New Bill Would Allow Construction Liens on Public Property

On January 29, 2009, Sen. Dennis Olshove (D. Warren) introduced S.B. 140, which would allow construction liens to be recorded against government (public) property.

Specifically, S.B. 140 would amend Section 107 of the Construction Lien Act (MCL 570.1107) by adding a new Subsection (7):

(7) Real property owned or leased by a government entity or as to which a government entity contracts for an improvement is subject to a construction lien under this Act to the same extent as other real property.

That a constructions lien may not attach to public property is a well established principal under Michigan law. S.B 140 would be a significant departure from long-established precedent. See e.g., Kammer Asphalt v East China Twp, 443 Mich 176, 181, n. 10 (1993). ("materialmen and contractors may not obtain a mechanics' lien on a public building") (citing Knapp v Swaney, 56 Mich 345, 347; 23 NW 162 (1885) ("Public property cannot be the subject of a [Builders'] lien unless the statute shall expressly so provide; it is by implication excepted from lien statutes, as much as from general tax laws, and for the same reasons.") and Ford v State Bd of Ed, 166 Mich 658, 660; 132 NW 467 (1911) ("These creditors have no lien upon this public building.").

To track the progress of S.B. 140, click here.

New Bill Would Create "Commercial Real Estate Broker's Lien Act"

On May 14, 2008, Sen. Randy Richardville (R. Monroe) introduced S.B. 1313, which would create the "Commercial Real Estate Broker's Lien Act". The bill was reported out of committee on October 2, 2008.

The bill would do all of the following:

• Specify circumstances under which a commercial real estate broker's lien would attach to commercial real estate.
  

• Require a claim of lien to be recorded before conveyance unless the broker's commission was due in installments and at least one was due after conveyance.

• Provide for the recording and attachment of a lien in the case of a lease agreement, a broker's acting as a buyer's agent, or a commission owed on a purchase option.

• Specify information that would have to be included in a claim of lien.

• Provide that a prior-recorded lien or mortgage would have priority over a commercial real estate broker's lien.

• Require the establishment of an escrow account if a lien recorded under the proposed Act would prevent a closing transaction.

• Authorize a person claiming a commercial real estate broker's lien to bring an action to enforce it in circuit court.

• Allow an owner of commercial real estate to serve on a lien holder a demand to enforce the lien or answer a claim; and provide that the lien would be extinguished if the lien holder did not respond within 30 days.

• Specify that a lien under the Act would be available only to a licensed real estate broker.

A commercial real estate broker's lien would attach to commercial real estate in favor of a real estate broker if all of the following circumstances existed:

• The real estate broker had a written commission agreement.

• The broker was entitled to a commission under that agreement.

• The broker recorded a claim of lien before the actual conveyance of the commercial real estate.

To track the progress of S.B. 1313, click here. 

Update: S.B. 1313 died, but a similar bill was introduced on May 27, 2009, S.B. 610, that would also create a lien statute for commercial real estate brokers.  

On October 5, 2010, S.B. 610 was signed into law by Governor Granholm as PA 201 of 2010. The new law is effective immediately.

Circuit Court Retains Jurisdiction Over $15,000 Contract Claim, Even When Lien Claim is Dismissed

Section 118(1) of the Michigan Construction Lien Act requires that an action to foreclose a construction lien be brought in the circuit court for the county where the real property is located. For smaller liens, this provision overcomes the requirement that claims in circuit court exceed $25,000. Thus, a lien claimant can pursue a foreclosure action in circuit court even where the amount in controversy is less than $25,000.

But what happens if the claim of lien is dismissed? Does this divest the circuit court of jurisdiction over the remaining claims, and require that the case be remanded to the district court? In a recent unpublished decision, the Michigan Court of Appeals considered this issue, and held in the negative. The remaining claims can proceed to trial:

"As a rule, when a court of competent jurisdiction becomes possessed of a case, its authority continues until the matter is finally and completely disposed of, and no court of co-ordinate authority is at liberty to interfere with its action."

Maidaniuc v. Country Pond, L.L.C., 2008 Mich. App. LEXIS 861 (Mich. Ct. App. Apr. 29, 2008). A copy of the slip opinion can be found here.

Plaintiff Must Prevail on Lien Foreclosure Claim to Recover Attorney Fees, Michigan Supreme Court Rules

On December 20, 2007, the Michigan Supreme Court entered an order reversing the Court of Appeals in a case involving the award of attorney fees to a lien claimant who had lost its lien claim, but prevailed on its breach of contract action. The Court of Appeals had found the plaintiff to be a prevailing party, and entitled to recover its attorney fees, despite losing its lien claim. The Supreme Court disagreed.

In H.A. Smith Lumber v Decina, 480 Mich 987; 742 NW2d 120 (2007), the Michigan Supreme Court held that "To be awarded attorney fees as a 'prevailing party' under MCL 570.1118(2), the party must prevail on the lien foreclosure action. * * * The language of [the statute] does not permit recovery of attorney fees on the contract action merely because it was brought together with the lien foreclosure action."

State of Michigan Updates Construction Lien Guide

The State of Michigan Department of Labor and Economic Growth (DLEG) recently updated its "Consumer's Guide to the Michigan Construction Lien Act and The Homeowner Construction Lien Recovery Fund" (Rev'd July, 2007) to reflect recent amendments to the Michigan Construction Lien Act. This publication provides an excellent overview of Michigan's lien law, and includes completed samples of all of the relevant forms. The DLEG website includes other lien resources, including sample forms and links to the full text of the Michigan Construction Lien Act.

