Mechanic’s Lien Release Bonds Post-Colorado SB 26-074

The Mechanic’s Lien Release Bond After Colorado SB 26-074: How Sureties Defend Their Principals When Liens Grow

Colorado’s Senate Bill 26-074, effective August 12, 2026, has made the mechanic’s lien release bond the first and best line of defense for any owner, lender or general contractor confronting a construction payment claim. The statute now expressly permits lien claimants to include disputed, unliquidated and delay related amounts in their lien statements, and it narrows the “excessive lien” defense that owners historically used to attack an inflated filing. The practical result is predictable: liens will be larger, they will be harder to defeat on the face of the statement, and the fastest route to a clean title will no longer run through a motion to invalidate the lien. It will run through substitution of a surety bond.
This essay examines SB 26-074 from the perspective of the surety rather than the litigant. The surety that writes a mechanic’s lien release bond is not a passive guarantor. It is, in effect, the principal’s partner in the defense of the underlying claim, and the quality of that partnership depends almost entirely on the surety’s command of lien law. The statutory changes in Colorado illustrate why that expertise matters more now than at any point in the last four decades.

What SB 26-074 Changed in Colorado’s Mechanics’ Lien Act

Senate Bill 26-074 was signed by Governor Polis on April 6, 2026, the same day the Colorado Supreme Court decided Ralph L. Wadsworth Construction Company, LLC v. Regional Rail Partners, 2026 CO 19, and it took effect on August 12, 2026 (McLain 2026). The Wadsworth court held that disputed and unliquidated amounts, including delay and disruption damages, may lawfully be included in a verified statement of claim under the Public Works Act (Colorado Supreme Court 2026). The General Assembly then wrote parallel principles directly into the private Mechanics’ Lien Act, C.R.S. § 38-22-101 et seq. (Colorado General Assembly 2026).

The amendments make four changes of consequence to any party who must respond to a lien:

• New subsection 38-22-101(7) provides that nothing in the Act prohibits the inclusion in a lien of costs otherwise allowed under a contract, including costs incurred as a result of delay, lost productivity or other disruption to the work.
• Section 38-22-101(1) now states that the lien secures the value of the labor, materials and equipment furnished, “whether disputed or undisputed.”
• Section 38-22-128, the excessive lien provision, now provides that a judgment for less than the amount claimed does not by itself establish that the lien was excessive, provided the claimant had a good faith basis to believe the amount was due at the time of filing.
• The Act adopts a statutory concept of an amount being “due” when the claimant reasonably believes, in good faith, that it represents the value of qualifying work, even if the amount is unliquidated or disputed (Woods Aitken 2026).

The legislature preserved the penalty for a claimant who knowingly files for an amount that has no reasonable possibility of being owed. That claimant still forfeits lien rights and remains liable for the costs and attorney fees incurred in defeating the lien. But the threshold for “knowingly” has moved. An owner can no longer point to a $500,000 lien that resolved for $300,000 and argue that the delta alone proves bad faith (McLain 2026). The inquiry now turns on what the claimant reasonably believed when it recorded the statement, and that is a fact intensive question that is rarely resolved on a motion.

The Substitution Mechanism Under C.R.S. §§ 38-22-131 Through 133

Colorado’s answer to the recorded lien is substitution. Under C.R.S. § 38-22-131, the owner of any legal or beneficial interest in the encumbered property may, at any time, file with the clerk of the district court of the county where the property sits a corporate surety bond, or other undertaking approved by a judge of that court, in an amount equal to one and one half times the amount of the lien plus costs allowed to date (Colorado General Assembly 2024). Upon approval, § 38-22-132 directs the clerk to issue a certificate of release, which is then recorded with the county clerk and recorder and which forever releases the property from the lien, from any lis pendens and from any foreclosure action. Section 38-22-133 completes the structure by transferring the claimant’s remedy to the bond: the claimant may sue on the undertaking, but must do so within the same period that would have governed a foreclosure of the lien, which under § 38-22-110 is six months from the date the statement was recorded.

