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

How to Verify that a Payment or Performance Bond Complies with Michigan's Public Bond Statute

Note: An updated version of this article was posted August 16, 2019 on our firm's website blog here. 

Michigan's public works bond statute (MCL 129.201, et seq) requires that a principal contractor furnish a payment and performance bond executed by a surety authorized to do business in Michigan. Many contracts also require that the general contractor furnish payment and performance bonds, which are executed by a surety listed on Treasury Circular 570.

If you receive a contractor's payment and performance bond, how do you know whether it complies with these requirements? How do you check on a bonding company whose name doesn't sound familiar? How you verify the financial strength of a surety?

There are 3 easy ways to verify basic information about a surety --

Michigan

The State of Michigan, Office of Financial and Insurance Regulation (OFIR) maintains an online database of insurance companies that are registered to conduct business in the State of Michigan. The search interface is somewhat confusing, but if you search using the last field on the form, you should be able to find the surety you are looking for. If you don't find the surety, it means they are not registered to conduct business in Michigan. Take this finding as a red flag.

For insurance companies that are registered to conduct business in Michigan, you get the usual information about state of incorporation, and registered agent. Here's a sample report for Hartford Fire Insurance Company, a surety that is active in Michigan.

Treasury Circular 570

Treasury Circular 570 is a list of acceptable sureties on federal bonds maintained by the U.S. Department of Treasury. A surety that isn't on this list is probably very small, or one that should not be accepted or relied upon. It raises a red flag in my mind when I don't find a surety on this list.

Michigan law generally provides little recourse to potential bond claimants in the event that a contractor fails to furnish a bond, or furnishes one that fails to comply with the statute. Failure to furnish a bond that comports with the statute, however, would probably be grounds for an owner to terminate a general contract.

A.M. Best Company

A.M. Best issues financial-strength ratings measuring insurance companies’ ability to pay claims. If the contract requires that a surety bond be furnished by a surety with a particular rating (ie., AA or B+), you can verify this rating online through A.M. Best.


Update: My colleague Angie Greenslade referred me to the A. M. Best website. It provides information on the current financial strength of insurance companies, including sureties. Thanks Angie!

Michigan Public Works Bond Statute -- Strict Compliance with Notice Requirements Upheld

Michigan's Public Works Bond Statute (MCL 129.201, et seq) requires strict compliance with the first (30 day) and last (90 day) notice requirements.

In contrast to the substantial compliance standard applied to notice under Michigan's lien statute, a claimant who does not have a contract with the principal contractor must closely follow the statutory notice requirements of the Michigan Public Works Bond Statute, which require serving a written notice of furnishing within 30 days of first work on the principal contractor, and a second written notice within 90 days of last work on the principal contractor and the "governmental unit" (ie., public agency contracting for the improvement). See, MCL 129.207.

On April 17, 2007, the Michigan Court of Appeals reiterated the rule of strict construction for public bond claims, and appears to have applied it even in the case of a non-statutory bond.

In National Waterworks, Inc v International Fidelity & Surety, Ltd., 275 Mich App 256; 739 NW2d 121 (2007) [slip opinion], the Court of Appeals upheld summary disposition of the Plaintiff's payment bond claim where it failed to satisfy the notice requirements set forth in the bond. The bond in question did not require a first notice of furnishing, but did require written notice within 90 days of last work.

The Plaintiff in the case served written notice of furnishing on October 8, 2004, 6 weeks before completing its last work on November 18, 2004. The bond also required a second notice within 30 days of serving the first notice. The Plaintiff served a second notice on February 11, 2005.

Although Plaintiff appears to have complied with the second notice requirement, the Court of Appeals rejected the argument that the first notice, served before completion of the work, substantially complied with the terms of the payment. The Court of Appeals relied upon its 1982 decision in Square D Environmental Corp v Aero Mechanical, Inc, 119 Mich App 740; 326 NW2d 629 (1982), which had presented a similar set of facts and a similar rejection of substantial compliance.

Commentary: This case underscores the importance of paying close attention to the notice requirements of the Public Works Bond Statute, and the particular notice requirements which might be included in a non-statutory bond.

For more information about National Waterworks, or any other payment bond or notice issues you might have, please contact Peter Cavanaugh. Each case is different.