Do I Have to Pay a Subcontractor to Avoid a Lien Foreclosure After I Paid the Contractor in Full?
Full Question:
Answer:
It is an affirmative defense in any action to enforce a mechanics lien that the owner or some person acting on the owner's behalf has paid an amount sufficient to satisfy the contractual and legal obligations of the owner, including the initial purchase price or contract amount plus
any additions or change orders, to the principal contractor or any subcontractor for the purpose of payment to the subcontractors or suppliers of laborers, materials, or services to the job, when:
(a) The property is an existing single-family dwelling unit;
(b) The property is a residence constructed by the owner or under a
contract entered into by the owner prior to its occupancy as the owner's
primary residence; or
(c) The property is a single-family, owner-occupied dwelling unit,
including a residence constructed and sold for occupancy as a primary
residence. This paragraph (c) shall not apply to a developer or builder of
multiple residences except for the residence that is occupied as the
primary residence of the developer or builder.
If an action to foreclose the lien is brought and the above applies, your full payment to the contractor is a defense to foreclosure. You are not required to pay twice. It may be more difficult to recover your money in a breach of contract suit after a second payment. I suggest you contact a local attorney who can review all the facts and documents involved, as I am prohibited from giving legal advice.
Please see the following CO statutes:
38-22-102. Payments — effect.
(1) No part of the contract price, by the terms of any such contract,
shall be made payable, nor shall the same, or any part thereof, be paid in
advance of the commencement of the work, but the contract price, by the
terms of the contract, shall be made payable in installments, or upon
estimates, at specified times after the commencement of the work, or on the
completion of the whole work; but at least the following percentages of the
total contract price shall be made payable at least thirty-five days after
the final completion of the contract:
(a) Fifteen percent of the first two hundred fifty thousand dollars of
the contract price;
(b) Ten percent of the contract price in excess of two hundred fifty
thousand dollars up to and including five hundred thousand dollars;
(c) Five percent of the contract price in excess of five hundred thousand
dollars up to and including seven hundred fifty thousand dollars;
(d) Two percent of the contract price in excess of seven hundred fifty
thousand dollars.
(2) No payment made prior to the time when the same is due, under the
terms and conditions of the contract, shall be valid for the purpose of
defeating, diminishing, or discharging any lien in favor of any person,
except the contractor or other person to or for whom the payment is made,
but as to such liens, such payment shall be deemed as if not made and shall
be applicable to such liens, notwithstanding that the contractor or other
person to or for whom it was paid may thereafter abandon his contract, or
be or become indebted to the reputed owner in any amount for damages or
otherwise or for nonperformance of his contract or otherwise.
(3) As to all liens, except those of principal contractors, the whole
contract price shall be payable in money, and shall not be diminished by
any prior or subsequent indebtedness, offset, or counterclaim in favor of
the reputed owner and against the principal contractor, and no alteration
of such contract shall affect any lien acquired under the provisions of
this article. In case such contracts and alterations thereof do not conform
substantially to the provisions of this section, the labor done and
laborers or materials furnished by all persons other than the principal
contractor shall be deemed to have been done and furnished at the personal
instance and request of the person who contracted with the principal
contractor, they shall have a lien for the value thereof.
(3.5) Any provisions of this section to the contrary notwithstanding, it
shall be an affirmative defense in any action to enforce a lien pursuant to
this article that the owner or some person acting on the owner's behalf has
paid an amount sufficient to satisfy the contractual and legal obligations
of the owner, including the initial purchase price or contract amount plus
any additions or change orders, to the principal contractor or any
subcontractor for the purpose of payment to the subcontractors or suppliers
of laborers, materials, or services to the job, when:
(a) The property is an existing single-family dwelling unit;
(b) The property is a residence constructed by the owner or under a
contract entered into by the owner prior to its occupancy as the owner's
primary residence; or
(c) The property is a single-family, owner-occupied dwelling unit,
including a residence constructed and sold for occupancy as a primary
residence. This paragraph (c) shall not apply to a developer or builder of
multiple residences except for the residence that is occupied as the
primary residence of the developer or builder.
(4) Any of the persons mentioned in section 38-22-101, except a principal
contractor, at any time may give to the owner, or reputed owner, or to the
superintendent of construction, agent, architect, or to the financing
institution or other person disbursing construction funds, a written notice
that they have performed labor or furnished laborers or materials to or for
a principal contractor, or any person acting by authority of the owner or
reputed owner, or that they have agreed to and will do so, stating in
general terms the kind of labor, laborers, or materials and the name of the
person to or for whom the same was or is to be done, or performed, or both,
and the estimated or agreed amount in value, as near as may be, of that
already done or furnished, or both, and also of the whole agreed to be done
or furnished, or both.
(5) Such notice may be given by delivering the same to the owner or
reputed owner personally, or by leaving it at his residence or place of
business with some person in charge; or by delivering it either to his
superintendent of construction, agent, architect, or to the financing
institution or other person disbursing construction funds, or by leaving it
either at their residence or place of business with some person in charge.
