstanding contract amount, Brickman ultimately released six of the nine units listed in its lien. As the developer continued experiencing problems, the project lender, Compass Bank ("Compass"), was appointed receiver for eleven units, including the three units that remained in Brickman's lien claim. Compass Bank eventually foreclosed on its units, and was joined to Brickman's mechanics' lien foreclosure action. Id. at 957.

In that action, Compass conceded that Brickman's mechanics' lien was senior to its own deeds of trust on the three units at issue, but contested the validity and enforceability of Brickman's single mechanics' lien against more than one (in this case, three), but fewer than all, of the properties that Brickman worked on. The District Court found that Colorado's Mechanics' Lien Statute precluded the filing of a single lien, for the entire balance of a contract, against fewer than all of the benefiting properties, and so invalidated Brickman's lien. The District Court clarified, however, that in contrast to Brickman's lien, a blanket lien filed against all properties benefiting under a single contract would be valid. Id. at 958.

The Court of Appeals reversed, holding that a mechanics' lien describing more than one, but fewer than all, of the properties benefiting from work done pursuant to a single contact is valid as long as the value of the work can be equitably apportioned among the properties. Because Brickman's work could be apportioned, Brickman's lien was upheld and the matter remanded so that Brickman's lien claim be apportioned among the project units that remained unsold at the time of filing (21 in total).

On further appeal, the Colorado Supreme Court discussed the fundamental principles at issue, explaining that three distinct approaches to multi-ownership property liens exist in Colorado.

• The first option, a "blanket" lien, consists of a single lien claim, for the entire contract debt, against all units or properties that were benefited by the work. Blanket liens are valid where the cost or value of the labor or materials cannot be "readily and definitely divided or apportioned." C.R.S. § 38-22-103(4); see also Buerger Inv. Co. v. B. F. Salzer Lumber Co., 237 P. 162, 163 (Colo. 1925).
• A second option, a "several" lien, consists of separate lien claims against each of the units or properties that benefited from the work. The amount of each several lien must be "in proportion to the value of the labor and or materials furnished for the particular [unit]." Id.
• A final approach, an "entire" lien, consists of a single lien claim for the entire contract debt against only one of the units or properties that benefited from the work. An entire lien is valid only if all of the units or properties are solely owned by the debtor and the cost or value of the labor or materials cannot be apportioned. Id. at 959 (citing Perkins v. Boyd, 86 P. 1045 (Colo. 1906); First National Bank in Fort Collins v. Sam McClure & Son, Inc., 431 P.2d 460 (Colo. 1967)).

Brickman's lien was a blanket lien because it claimed Brickman's entire outstanding contract balance and described multiple properties that benefitted from Brickman's labor and materials. The Supreme Court identified, and addressed in turn, two potential defects in Brickman's blanket lien: (1) Brickman did not apportion the lien value among the properties described (when apportionment was, in fact, possible); and, (2) Brickman did not name some of units or properties that benefited from its work.

As to apportionment, the Court noted that Colorado's mechanics' lien statutes are to be construed "liberally, reasonably and equitably" for "the benefit and protection of mechanics and materialmen." Brickman, 107 P.3d at 958. Further, while Colorado law provides a lien claimant with several options (as described above) depending on the claimant's ability to apportion the value of its work, those options were not intended to create a "take it or leave it" decision. "The [Colorado Mechanics' Lien Act] was not intended…to force a claimant to choose whether to apportion or file a blanket lien, and later pay for even a harmless mistake of fact or law by losing his whole lien." Instead, a lien will be allowed "if there is support for any kind of lien." Id. (emphasis added).

Where a claimant, such as Brickman, chooses in good faith to file a blanket lien but it later turns out than apportionment was possible, the failure to apportion will not invalidate the lien. Instead, the court will use its equitable discretion to apportion the lien value among the properties or units. Id. In other words, if a claimant files a blanket lien, but should have filed a several lien (because apportionment was possible), the trial court will convert the blanket lien to a several lien by equitably apportioning the lien claim amount among the properties.

