Lien Law Online eLert 6/24/2009 - Colorado

Colorado has passed legislation that affects ALL Lien Waivers entered into as of July 1, 2009. The new law modifies two (2) sections of the Colorado Revised Statutes (CRS).

The first is a section in the criminal code entitled Unlawful Activity Concerning the Selling of Land, CRS § 18-5-302. This statute deals with certain fraudulent conduct and representations made in the context of a sale of land or representations concerning the ownership of land. To this statute has now been added a new subsection (3) that imposes criminal sanctions for the failure to timely pay funds received from a construction loan where a lien waiver is signed. The new statutory language states as follows:

(3) a person who signs a lien waiver or a construction loan under section 38-22-119, CRS, and knowingly fails to timely pay any debts resulting from a construction agreement covered by the waiver commits a class 1 misdemeanor, unless there is a bona fide dispute as to the existence or amount of the debt.

The term “bona fide” generally means “real, actual, genuine and not feigned.” (Black’s Law Dictionary) Therefore, one should assume that a real and not a contrived dispute would be necessary to justify any failure to pay funds to lower-tier subcontractors or suppliers.
A class 1 misdemeanor is a crime in Colorado punishable by imprisonment of six to eighteen months, or fines of $500 to $5,000, or both.

The bill also amends the civil statute dealing with waivers in the context of mechanics liens by adding a statutory section to the current statute entitled “Agreement to Waive-Effect.” CRS § 38-22-119. This new statutory section reads as follows:

(2) An agreement to waive lien rights shall contain a statement, by the person waiving lien rights, providing in substance that all debts owed to any third party by the person waiving the lien rights and relating to the goods or services covered by the waiver of lien rights have been paid or will be timely paid.

By use of the words “providing in substance,” the statute does not dictate the exact wording required in a lien waiver, but does clearly state that words to that effect must be contained in lien waiver documents. Thus, after this statute takes effect, construction lien waivers must include language that essentially says that, “all debts owed to any third party by the person waiving the lien rights and relating to the goods or services covered by the waiver of lien rights have been paid or will be timely paid.”

The new statute has been signed by the Governor and takes effect on July 1, 2009. After that date all construction lien waivers must comply with this new statutory requirement. In addition, the failure to properly disburse funds received from a construction loan may lead to criminal action against the offending contractor or subcontractor.

Gilbert R. Egle, Esquire Contributing Author
Preeo Silverman Green & Egle, P.C.