Chapter 7 - § 7.1 NOTICE TO OWNER — DISBURSER: C.R.S. § 38-22-102(4) - (7) ("PRELIMINARY LIEN NOTICE" OR "TRAPPING LIEN")

• Jurisdiction: Colorado

§ 7.1 NOTICE TO OWNER — DISBURSER: C.R.S. § 38-22-102(4) - (7) ("PRELIMINARY LIEN NOTICE" OR "TRAPPING LIEN")

Many of Colorado's sister states have mandatory pre-lien or preliminary notice requirements if a creditor later wants to have the protection of that state's mechanics' lien laws.¹ In Colorado, a pre-lien or preliminary notice is not required. However, C.R.S. § 38-22-102(4) allows for preliminary notice that is not mandatory, but highly effective in trapping funds:

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 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.

The pre-lien notice described above must be delivered to the owner or the owner's place of business. It can be left with a person in charge or it can be delivered to the owner's construction superintendent, agent, or architect. The notice can also be delivered to the financing institution or other person disbursing funds.²

Upon receipt of the notice, it is the duty of the owner to

. . . withhold from such principal contractor, or from any other person acting under such owner or reputed owner . . . sufficient money due or that may become due to said principal contractor, or to 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.³

The statute then allows the owner to "offset" any funds paid on established liens against the amounts owed to the principal contractor.⁴ A form of Colorado preliminary lien notice is included at Exhibit 7A.

This section of the statute is not often used. It is not mandatory, and yet it can trap construction funds to ensure payment. Most claimants use the disburser's notice under C.R.S. § 38-22-126 to assert a claim against funds...