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In Colorado, how are foreclosure sale proceeds apportioned among lien claimants when the proceeds are less than the amount of outstanding lien claims

We are involved in a situation where it looks like a foreclosure sale is imminent on a property with several outstanding liens (mechanics and mortgage). Our mechanics' lien was recorded after several other mechanics' liens. We are wondering whether the fact that our lien was recorded after other liens will impact our right to collect from the foreclosure proceeds. That is, are subcontractor mechanics' liens that are recorded first senior to subcontractor mechanics' liens recorded later? Or will the court apportion the foreclosure proceeds equally among the lien claimants based on their pro-rata share of the entire amount in outstanding liens? In other words, will the first subcontractor to record a lien be paid in full before the later subcontractors get paid?

1 reply

Sep 14, 2017

Colorado sets forth the rules governing mechanics lien priority in Colorado Revised Statutes §38-22-106 and 108.

First, for priority related to other encumbrances (like a first or second mortgage) all mechanics liens "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 the commencement of the work upon the structure or improvement, and shall have priority over any lien or encumbrance subsequently intervening, or which may have been created prior thereto but which was not then recorded and of which the lienor, under this article, did not have actual notice." This means that all mechanics liens related back to the first commencement of the work, and are superior in priority to any subsequently recorded encumbrance.

Second, in relation to each other mechanics liens in Colorado are ranked as follows:

1. The liens of all those who were laborers or mechanics working by the day or piece, but without furnishing material therefor, either as principal or subcontractors;
2. The liens of all other subcontractors and of all materialmen whose claims are either entirely or principally for laborers, materials, machinery, or other fixtures, furnished either as principal contractors or subcontractors;
3. The liens of all other principal contractors and all moneys realized in any actions for the satisfaction of liens against the same improvements or structures shall be paid out in the order above designated.

The time the lien was filed does not make any difference with respect to the above, provided it was filed timely.

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