Protect Your Mechanic's Lien Rights: Where Possible, Apply Payments to Oldest Invoices First

If you receive a payment which can be applied against one of multiple open accounts or invoices, how you apply the payment can impact your legal right of recovery if you ever need to file a mechanic's lien.

In general, where there exist multiple accounts or invoices between a creditor and a debtor, a debtor has the right to direct how payments will be applied. “The rule is settled, that where debts are due on two different accounts, the debtor may make the application to either, at the time of payment." United States v. Kirkpatrick, 22 U.S. 720, 724 (1824).

If, however, the debtor does not indicate how to apply the funds, the creditor may apply payment as they wish. "In the absence of direction or expression by the debtor of his intent as to how payment should be applied, the presumption is that he thereby assents to such application of the funds as the creditor may desire to make. The creditor is allowed to make the appropriation in a way most advantageous for himself.” Jackson v. A. B. Z. Lumber Co., 392 P.2d 288, 290 (Colo. 1964).

Mechanic's liens in Colorado are governed by C.R.S. § 38-22-101 et seq. Among the conditions which must be met for a mechanic's lien to be valid is that the lien must be recorded within a few months of the work being performed. (Other conditions must be met as well.) The window of time within which a mechanic's lien may be filed is measured by the last date of substantial work you performed on the project, for which the lien is being recorded. C.R.S. § 38-22-109 sets forth the timeframes for recording a lien, based on your specific circumstances. In many circumstances, you may have as little as two months after the last date of substantial work to record your lien. In other circumstances, you may have up to four months after the last date of substantial work for recording your lien. A lien must be recorded within the proper timeframe or it will not be valid.

In order to prevail in court, a lien claimant must prove what work was done, must prove that the work was substantial (e.g. not touch-up, warranty, clerical, or punch work), when the work was done, when it was billed, and how any payments received were applied. Maintaining clear records of your work and keeping accurate accountings will greatly assist in proving your claim in court.

In general, you should take care to apply payments to the oldest invoices first. This is because there is only a short window of time for recording a lien. Contractors and property owners are becoming increasingly clever in finding ways to defeat your lien rights, often without you even realizing it. The deadline for recording a mechanic's lien will pass first on the oldest invoices. If you notice that a contractor or owner is paying the newest invoices while leaving older invoices unpaid, it is important to take steps to preserve lien rights on the older invoices before the deadline for recording passes.

Your lien rights are the most important tool you have for making sure you get paid for your work. When it doubt, consult an attorney.