Chapter 6 - § 6.6 • ARBITRATION OF MECHANICS' LIENS, MILLER ACT CLAIMS, AND FORECLOSURES

• Jurisdiction: Colorado

§ 6.6 • ARBITRATION OF MECHANICS' LIENS, MILLER ACT CLAIMS, AND FORECLOSURES

§ 6.6.1—Mechanics' Liens

C.R.S. § 38-22-110 requires that in order to enforce a mechanics' lien, a "civil action" must be commenced within six months after the work or labor is performed or material furnished, or after completion. An arbitration clause in a construction contract does not constitute a waiver under C.R.S. § 38-22-119 of the right to assert a mechanics' lien.⁷⁶ Commencement of a mechanics' lien civil action is not a waiver of the right to compel arbitration, where it is clear that there was no intentional relinquishment of the right. The mechanics' lien is a means of receiving payment, and not a claim upon which the lien is founded, and a civil action must be filed to preserve the remedy upon a favorable arbitration award.⁷⁷

Thus, notwithstanding an arbitration clause, the Colorado Supreme Court has stated that where a party has filed a mechanics' lien, the claimant still must commence a judicial foreclosure action within the statutory time, which is then stayed pending the arbitration.⁷⁸ The arbitrator then can determine the issues as between or among the parties to the arbitration. This normally can include the amount owing to the claimant, although when a suit to foreclose the mechanics' lien based upon those findings is filed, the non-parties to the arbitration holding junior interests in the property may thereafter have a right to contest in the civil action the amount of the lien. If the claimant prevails, it then proceeds in the civil action with the determination of the priority of liens and foreclosure of the lien.

Generally, an arbitrator cannot enter and enforce a foreclosure decree — cannot foreclose on property. First, all parties (claiming an interest in the subject property) may not be parties to the arbitration agreement. Second, arbitrators do not normally hold foreclosure sales or otherwise execute upon an award, nor do they have powers to direct a sheriff to sell property.

A mechanics' lien claim involves two steps: (1) determination of the sum, if any, owed by the alleged obligor (owner or contractor) to the claimant (contractor, subcontractor, or materialmen), which is an in personam claim; and (2) creation and enforcement of a lien against the involved property for such amount, which is an in rem claim. Generally, if there is an arbitration agreement between the claimant and respondent, the first issue is for the arbitrator to determine, and...