Tuesday, September 13, 2011

Senate Bill 11-264: The Clarification of Lien Bonding Statutes

On July 1, 2011, Senate Bill 11-264 became effective, which legislatively overruled the Colorado Court of Appeals controversial decision in Weize Company, LLC v. Martz Supply Co. 251 P.3d 489 (Colo. App. 2010). A notice of lis pendens gives notice of pending litigation to persons potentially acquiring interests in the subject property. Hewitt v. Rice, 154 P.3d 408 (Colo. 2007). The recording of a lis pendens binds any subsequent purchaser subject to the litigation’s effect on the property, thereby discouraging purchases because of the potential for unknown consequences. Kerns v. Kerns, 53 P.3d 1157, 1165 fn. 6 (Colo. 2002). In Weize, the court held that a notice of lis pendens must be filed when a suit involves property until the completion of litigation, even when a proper bond is substituted for the lien.
In making its decision, the Weize court found the plain language of C.R.S. §§ 38-22-131(3) and 127(3) persuasive. According to the court, the two statutes collectively exclude lien release bonds from the types of bonds that are exempt from filing lis pendens. However, the court did not discuss the other sections of C.R.S. §§ 38-22-131 and 132 (collectively allow for the substitution of a bond in place of a mechanic’s lien and discharge of the lien) or C.R.S. § 38-22.5-11 (allows for the substitution of a bond in place of a real estate broker’s lien and discharge of the lien). Further, according to C.R.S. § 38-22-132, once a bond is properly substituted for a lien, there is no longer an action that affects the title to real property. Therefore, any filing of lis pendens would be in conflict with C.R.S. § 38-22-110 that requires relief be claimed affecting the title to real property before filing a notice of lis pendens.

In response to the Weize decision, SB11-264 was enacted to amend C.R.S. §§ 38-22-132, 38-22.5-111, and 38-35-110. The legislature now made it crystal clear that a proper bond is a suitable substitute for filing lis pendens. Therefore, owners of property subject to litigation are now again free to market their properly-bonded property without the burden of lis pendens on title.

For additional information regarding Colorado construction litigation, please contact David M. McLain at (303) 987-9813 or by e-mail at mclain@hhmrlaw.com.

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The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice on any subject matter.