Lars H. Fuller (DEN) co-authored “Juggling Hammers—Bankruptcy Issues and the Mechanic’s Lien Trust Fund Statute” in the December issue of The Colorado Lawyer. In the article, he clarified the obligation of construction contractors under the state’s Mechanic’s Lien Trust Fund Statute and noted instances in which contractors may be considered liable.
The authors explained that the “Trust Fund Statute requires contractors to hold funds received on a project in trust for the payment of subcontractors and material suppliers.” They noted that the statute was intended to ensure compensation for laborers and suppliers, and to protect all parties in construction projects from dishonest contractors.
The article examined recent decisions that address “(1) who can bring Trust Fund Statute claims, including cases with no subcontractors with lien rights; (2) that a pre-violation waiver of a trust fund claim is enforceable in some circumstances; (3) when treble damages are available; (4) the intent required for treble damages; and (5) when a violation will result in a nondischargeable debt.”
As they explained, “Serious consequences flow from violating the Trust Fund Statute. Recent cases have clarified the scope of the Trust Fund Statute and what is required to access the remedies.”
And given the likelihood of an increased number of claims in this time of economic distress, contractors should ensure their attorneys are “prepared to consider the implications of a bankruptcy in resolving those issues,” they concluded.