Sunday, May 28, 2006

Construction Liens: Statute of Limitations

Under the Michigan Construction Lien Act, does the time period for bringing an action to enforce a claim of lien differ when the lien has been bonded off?

Until recently, the answer was thought to be No.

Under Section 117(1) of the CLA, an action to enforce a claim of lien must be brought within one year from the date it was recorded. Even when a lien was bonded off, following the procedures in Section 116, courts in Michigan have regularly treated an action against the bond as the same as one against the property. See, McAlpine & Keating, Construction Liens in Michigan, Sec 5.10 (ICLE 1996 & Supp 2003).

In E. R. Zeiler Excavating, Inc. v Valenti Trobec & Chandler, Inc., 2006 Mich. App. LEXIS 1172 (April 18, 2006) the Michigan Court of Appeals addressed this question in a case of first impression.

The Michigan Court of Appeals found that an action based upon a bond furnished under Section 116 of the CLA is subject to the 6 year statute of limitations for contract claims, not the one year period for enforcement of construction liens. 2006 Mich. App. LEXIS 1172, *8-9. The Court noted:

"Although the facts and proceedings in this case are complicated, the legal analysis is straightforward. MCL 570.1116 is silent concerning any period of limitations for an action on a bond. Although MCL 570.1117 expressly provides for a one-year period of limitations, the provision applies by its plain language to the enforcement of construction liens and foreclosure thereon. We find no basis for extending the one-year period of limitations to actions on bonds filed under [*9] MCL 570.1116 contrary to the express statutory scheme established by the Legislature. We agree with Zeiler that the six-year period of limitations for contract actions, MCL 600.5807(8), applies to its claim against [the surety]."

The slip opinion for this case can be found here.

Commentary: This decision was contrary to the expectations of most construction attorneys. Substituting a surety bond for the property was not meant to enhance a claimant's rights by extending the time period within which to file suit. The Zeiler decision will make it more expensive for contractor's to bond off construction liens, and require that such bonds be maintained for up to six years. One alternative might be to specify a one year statute of limitations on the face of the bond; Michigan law permits parties to contract for shorter statutes of limitation.

No comments: