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How do I repspond to a pre lien/lien threat?

ColoradoMechanics Lien

Hi! My wife and I were looking to get a deck built, with the agreed upon expectation that the contractor be an Arvada residentially-licensed contractor who would pull permits to ensure all building meets city codes. I recently discovered, by calling the Arvada Building Dept. 1) There was no permit ever pulled or applied for 2) The contractor's name and/or business name is not licensed with the city of Arvada 3) The work that has been completed to date, clearly and visibly does not meet Arvada's building requirements. The contractor wants me to pay for the labor, I've paid for materials, but I don't think it's reasonable to pay for work that will be torn down. I've offered that he can recoup cost by taking back materials. He is saying I will receive a pre lien in the mail by Monday. Am I in the wrong? What steps forward should I take to protect myself?

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