No such notice shall be invalid or insufficient by reason of any defect of
form, provided it is sufficient to inform the owner or reputed owner of the
substantial matters provided for in this section, or to put him upon
inquiry as to such matters.
(6) Upon such notice being given, it is the duty of the person who
contracted with the principal contractor to withhold from such principal
contractor, or from any other person acting under such owner or reputed
owner, and to whom, by said notice, the said labor, laborers, or materials,
have been furnished or agreed to be furnished, sufficient money due or that
may become due to said principal contractor, or other persons, to satisfy
such claim and any lien that may be filed therefor for record under this
article, including reasonable costs provided for in this article.
(7) The payment of any such lien, which has been acknowledged by such
principal contractor, or other person acting under such owner or reputed
owner in writing to be correct, or which has been established by judicial
determination, shall be taken and allowed as an offset against any moneys
which may be due from the owner, or reputed owner to such principal
contractor, or the person for whom such work and labor was performed or
furnished.
38-22-132. Lien to be discharged.
Notwithstanding the provisions of section 38-22-119, upon the filing of a
bond or undertaking as provided in section 38-22-131, the lien against the
property shall be forthwith discharged and released in full, and the real
property described in such bond or undertaking shall be released from the
lien and from any action brought to foreclose such lien, and the bond or
undertaking shall be substituted. The clerk of the district court with
which such bond or undertaking has been filed shall issue a certificate of
release which shall be recorded in the office of the clerk and recorder of
the county wherein the original mechanic's lien was filed, and the
certificate of release shall show that the property has been released from
the lien and from any action brought to foreclose such lien.
38-22-131. Substitution of bond allowed.
(1) Whenever a mechanic's lien has been filed in accordance with this
article, the owner, whether legal or beneficial, of any interest in the
property subject to the lien may, at any time, file with the clerk of the
district court of the county wherein the property is situated a corporate
surety bond or any other undertaking which has been approved by a judge of
said district court.
(2) Such bond or undertaking plus costs allowed to date shall be in an
amount equal to one and one-half times the amount of the lien plus costs
allowed to date and shall be approved by a judge of the district court with
which such bond or undertaking is filed.
(3) The bond or undertaking shall be conditioned that, if the lien
claimant shall be finally adjudged to be entitled to recover upon the claim
upon which his lien is based, the principal or his sureties shall pay to
such claimant the amount of his judgment, together with any interest,
costs, and other sums which such claimant would be entitled to recover upon
the foreclosure of the lien.
38-22-127. Moneys for lien claims made trust funds — disbursements —
penalty.
(1) All funds disbursed to any contractor or subcontractor under any
building, construction, or remodeling contract or on any construction
project shall be held in trust for the payment of the subcontractors,
laborer or material suppliers, or laborers who have furnished laborers,
materials, services, or labor, who have a lien, or may have a lien, against
the property, or who claim, or may claim, against a principal and surety
under the provisions of this article and for which such disbursement was
made.
(2) This section shall not be construed so as to require any such
contractor or subcontractor to hold in trust any funds which have been
disbursed to him or her for any subcontractor, laborer or material
supplier, or laborer who claims a lien against the property or claims
against a principal and surety who has furnished a bond under the
provisions of this article if such contractor or subcontractor has a good
faith belief that such lien or claim is not valid or if such contractor or
subcontractor, in good faith, claims a setoff, to the extent of such
setoff.
(3) If the contractor or subcontractor has furnished a performance or
payment bond or if the owner of the property has executed a written release
to the contractor or subcontractor, he need not furnish any such bond or
hold such payments or disbursements as trust funds, and the provisions of
this section shall not apply.
(4) Every contractor or subcontractor shall maintain separate records
of account for each project or contract, but nothing contained in this
section shall be construed as requiring a contractor or subcontractor to
deposit trust funds from a single project in a separate bank account
solely for that project so long as trust funds are not expended in a
manner prohibited by this section.
(5) Any person who violates the provisions of subsections (1) and (2) of
this section commits theft, as defined in section 18-4-401, C.R.S.
38-22-110. Action commenced within six months.
No lien claimed by virtue of this article, as against the owner of the
property or as against one primarily liable for the debt upon which the
lien is based or as against anyone who is neither the owner of the property
nor one primarily liable for such debt, shall hold the property longer than
six months after the last work or labor is performed, or laborers or
materials are furnished, or after the completion of the building,
structure, or other improvement, or the completion of the alteration,
addition to, or repair thereof, as prescribed in section 38-22-109, unless
an action has been commenced within that time to enforce the same, and
unless also a notice stating that such action has been commenced is filed
for record within that time in the office of the county clerk and recorder
of the county in which said property is situate. Where two or more liens
are claimed of record against the same property, the commencement of any
action and the filing of the notice of the commencement of such action
within that time by any one or more of such lien claimants in which action
all the lien claimants as appear of record are made parties, either
plaintiff or defendant shall be sufficient.
