Most people think of a bad construction deal as a civil matter, like a breach of contract, a lien, or a lawsuit. But under Colorado law, mishandling construction project funds can turn into a criminal case, and contractors in Larimer County are often caught off guard by how easily it happens.
Fort Collins Statute Regarding a Trust for Construction Funds: What Is C.R.S. § 38-22-127?
C.R.S. § 38-22-127, Colorado’s Construction Trust Fund Statute, requires that any funds a contractor or subcontractor receives under a building, construction, or remodeling contract be held in trust for the subcontractors, laborers, and material suppliers who are owed payment on that project. This means money paid for a specific job belongs to the people who did the work and supplied the materials on that job, not to the contractor’s general operating account, not to payroll on a different project, and not to personal expenses.
Recordkeeping and Fiduciary Duties Under the Construction Trust Statute in Loveland and Estes Park
The statute also imposes recordkeeping obligations. Contractors and subcontractors must maintain separate records of account for each project or contract, and courts have recognized that this creates a fiduciary duty to handle project funds appropriately.
Loveland Theft Attorney: How Trust Fund Violations Become Criminal Theft Charges
The real exposure comes from subsection (5). Anyone who violates the trust fund provisions commits Theft, as defined under Colorado’s criminal Theft statute, C.R.S. § 18-4-401. That means diverting draw payments to cover a different project’s shortfall, using client funds to pay unrelated business debts, or simply failing to pay sub-contractors and suppliers after being paid from the client can be charged as Theft (often felony Theft) with penalties scaling based on the dollar amount involved.
Facing a Construction Trust Fund Investigation in Larimer County?
For contractors, developers, and subcontractors working on projects throughout Fort Collins and Larimer County, this statute is one of the more serious legal risks in the industry. A funding shortfall, a cash-flow decision made under pressure, or a dispute over what counts as a “project expense” can escalate quickly from a business problem into a criminal investigation.
If you’re a contractor or in Construction and facing questions from law enforcement about how project funds were used, it’s important to understand exactly what the statute requires and how these cases typically develop before you say anything on the record. Call O’Malley Law Office today at 970-658-0007. Together, we can protect your future.
Photo by Antoni Shkraba