New Bill Would Require Builders to Present License When Recording Construction Lien

On April 20, 2021, Rep. Tommy Brann (R. Wyoming) introduced a new bill, which would require lien claimants to present their contractor's license and drivers license, or attach a copy of them, when recording a construction lien under the Michigan Construction Lien Act. Contractors who violate this requirement would be guilty of a misdemeanor (up to 90 days in jail) and incur a $500 fine.

H.B. 4668 would amend Section 114 of the Construction Lien Act (MCL 570.1114), by adding four new subsections. 

Section 114(2) would require contractors to display (present) their builder's license and some form of personal identification, such as a drivers license, when recording a claim of lien in person.

Section 114(3) would require prohibit a register of deeds from accepting a claim of lien for recording without seeing or attaching a copy of the contractor's license and personal identification to the claim of lien. 

Section 114(4) outlines the penalties for violation. A contractor who violates Section 114 would be guilty of a misdemeanor and face a fine of up to $500, or both. 

Section 114(5) outlines five different forms of "personal identification" that would be acceptable.

Comment: The Michigan Construction Lien Act already includes safeguards against unlicensed builders trying to enforce their construction liens. Section 114a(3) for instance requires that a person who brings an action to enforce a construction lien, who is required to have a license, allege and prove that he (or she) is properly licensed. Section 114a(1) allows an owner of residential property (Homeowner) to bring an action to discharge a construction lien recorded by an unlicensed builder, and recover actual attorney fees and costs.   

For more information about the Michigan Construction Lien Act, contact Peter Cavanaugh or Gary Quesada at (248) 543-8320.  Or visit our website - www.MichiganConstructionLaw.com

How to Discharge an Old Construction Lien in Michigan

In Michigan, a construction lien must be recorded within 90 days after the lien claimant last furnished labor or materials to a project. And a court action to enforce a construction lien must be started within one year of recording.

But what happens after a year if the lien claimant takes no action to enforce their lien? How do you remove an old lien? 

As a practical matter, a lien “expires” after more than one year if the claimant doesn’t file a lawsuit to enforce the lien. But old construction liens aren’t discharged automatically and remain part of the county property records. An old lien can disrupt the sale or refinancing of a property.   

Section 128 of the Michigan Construction Lien Act (MCL 570.1128), however, provides a remedy and a process to discharge an old construction lien.  

Discharging an old construction lien in Michigan is a 3-step process:

1.   Prepare an Affidavit. The affidavit must state your relationship to the property (ie., that you are the fee owner or the agent for the owner), describe the property (parcel number, legal description, and address), and provide information about the lien, including the date it was recorded. 

The property includes the legal description (metes and bounds), the parcel number, and the common street address. This information is included with your property tax bill, but will also be included with the (old) construction lien you’re trying to discharge. 

Attach the construction lien to the affidavit.Have the affidavit notarized. Make a copy.

2.   Submit the Affidavit to the County Clerk. Send the affidavit and a letter to the County Clerk requesting they examine their records; and if no proceedings to enforce the construction lien have been commenced, execute and deliver a certificate of that fact, bearing the seal of the circuit court. Some clerks charge a small fee for preparing the certificate.

3.   Record the Certificate. The certificate issued by the County Clerk, confirming no action was filed to enforce the construction lien within a year of recording, must then be recorded with the Register of Deeds to complete the lien discharge process. An unrecorded certificate is of little value. The recorded certificate discharges the old lien. The Register of Deeds is usually down the hall from the County Clerk. The recording fee is about $30. 

For more information or help with discharging an old construction lien, contact Peter Cavanaugh or Gary Quesada at (248) 543-8320.  Or visit our website - www.MichiganConstructionLaw.com

 

How to Bond Off a Construction Lien in Michigan

The process for bonding off a construction lien in Michigan generally involves posting a surety bond for twice the lien amount with the county clerk where the property is located. Cash bonds are permitted, but not common. Once a bond is submitted, and no objections are received, the county clerk will issue a certificate vacating he lien which is then recorded with the register of deeds. The whole process takes about 4-5 weeks.

For lawyers, the process for bonding off a construction lien is governed by Section 116 of the Michigan Construction Lien Act (MCL 570.1116). A bond discharging a lien also acts to discharge any notice of lis pendens which may have been recorded.
For a detailed, step-by-step primer on bonding off a construction lien, we recently published a "How To" on our website: http://www.michiganconstructionlaw.com/blog/2019/8/14/how-to-bond-off-a-construction-lien-in-michigan

New Skilled Trades Regulation Act Impacts Section 114 of Michigan Construction Lien Act

During the recent lame duck session in December, the Michigan Legislature passed a series of bills aimed at consolidating the licensing and regulation of skilled trades, including residential builders, electricians, plumbing and mechanical contractors. All of these trades are now regulated under the “Skilled Trades Regulation Act.” 

S.B. 963 repealed the Electrical Administrative Act, the Forbes Mechanical Contractors Act, the State Plumbing Act, the Boiler Act, and the Building Officials and Inspectors Registration Act and created in its place the "Skilled Trades Regulation Act" to regulate all of those trades. Signed by Governor Snyder on January 3, 2017, the new statute, designated Public Act 407 of 2016 will take effect in 90 days on April 4, 2017

Passage of Skilled Trades Regulation Act also affects the Michigan Construction Lien Act for residential construction.  

Section 114 of the Construction Lien Act requires that contracts for residential construction include certain statutory language regarding licensure.  In a companion bill, S.B. 971 (PA 415 of 2016), the Michigan Legislature changed Section 114 to refer to the new “Skilled Trades Regulation Act.”  

TAKE ACTION IN JANUARY, 2017 –

1. Residential builders and other contractors that perform residential construction, you should update your contracts to incorporate the new language. It’s an easy fix. Do it today.   

2. Residential Builders and contractors who do not use a written contract or whose contract does not include any of the language required by Section 114, you should use this opportunity fix things. Amend your contract form to include the (new) statutory language. Don’t wait.

NEW LANGUAGE / ADD TO YOUR CONTRACT

“Pursuant to Section 114 of the Michigan Construction Lien Act, Homeowner is advised as follows:

“(a) That a residential builder or a residential maintenance and alteration contractor is required to be licensed under article 24 of the occupational code, 1980 PA 299, MCL 339.2401 to 339.2412. That an electrician is required to be licensed under article 7 of the skilled trades regulation act, MCL 339.5701 to 339.5739. That a plumbing contractor is required to be licensed under article 11 of the skilled trades regulation act, MCL 339.6101 to 339.6133. That a mechanical contractor is required to be licensed under article 8 of the skilled trades regulation act, MCL 339.5801 to 339.5819. 

“(b) If the contractor is required to be licensed to provide the contracted improvement, that the contractor is licensed and the contractor’s license number.

For residential builders, use the following: 

(b) {Name of Contractor} is a licensed residential builder in the State of Michigan (License No. ___________; {qualifying officer’s name}, Qualifying Officer.

For electrical contractors, use the following:

(b) {Name of Contractor” is a licensed electrician in the State of Michigan (License No. _______; {qualifying officer’s name}, Qualifying Officer.  

NOTE: Under Michigan law, for residential construction, the entity contracting for the work must be properly licensed. It is not sufficient for an individual to be licensed if the business entity, corporation or LLC, which is contracting with the homeowner, is not licensed. This is a common pitfall that builders, licensed individually, can fall into when they start a new business and fail to secure a builder’s license for the business.

For more about Michigan Construction Law Update, or to talk with one of our construction attorneys, click here.

Test Wells Count as "Actual Physical Improvement" for Lien Priority, Michigan Court of Appeals Rules

Test wells installed by a potential buyer prior to closing constituted a physical improvement, allowing a construction lien to attach prior to buyer’s closing and giving the lien priority over a mortgage granted at closing. The Michigan Court of Appeals reached this conclusion in a recent unpublished case. See, E.T. MacKenzie Company v Sutton Place-Raisin Twp, LLC (Mich. App. No. 297864, Nov 22, 2011) (slip opinion). 

