Chapter 4 - § 4.8 ARBITRATION

• Jurisdiction: Colorado

§ 4.8 ARBITRATION

It is not uncommon for a general contractor to be faced with the situation of wanting to enforce its mechanics' lien rights, but having to comply with a mandatory arbitration clause in its contract. An arbitrator does not have authority to order the foreclosure of property, and filing a demand for arbitration does not satisfy the requirement to timely file a mechanics' lien foreclosure lawsuit.

In order to preserve a mechanics' lien and still comply with a contractual requirement to arbitrate, the proper procedure is to timely file the mechanics' lien foreclosure action and record the necessary lis pendens, but move to stay the lawsuit pending the completion of the arbitration process.⁶⁰ This sounds simple, but there may be other parties named in a mechanics' lien foreclosure lawsuit besides the parties subject to the mandatory arbitration provision. This can include mortgagees holding deeds of trust, other lien claimants who wish to pursue their claims, property owners, and landlords. These other parties, while not subject to the mandatory arbitration provision, may have an interest in challenging the procedural validity of a mechanics' lien. And they must be given an opportunity at some point to defend against the validity of the lien.

The Colorado Court of Appeals has already explained how to handle this situation procedurally. Specifically, the arbitrator is to decide the quantum of the lien claimant's claim. And if the lien claimant is successful in the arbitration, the court...