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.

Construction Lien Act Modified, S.B. 487 Enacted

On June 28, 2007, Michigan's Governor approved S.B. 487, which amends Sections 110 and 115 of the Michigan Construction Lien Act. The new statute, PA 28 of 2007, is effective July 10, 2007

Background

Currently, parties involved in a construction project must provide various notices, statements, and claims of liens. Procedures can vary depending on whether the project is for commercial property or residential. PA 28 of 2007 amends the Construction Lien Act to restrict the applicability of certain provisions to residential properties; specifically, provisions regarding a sworn statement provided by a contractor or subcontractor about an improvement to a structure and to a waiver of lien.

PA 28 of 2007 will do the following:

• In a warning to an owner or lessee required to be included in a sworn statement, specify that the owner or lessee of the property shall not – rather than may not – rely on the sworn statement to avoid the claim of a subcontractor, supplier, or laborer who had provided a notice of furnishing to the designee or to the owner or lessee if the designee was not named or had died. (A sworn statement is a notarized document that lists every subcontractor, supplier, and laborer who provided labor and materials for the project. A subcontractor or supplier must provide a notice of furnishing after furnishing the first labor or material; a laborer must provide one when wages are due but not paid. The document must be given to the owner, lessee, or designee, and the contractor.)

• Restrict – to a construction project involving an improvement to a residential structure – the requirement that an owner or lessee provide notice of receipt of a sworn statement to each subcontractor, supplier, and laborer providing a notice of furnishing or named in the sworn statement. Upon request, the owner, lessee, or designee would have to give a copy of the sworn statement to each subcontractor, supplier, or laborer who was entitled to notice under these provisions.

• Restrict – to an improvement provided to a residential structure – the requirement that an owner, lessee, or designee not rely on a full or partial unconditional or conditional waiver of lien provided by a person other than the lien claimant named in the waiver if the lien claimant had filed, or was excused from filing, a notice of furnishing unless the owner, lessee, or designee had first verified the authenticity of the lien waiver with the lien claimant. The language contained in the form for the various waivers (partial and full unconditional waivers, as well as partial and full conditional waivers) would be modified to reflect this change.

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 PA 28 of 2007 might affect you or your business, please feel free to contact Peter Cavanaugh.

New Bill Would Modify Recently Amended Construction Lien Act (S.B. 487)

On May 9, 2007, Senators Garcia and Basham introduced a new bill in the Michigan Senate (S.B. 487), which would limit to residential construction the changes made to Sections 110 (lien waivers) and 115 (sworn statements) of the Construction Lien Act by the passage of PA 572 of 2006.

S.B. 487 can be read here.

Background -- Rationale for Change

PA 572 of 2006, and a companion statute passed at the same time, PA 497 of 2006, were aimed at shoring up the Michigan Homeowner Lien Recovery Fund, and preventing fraud in the residential construction market. PA 572 adds several requirements that on their face appear to add a significant administrative burden on contractors who operate outside of the residential construction market.

First, PA 572 amends Section 110 of the Act to require that sworn statements include the address and telephone number for any listed subcontractor, supplier or laborer listed. Not a significant change. However, PA 572 further requires that the owner, lessee or designee notify persons listed on a sworn statement (advising them that they are so listed) and provide them with copies of the sworn statement, within 10 business days, if so requested.

“(6) On receipt of a sworn statement, the owner, lessee, or designee shall give notice of its receipt, either in writing, by telephone, or personally, to each subcontractor, supplier, and laborer who has provided a notice of furnishing under section 109 or, if a notice of furnishing is excused under section 108 or 108a, to each subcontractor, supplier, and laborer named in the sworn statement. If a subcontractor, supplier, or laborer who has provided a notice of furnishing or who is named in the sworn statement makes a request, the owner, lessee or designee shall provide the requester a copy of the sworn statement within 10 business days after receiving the request.” [MCL 570.1110(6)]

In addition, PA 572 adds a requirement to Section 115 that lien waivers be authenticated:

“(7) Subject to subsection (8), an owner, lessee, or designee shall not rely on a full or partial unconditional or conditional waiver of lien provided by a person other than the lien claimant named in the waiver if the lien claimant has either filed a notice of furnishing under section 109 or is excused from filing a notice of furnishing under section 108 or 108a unless the owner, lessee, or designee has first verified the authenticity of lien waiver with the lien claimant either in writing, by telephone, or personally.” [MCL 570.1115(7)]

S.B 487 would clarify the changes made by PA 572, and limit its application to residential construction, as it was originally intended.

Construction Liens: E. R. Zeiler -- Supreme Court Declines Review

On March 26, 2007, the Michigan Supreme Court DENIED the surety's Application for Leave to Appeal, which leaves standing the Court of Appeals decision reported here on May 28, 2006.

Updated case citation:

E. R. Zeiler Excavating, Inc. v Valenti Trobec & Chandler, Inc., 270 Mich App 639; 717 NW2d 370 (2006), lv app denied, 477 Mich1055; 728 N.W.2d 433, 2007 Mich. LEXIS 548 (Mich. 2007).

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.