Under Section 119(4) of  the Michigan Construction Lien Act (MCL 570.1119(4)), a construction lien has priority over a mortgage recorded after the “first actual physical improvement.” MCL 570.1103(1) states that an “actual physical improvement” does not include preparation for a change or alteration, such as surveying, soil boring and testing. 

In E.T. MacKenzie, the  buyer’s contractor drilled eight test wells prior to closing and left PVC pipes extending five feet above ground. In 2006, the buyer closed and granted United Bank a mortgage. Eight months later, the buyer contracted with E.T. MacKenzie Company for demolition and grading. The Court of Appeals opinion does not discuss the relationship of the well contractor and MacKenzie. In January 2008, MacKenzie recorded a claim of lien for unpaid services and asserted priority over the mortgage.

The trial court found that the wells were not the first “actual physical improvement,” and that the first improvement occurred after the mortgage was recorded. The Court of Appeals disagreed and reversed. 

Relying on Michigan Pipe & Valve-Lansing, Inc v Hebeler Enterprises, Inc, 292 Mich App 479, lv app denied, 490 Mich 874; 803 NW2d 688 (2011), the Court of Appeals held that the wells were the “first actual physical improvements” and the construction lien attached prior to recording the mortgage:

As defined in MCL 570.1103(1), an “actual physical improvement” does not “include that labor which is provided in preparation for that change or alteration, such as surveying, soil boring and testing, architectural or engineering planning, or the preparation of other plans or drawings of any kind or nature.”We do not dispute that these acts may suggest that the definition in effect recognizes a “due diligence process” that involves the specific procedures stated in the definition of “actual physical improvement.” Nor does the plain language of the statute, which states “such as,” suggest that the list is exhaustive. However, none of the procedures stated in the definition equates to the digging of a well, or any other act, which makes a “readily visible” “physical change” to the property. To the contrary, the acts identified in the statute are all of a nature that none of them will leave a permanent presence on the property. Consequently, we find [the defendant’s] assertion that the exception encompasses all acts done in the “due diligence process” is not supported by the plain and unambiguous language of MCL 570.1103(1). [Michigan Pipe at 486.]

Bill to Abolish Michigan Homeowner Construction Lien Recovery Fund Passes House

On June 16, 2010, H.B. 5830, and a series of companion bills that would abolish the Homeowner Construction Lien Recovery Fund, was passed by the Michigan House of Representatives by a 94-9 vote. The bill has been referred to the Senate Appropriations Committee.

As we noted in earlier posts (here and here), the Lien Fund is out of money, overwhelmed by claims, and without a legal mechanism to replenish itself. PA 497 of 2006 repealed Section 201(2) of the Construction Lien Act and eliminated the ability of the Fund to make a $50 special assessment when the Fund fell below $1 million. Instead, the Fund can only assess members a $10 annual renewal fee.

Update: H.B. 5830 was voted out of committee by the Senate Appropriations Committee on July 21, 2010. A vote by the full Senate is expected shortly.

Update: H.B. 5830 was approved and voted into law on August 23, 2010 as PA 147 of 2010 and given immediate effect.   

New Bills Would Abolish Michigan Homeowner Construction Lien Recovery Fund

Just a few months ago, we reported that the Michigan Homeowner Construction Lien Recovery Fund was almost out of money and had no means to replenish its depleted coffers without action by the Michigan Legislature. I expected something to happen, but not this.

On February 17, 2010, Rep. Richard Hammel (D. Mt. Morris Twp) and Rep. Fred Durhal  (D. Detroit) introduced a series of connected (tie-barred) bills -- H.B 5830, H.B. 5831, H.B. 5832, H.B. 5833, H.B. 5834, and H.B. 5835 -- that would abolish the Lien Fund and delete references to the Fund from a variety of related states, but not fix the broken funding mechanism.

