Colorado Construction Trust Fund Statute (C.R.S. 38-22-127): How Unpaid Subs May Recover Treble Damages

The owner paid the general contractor for your work. You never saw that money. On its face, that’s a breach of contract fight. In Colorado, it may be more: the state’s construction trust fund statute can turn diverted project money into a civil theft claim, with treble damages and attorney fees on the table.

This guide explains the statute, C.R.S. 38-22-127, in plain English: what it says, who it protects, when it doesn’t apply, and what unpaid subs and suppliers should gather before talking to a lawyer.

Owed $10,000 or more and legal costs are the holdup? Request a free claim review. Not legal advice.

What the statute says, in plain English

The core of the statute is one sentence. All funds disbursed to any contractor or subcontractor “under any building, construction, or remodeling contract or on any construction project shall be held in trust” for the subcontractors, laborers, and material suppliers who furnished labor, materials, or services on that project (C.R.S. 38-22-127(1)).

Put simply: when a GC or sub gets paid for a job, the money meant for the people below it in the payment chain isn’t the GC’s to spend on other jobs, overhead, or owner distributions until those people are paid.

• Who’s protected: subcontractors, laborers, and material suppliers who have, or may have, a lien on the property, or a claim against a principal and surety under the lien statute.
• What’s required: every contractor and subcontractor must keep separate records of account for each project. The statute does not require a separate bank account for each project, as long as trust funds aren’t spent in a way the statute prohibits (C.R.S. 38-22-127(4)).

The civil theft connection: why treble damages come up

Subsection (5) is what gives the statute its teeth: anyone who violates it “commits theft, as defined in section 18-4-401” (C.R.S. 38-22-127(5)). That links trust fund violations to Colorado’s civil theft remedy.

Under C.R.S. 18-4-405, the owner of property obtained by theft may recover $200 or three times the actual damages, whichever is greater, plus the costs of the action and reasonable attorney fees.

Two cautions:

• It isn’t automatic. A claimant has to prove the elements of theft. According to a 2025 Colorado Lawyer article on the statute, once those elements are proven by a preponderance of the evidence, the trial court can’t decline to award treble damages.
• Intent matters, but not the way many people think. Colorado courts have described “knowingly” as being aware that the way trust funds were used was practically certain to deprive the rightful party of them. In one Colorado bankruptcy case, the owners’ honest hope of saving the business and paying creditors later did not defeat the claim (In re Helmke, Bankr. D. Colo. 2008).

You don’t need a perfected lien

This point surprises a lot of contractors. The Colorado Supreme Court has held that the lien statute’s procedural requirements for perfecting and enforcing a lien (C.R.S. 38-22-109 and -110) don’t apply to claims for money held in trust under this statute (In re Regan, 151 P.3d 1281 (Colo. 2007)).

In practice, that means a missed lien deadline doesn’t automatically end the conversation. If your lien has lapsed, read My Mechanic Lien Expired: Now What? and ask counsel whether a trust fund claim fits your facts.

When the trust duty may not apply

The statute has built-in limits:

• Good-faith disputes and setoffs. A contractor doesn’t have to hold funds in trust for a claim it believes in good faith is invalid, or to the extent of a good-faith setoff (C.R.S. 38-22-127(2)).
• Bonds and releases. If the contractor furnished a performance or payment bond, or the owner signed a written release, the trust provisions don’t apply (C.R.S. 38-22-127(3)).
• Not every dollar is trust money. In Yale v. AC Excavating, Inc., 2013 CO 10, the Colorado Supreme Court held that money an LLC’s member and manager voluntarily put into the company to keep it running was not trust funds under the statute.

Expect a GC facing a trust fund claim to argue one of these. Your documents are how you answer.

Personal liability for the people who controlled the money

Many unpaid subs assume that if the GC’s company is broke, the claim is dead. Not necessarily. Colorado courts have held corporate officers and managers personally liable for trust fund violations they personally took part in, including in Alexander Co. v. Packard (Colo. App. 1988) and Flooring Design Associates v. Novick (Colo. App. 1995). Some bankruptcy decisions have also treated trust fund debts as non-dischargeable, including In re Barnes (Bankr. D. Colo. 2007).

Whether any individual can be reached on your facts is a question for a Colorado attorney. It depends on who controlled the money and what they did with it.

Evidence that tends to matter

• Your subcontract or purchase order, change orders, and invoices
• Proof the owner or lender paid the GC for your work: approved pay applications, draw records, joint checks, and lien waivers the GC signed
• A timeline of payments up and down the chain
• The GC’s reasons for not paying, in writing
• Anything showing your work was accepted, like inspections, sign-offs, and photos

Much of the best evidence, like the GC’s bank records and job cost ledgers, only comes out in litigation. That’s one reason these claims usually need an attorney.

Civil claim vs. criminal charges

The statute doesn’t create a separate crime on its own. Colorado courts have said violations are charged and prosecuted under the general theft statute (People v. Brand, Colo. App. 1979). Whether anyone is prosecuted is up to prosecutors, not you. Your civil claim for the money is separate. Talk to your attorney before you mention theft or criminal charges in a demand letter. How you word a demand matters.

How funding fits a trust fund claim

If theft is proven, treble damages and fee recovery can make these claims worth pursuing, but getting there takes discovery, motions, and often a trial. That’s expensive before you ever collect. Darkwell’s main business is funding contractor claims: Darkwell may fund your attorney’s fees and costs so a strong claim doesn’t stall on cost.

Darkwell provides litigation funding. In select cases, and where state law allows, Darkwell may purchase a claim for cash. We review claims of $10,000 or more, subject to review and approval by our team. Darkwell works in select states where our model is allowed, including Colorado, Wyoming, Florida, and California. Darkwell does not buy or collect consumer debt in states that require a collection license, including Colorado.

One catch if you sell a claim instead of funding it: the Colorado Supreme Court has held that trust fund claims can be assigned, but the right to treble damages cannot (People v. Adams, 243 P.3d 256 (Colo. 2010)). A buyer can pursue only the trust money itself, so ask your attorney how funding versus a sale affects what you can recover.

Related reading: Subcontractor Not Paid by the General Contractor in Colorado?, Colorado Mechanic Lien Guide 2026, Claim funding when you can’t afford an attorney, Litigation funding vs hiring a lien attorney, Mechanic Lien Attorney Alternative, and Contractor Not Getting Paid. If the amount is over $7,500, see Owed More Than $7,500? for how Colorado’s court limits work.

What to do next

1. Gather proof the GC was paid for your work, plus your contract, invoices, and payment timeline.
2. Check your lien deadlines anyway. A trust fund claim is not a reason to skip a lien that’s still available.
3. Talk to a Colorado construction attorney about whether your facts fit C.R.S. 38-22-127 and civil theft.
4. If legal cost is the obstacle and the claim is $10,000 or more, request a claim review.

Free claim review (not legal advice)

GC got paid for your work but didn’t pass it down? Submit a free claim review at Darkwell Capital or email team@darkwellcapital.com. Send what you have, and you’ll get a response from our team.