Saturday, August 25, 2007

New Bill Would Bar (Most) Construction Liens Against Residential Property - Why?

On July 27, 2007, a new bill was introduced by Rep. John Stakoe (R. Highland Twp), which would modify the Michigan Construction Lien Act to bar most claims of lien against Residential Structures by subcontractors, suppliers, and laborers, but not contractors.

H.B. 5051 would amend Section 107 of the Construction Lien Act by adding the following subsection:

(7) A Subcontractor, Supplier, or Laborer is not entitled to a Construction Lien on a Residential Structure.

H.B. 5051 also amends other sections in the Construction Lien Act to conform the statute with this basic prohibition.

H.B. 5051, if passed, would represent a significant, negative deviation from the protections afforded subcontractors, suppliers, and laborers by the Construction Lien Act. It is unclear what prompted Rep. Stakoe to introduce this legislation, or why he thinks it would be a good idea.

H.B. 5051 can be read here.

Update (8/28/07): Based upon discussions with Rep. Stakoe's office earlier today, I now understand that this bill was prompted by an elderly constituent who had a claim of lien recorded against his house by a roofing contractor's subcontractor. Rep. Stakoe's constituent was unable to pay the subcontractor's lien. If the homeowner had already paid the contractor, however, he shouldn't have to pay twice. The remedy to this problem lies with the Homeowner Lien Recovery Fund, not a new piece of legislation.

The Michigan Homeowner Construction Lien Recovery Fund (Fund) was created under Section 2 of the Construction Lien Act (PA 497 of 1980), to provide protection when the homeowner, has in good faith, paid their licensed contractor for materials and labor and the contractor failed to compensate materialmen, subcontractors, and/or laborers.

The Michigan Department of Labor & Economic Growth publishes an excellent "Citizen's Guide" to the Construction Lien Act and the Homeowner Lien Recovery Fund that can be found on their website here. The "Citizen's Guide" is updated through PA 28 of 2007, which became effective July 10, 2007 and which was discussed in an earlier post.

For More Information

Since the facts of each case are unique, this update cannot be taken as legal advice. For more information about the Michigan Construction Lien Act or how H.B. 5051 might affect you or your business, please feel free to contact Peter Cavanaugh.

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