•  H.B. 5830 would repeal Sections 201 to 207, 303, and 304 of the Construction Lien Act (MCL 570.1201 to 1207, 1303, and 1304), which established the Homeowner Construction Lien Recovery Fund, and related administration and funding.
• H.B. 5831 would strike references to the Lien Fund from the Electrical Administrative Act (MCL 338.883b, et seq), which governs licensing of electrical contractors.
• H.B. 5832 would strike references to the Lien Fund from the Forbes Mechanical Contractors Act (MCL 338.976, et seq), which governs licensing of mechanical contractors.
• H.B. 5833 would remove references to the Lien Fund from the  State Plumbing Act (MCL 338.3531, et seq), which governs licensing of plumbing contractors.
• H.B. 5834 would amend the Michigan Occupational Code (MCL 339.2404, et seq), to remove references to the Lien Fund, including removal of enforcement provisions for residential builders who fail to pay a lien claim that resulted in payment from the Lien Fund. While the Bill does not significantly affect the remaining enforcement provisions , but removing the Lien Fund significantly weakens enforcement of complaints against residential builders who don't pay their subcontractors and suppliers resulting in residential liens. The complaint procedure against residential builders is a notoriously slow and ultimately unsatisfactory process.
• H.B. 5835 would amend the Michigan penal code (MCL 777.15b) to reflect repeal of the Michigan Homeowner Construction Lien Recovery Fund.

I'll update this posting as soon as I can determine the rationale for these bills, but I think that homeowners are the ultimate losers if this bill becomes law.

Update: The Detroit Legal News picked up on this story in its March 15, 2010 issue (here).  Apparently, the Michigan Association of Home Builders and the State of Michigan DELEG are behind this legislation. And a lack of political will to confront the problem (money) is the driving factor:

“The problem with the fund is that it is supported by fees that builders pay but those fees are at the same level they were 30 years ago,” said [Rep. Richard] Hammel [D-Mt. Morris Twp]. “No one wants the fees raised and if we keep them at the level they are, we can’t possibly pay for the fund with inflation.”

Update: H.B. 5830 was approved and voted into law on August 23, 2010 as PA 147 of 2010 and given immediate effect.  

Michigan Homeowner Construction Lien Recovery Fund Runs out of Money

In a sign of the times, the Michigan Homeowner Construction Lien Recovery Fund is broke, and there is currently no way to replenish its coffers.

The Michigan Homeowner Construction Lien Recovery Fund (Fund) was created under Part 2 of the Michigan Construction Lien Act (MCL 570.1101, et seq) 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 funding problem for the Fund stems from PA 497 of 2006,  an amendment to the Michigan Construction Lien Act, which repealed Section 201(2) of the Act effective January 3, 2007. This amendment, reportedly the product of a legislative compromise, eliminated the ability of the Fund to make a $50 special assessment when the  Fund fell below $1 million. Instead, the Fund can only assess members a $10 annual renewal fee.

Beginning in 2006 and continuing through July, 2009, the Fund experienced an unprecedented increase in claims. This increase closely mirrored the collapse of the housing market.  The Fund is currently involved in over 250 pending lawsuits involving more than 350 claims against it that total more than $18 million.  In 2009, Judgments against the Fund have averaged $123,800 per month.  By mid-October, there was only $524,000 remaining in Fund coffers.

On October 21, 2009, the Fund sought to consolidate all 250 of the pending lawsuits into one proceeding in Macomb County and proposed a pro rata distribution of the remaining money among all the lien claimants. The result would be pennies on the dollar.  The Fund’s (interpleader) motion was heard by Judge James Biernat, Sr. on November 2, 2009, but denied several weeks later in a written opinion.  

As things stand now, and absent legislative intervention, the Fund has advised that it will run dry within a few months. This will leave unpaid subcontractors and suppliers to fight things out with Homeowners, who  will find themselves stuck in the middle of dispute with their builder and at significant risk of paying twice for  improvements to their home.

For more information, contact Peter Cavanaugh or Gary Quesada, or visit their website -- http://www.michiganconstructionlaw.com/ 

Update: Michigan Lawyer's Weekly recently ran a piece about this issue in its February 1, 2010 edition. The cite, for any lawyers reading this, is 24 Mich. L.W. 265.

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.