Three features of this mechanism deserve emphasis in light of SB 26-074.

• The 150 percent multiplier applies to the lien as recorded, not to the amount the owner thinks is owed. A lien that now lawfully carries $200,000 in disputed delay costs on top of a $300,000 contract balance requires a $750,000 mechanic’s lien release bond rather than a $450,000 bond. The statute amplifies every dollar of expanded lien content by half again.
• The bond may be posted “at any time.” The owner need not wait for a foreclosure action, need not first litigate validity, and need not negotiate with the claimant. A closing or a construction loan draw that is blocked by a lien on Monday can be unblocked by Friday.
• The release is permanent as to the property. The dispute does not disappear; it simply migrates from the land to the bond, where it is fought on the merits under the ordinary rules of contract and lien law.

The lien release bond is therefore not a settlement device. It is a procedural substitution that removes the claimant’s leverage over the real estate while leaving every defense to the claim intact. That is precisely why the surety’s understanding of those defenses is so consequential.

How Lien Law Expertise Defends the Principal

A surety that issues a mechanic’s lien release bond assumes a contingent liability equal to whatever the claimant ultimately proves, up to the penal sum. The surety’s loss experience on that bond is a direct function of how well the principal’s defenses are identified, preserved and pressed. A surety that understands lien law contributes to that defense from the day the application arrives, in four distinct ways.

The surety examines validity and perfection before it examines anything else. Colorado’s lien statute is unforgiving on procedure. Section 38-22-109 prescribes the form and content of the lien statement, requires notice of intent to be served at least ten days before recording, and sets the recording deadlines that run from completion of the project or of the claimant’s work. A statement that was recorded late, that omits a required element, that was not preceded by proper notice of intent, or that names the wrong property or the wrong owner is defective regardless of what SB 26-074 says about disputed amounts. The new law expands what a valid lien may contain; it does nothing to rescue a lien that was never valid. A surety with lien law depth flags those defects immediately, and the principal’s counsel can move to discharge rather than bond.

The surety reads the contract. SB 26-074 permits inclusion of delay and disruption costs “otherwise allowed under a contract.” That qualifier is the whole case. A subcontract with an enforceable no damages for delay clause, a strict written notice requirement for extra costs, or a change order procedure that the claimant ignored may foreclose the delay component entirely (McLain 2026). The surety that identifies those provisions can underwrite the bond on the realistic exposure rather than the face amount, and can price accordingly.

The surety evaluates the claimant’s good faith as a defense rather than as an abstraction. Section 38-22-128 still exposes a claimant to forfeiture and fee shifting when it knowingly asserts amounts with no reasonable possibility of being due. The evidence that supports that defense is usually the project correspondence: the rejected change orders, the daily reports, the schedule updates and the payment applications that show what the claimant actually believed when it recorded the lien. A surety that has handled hundreds of lien disputes knows what that record looks like and knows when it is strong enough to shift the burden back onto the claimant.

The surety manages the clock. The six month enforcement period under § 38-22-110 carries over to the action on the bond. A claimant who posts a lien and then fails to sue within that window loses the claim against the bond as surely as it would have lost the lien. The surety tracks that deadline, and in many instances the bond is exonerated without a dollar changing hands because the claimant let the period lapse.

None of this requires the surety to litigate. It requires the surety to know the statute, the case law and the contract well enough to see the shape of the defense before the first pleading is filed, and to structure the bond, the indemnity and the collateral around that assessment.

Underwriting the Disputed Claim After SB 26-074

The mechanic’s lien release bond has always occupied an uncomfortable place in the surety’s portfolio. It is written on an adversarial posture: the principal denies that the money is owed, and the claimant has already recorded an instrument asserting that it is. Traditional underwriting treated the bond as a financial guarantee on the principal, with the merits of the dispute as a secondary consideration, because the lien amount was a reasonable proxy for the maximum exposure and the excessive lien statute policed inflated filings.

SB 26-074 weakens that proxy. When a lien may lawfully include unliquidated delay and lost productivity costs, the recorded amount tells the underwriter less about what the claimant will prove and more about what the claimant was prepared to assert. Three adjustments follow.

The merits move to the center of the file. The underwriter now needs the contract, the notice provisions, the change order history and the claimant’s own damages narrative, because the difference between the face amount and the provable amount may be the majority of the penal sum.

Capacity planning changes. At 150 percent of a lien that is itself larger than the undisputed balance, the penal sum on a mid sized commercial dispute can reach seven figures quickly. An owner or contractor with several projects in a difficult market may need release bond capacity measured in the tens of millions of dollars, which in turn drives the financial statement review and the collateral conversation.
Collateral and indemnity are calibrated to the realistic exposure rather than the face amount. A surety that is confident the delay component is barred by contract may accept partial collateral or none; a surety that cannot evaluate the delay claim will demand collateral for the full penal sum, and the principal will pay for the surety’s uncertainty.

The third point is where lien law expertise is converted directly into economic value for the principal. A surety that cannot distinguish a weak delay claim from a strong one has no choice but to price and collateralize for the worst case. A surety that can make that distinction, and that is prepared to stand behind it, offers the principal a cheaper bond, faster execution and a partner in the defense rather than a creditor waiting for the judgment.

The General Contractor as Principal

The owner is the party named in § 38-22-131, but the general contractor is more often the principal on a mechanic’s lien release bond. Most private construction contracts require the contractor to discharge any lien recorded by a subcontractor or supplier within a short period, typically ten to thirty days, and treat the failure to do so as a default. A disputed subcontractor claim that becomes a lien against the owner’s property therefore becomes the general contractor’s problem, even where the contractor is convinced that the amounts claimed are unjustified (McLain 2026).

SB 26-074 sharpens that exposure. A subcontractor who was previously cautious about recording a lien that included disputed delay costs, for fear of the excessive lien penalty, now has statutory cover to do so. The general contractor must then bond the full recorded amount at 150 percent, regardless of its own assessment of the claim.

The surety’s analysis in that posture has two layers. The first is the general contractor’s financial capacity to indemnify the surety, which is conventional. The second is the pass through: the contractor’s subcontract will almost always contain an indemnity running from the subcontractor to the contractor, and the subcontractor’s claim against the owner’s property may be barred or reduced by the same subcontract terms that govern the delay claim. A surety that reads the subcontract alongside the prime contract can see whether the contractor is likely to recover the bond cost and any eventual loss from the subcontractor, and that recovery prospect is properly part of the underwriting.

Public Works: Verified Statements of Claim and Bonding Over

The same logic governs Colorado public projects, where no lien may attach to the public property and the claimant’s remedy is a verified statement of claim under C.R.S. § 38-26-107, which freezes contract funds in the hands of the public entity. SB 26-074 amended § 38-26-107 to permit disputed amounts and contractually allowed delay, lost productivity and disruption costs in the verified statement, and amended § 38-26-110 to apply the same good faith standard to excessive claims (Colorado General Assembly 2026). Notably, the amended excessive claim provision in § 38-26-110 expressly contemplates recovery of the costs and attorney fees reasonably incurred in bonding over an excessive verified statement, which confirms that the legislature expects contractors to respond to such claims with a bond rather than by waiting for the funds to be released.

For the general contractor on a public project, the verified statement is often more damaging than a private lien, because it stops the flow of progress payments on the entire contract. The release bond restores that cash flow, and the contractor’s ability to obtain one quickly, on a disputed and now potentially inflated claim, depends on the same lien law analysis described above. The surety that understands the interplay between the Public Works Act, the contractor’s payment bond and the subcontract terms is the surety that can issue the bond the same week the claim is served.

Practical Guidance for Owners, Lenders and Contractors

The changes in Colorado are a preview of where lien law is heading in other jurisdictions, and the response is the same wherever a substitution statute exists. Parties who may need a mechanic’s lien release bond should prepare for it before the lien is recorded.