This equitable apportionment represents the court's method of dividing and allocating the total value of a lien claim based on what work or materials the court believes were rendered to each benefitted property. "Equity in apportioning the value of work done under a single contract (and therefore equity in apportioning the debt remaining on the contract), necessarily depends upon the proportion in which each of the structures or properties benefited from the work done under the contract." Id. at 960 (emphasis added). Brickman thus signals the court's intent to use its equitable discretion to apportion where a claimant fails to allocate its blanket claim among the properties or units that benefitted from its work.

Turning to the second alleged defect in Brickman's blanket lien, failure to include some of the benefited units or properties, the Court similarly held that this limitation did not invalidate Brickman's lien. However, it did affect the amount of the outstanding contract debt that Brinkman could claim. Blanket liens asserted against fewer than all of the units or properties benefiting from the work are enforceable, but only upon a showing of proper apportionment. Each unit enjoys the same measure of benefit from the work, regardless of how many units are listed in a blanket lien. A claimant's decision not to include certain units or properties in its lien does not increase the benefit enjoyed by those units or properties that are included. This principle applies whether certain properties or units were not included (or included, but later released) by choice, or whether lien rights to those properties or units were lost through a legal technicality. Because Brickman did not include, or later released, some of the units from its blanket lien, Brickman could not claim its entire contract debt. Instead, Brickman's lien had to be reduced by the value of the credits due to those units or properties that Brickman had released. Id.

In sum, the Supreme Court affirmed the validity of Brickman's blanket lien but remanded for apportionment because "the remaining debt can be recovered from the remaining encumbered properties, if at all, only to the extent that each actually benefited from the work performed under the contract." Id. at 961.

Important guidelines on mechanics' lien claims against multi-ownership properties can be gleaned from Brickman

• First, lien claimants should be careful to describe all lienable properties in their liens. This principle is based on the well-known mechanics' lien maxim that "a lien clearly cannot attach to property other than that mentioned in the lien statement." Id. at 959 (citing Perkins, 86 P. 1045; McClure, 431 P.2d 460). If properties or units are not listed in a lien, those lien rights will be lost. This is particularly important in the context of the complicated ownership structure of multi-ownership projects.
  
  
• Second, lien claimants should, wherever possible, allocate the value of their claim among all individual units or properties that benefitted from the work. While blanket liens are permissible, Brickman is strong indication of the courts' preference for liens which allocate the amount claimed to each benefited unit or property (i.e., several liens). If the claimant does not so allocate the lien amount, and it later turns out that allocation is possible, the court will use its equitable discretion to apportionment the claim as it deems just. The failure to allocate thus risks "rolling the dice" with a court's equitable discretion, a situation that should be avoided and considered only as a position of last resort.
  
  Contractors and subcontractors can take several measures during their performance of the work to ensure that they can later allocate their claims among a project's various units or properties.
• First, the different ownerships that exist on a multi-ownership project should be recognized and documented, including, if possible, the square footage of each.
• Second, contractors should track material and labor costs, and distinguish between costs expended on individual units or properties, or, if not possible, by project area or segment. This may include tracking the percentage of project completion on the Schedule of Values on a per unit basis.
• Third, record retention systems should ensure that information is recorded and stored in a secure but accessible location. The goal is to facilitate access to, and processing of, project data in as efficient means as possible (should the need arise, as it all too frequently does, to quickly prepare a mechanics' lien before lien rights expire).
  
  
• A third guideline from Brickman is that the total lien claim amount in a multi-ownership property should be reduced by the value of labor or materials for properties that were not included in, or were later released from, the lien. Liens should only claim the value of labor or materials for those units or properties actually listed in the lien. This principle underscores the importance of creating and maintaining records sufficient to apportion costs between various units, to ensure that lien claims do not overstate the amount due and owing from the listed units or properties.