• Owners and lenders should treat the release bond as the default response to any lien that threatens a closing, a refinance or a construction loan draw, and should have the surety relationship in place before the need arises. A bond that is underwritten in advance can be executed in hours.
• General contractors should audit their subcontract forms for enforceable no damages for delay clauses, written notice requirements and change order procedures, because those provisions now do the work the excessive lien statute used to do. The same documents should be assembled in the project file so that they can be delivered to the surety with the lien.
• All parties should document disputed claims contemporaneously. The good faith standard in amended § 38-22-128 is evaluated as of the date of filing, and the record that defeats an inflated lien is the record that was created while the dispute was live, not after.
• Claimants should recognize that SB 26-074 does not create an entitlement to delay damages. It permits inclusion of amounts the contract already allows, and a lien that ignores the contract’s limitations is still exposed to forfeiture and fee shifting.

The application for a mechanic’s lien release bond should be accompanied by a copy of the recorded lien, the prime contract and any subcontract at issue, the owner’s or contractor’s current financial statement, and a short narrative of the dispute. With those materials, a surety that knows the statute can underwrite the realistic exposure rather than the face amount, and the principal benefits in both premium and collateral.

My Summation

SB 26-074 did not create construction payment disputes, and it will not end them. What it did was shift the forum. By validating disputed, unliquidated and delay related amounts in the lien statement and by narrowing the excessive lien defense, the General Assembly made the recorded lien harder to attack on its face and the mechanic’s lien release bond correspondingly more important. The land is released by statute; the claim is resolved on the merits; and the merits are governed by the contract, the notice provisions and the claimant’s good faith at the time of filing. Those are matters of lien law, and the surety that masters them is the surety that can defend its principal rather than merely insure it.

Surety One, Inc. has underwritten mechanic’s lien release bonds in Colorado and in all fifty states, Puerto Rico and the U.S. Virgin Islands for more than three decades. Our underwriters review the lien, the contract and the subcontract before the bond is quoted, manuscript the bond form to the requirements of the approving court, and execute and deliver the same day in most cases. Owners, lenders and contractors who need a lien release bond, a public works claim release bond or any other judicial or court bond may apply through our dedicated judicial bond platform at CourtBondSurety.com, call (800) 373-2804, or write to Underwriting@SuretyOne.com. Application review and quoting are free of charge.

~ C. Constantin Poindexter, MA, JD, CPCU, AFSB, ASLI, ARe, AINS, AIS, CPLP

References

• Colorado General Assembly. 2024. Colorado Revised Statutes, Title 38, Article 22, General Mechanics’ Lien, §§ 38-22-101 through 38-22-133. Denver: Office of Legislative Legal Services. https://leg.colorado.gov/sites/default/files/images/olls/crs2024-title-38.pdf
• Colorado General Assembly. 2026. Senate Bill 26-074, Concerning Clarification of the Penalty for Claiming an Excessive Amount in a Public Construction Performance Bond Dispute, Second Regular Session, Seventy-fifth General Assembly (signed April 6, 2026; effective August 12, 2026). https://leg.colorado.gov/bills/sb26-074
• Colorado Supreme Court. 2026. Ralph L. Wadsworth Construction Company, LLC v. Regional Rail Partners, 2026 CO 19, No. 24SC537 (April 6, 2026). https://www.coloradojudicial.gov/system/files/opinions-2026-04/24SC537.pdf
• McLain, David M. 2026. “Colorado’s New Mechanic’s Lien Law: Bigger Claims, Stronger Protections, and New Risks for Owners and Contractors.” Higgins, Hopkins, McLain & Roswell, LLC, October 7. https://www.hhmrlaw.com/colorados-new-mechanics-lien-law-bigger-claims-stronger-protections-and-new-risks-for-owners-and-contractors.html
• Woods Aitken LLP. 2026. “SB 26-074 Signed Into Law: Clarifying Excessive Claims and Expanding Protections for Lien and Bond Claimants in Colorado.” https://www.woodsaitken.com/sb-26-074-signed-law-clarifying-excessive-claims-and-expanding-protections-lien-and-bond-claimants