Michigan allows contractors, subcontractors, laborers, material suppliers and design professions who provide an improvement to real property to record a construction lien on that property if they are not paid. As such, it is critical to understand the basic provisions in the Michigan Construction Lien Act before any construction begins. The Michigan Construction Lien Act, MCL 570.1101, et seq., provides a remedy for a contractor who is not paid on a particular project to record a construction lien on the underlying property, and, if payment is not received, foreclose on that property. Michigan courts have stated that the right to a construction lien also “encourages payment to resolve disputes regarding services performed on the property and acts as security for contractors who perform the services.” E.R. Zeiler Excavating, Inc v Valenti Trobec Chandler Inc, 270 Mich App 639, 717 NW2d 370 (2006). ?The two stated purposes for the enactment of the Michigan Construction Lien Act are: (1) to protect the rights of lien claimants to payment for expenses; and (2) to protect property owners from paying twice for these expenses. See DLF Trucking Inc v Bach, 268 Mich App 306, 311; 707 NW2d 606 (2005).
This article will focus on residential construction projects (defined in the Michigan Construction Lien Act as an individual residential condominium unit or a residential building with no more than 2 units, the land on which it is or will be located, in which the owner or lessee contracting for the improvement is residing or will reside on completion of the improvement), because certain provisions of the Michigan Construction Lien Act only apply to such projects. If your project does not fit within the stated definition of a residential project, please contact our office and an attorney can provide you with additional information relevant to your project.
How Can a Lien be Placed on Your Property Under the Michigan Construction Lien Act?
Under MCL 570.1107, every “contractor, subcontractor, supplier, or laborer” who provides an “improvement” to real property has the right to a lien upon the rights of the owner or the lessee who contracted for the work to be performed. “Improvement” is a broad term under the Michigan Construction Lien Act, and includes, but is not limited to, “surveying, engineering and architectural planning, construction management, clearing, demolishing, excavating, filling, building, erecting, constructing, altering, repairing, ornamenting, landscaping, paving, leasing equipment, and installing or affixing a fixture or material.”
In 2018, the Michigan legislature expanded the parties who have a right to a lien to also include design professionals (architects, professional engineers, and professional surveyors) who have a written contract with an owner. These parties have a right to a lien even if a physical improvement is not built on the property. MCL 570.1107a In other words, even if a project is abandoned, an architect, engineer or surveyor who performs work may still have a right to a lien. Subcontractors to design professionals on all projects are now also given a right to a lien if the engagement of that design subcontractor was approved in writing by, or on behalf of, the owner.
Importantly, in a residential project, a contractor does not have a lien right unless the work is performed under a written contract between the owner or lessee and the contractor. Moreover, any amendments or additions to a residential construction contract must also be in writing. This would include what is commonly referred to as “change orders,” or documents that amend a contract by adding or removing items from the scope of work to be performed or changing the type of material to be used. Residential builders, maintenance and alteration contractors, electricians, plumbers, and mechanical contractors must also be licensed to assert a lien in Michigan. However, a new bill (HB4668) was proposed by Rep. Tommy Brann (R. Wyoming) in 2021, which if passed, would require any lien claimant to present both its contractor’s license and driver’s license, or attach a copy of both, when any lien is to be recorded. It also provides for criminal penalties for a contractor that violates this provision. As of the date of publication of this article, this bill has not been passed.
What is covered by the Michigan Lien Act when work is performed in a condominium?
As said above, a party who performs work on a condominium unit or development may assert a lien in Michigan. However, where exactly the work is performed within the condominium project impacts what property is subject to having a lien placed on it. MCL 570.1126 outlines the available liens for work performed in a condominium as follows:
(a) if the improvement furnished was for a particular unit, or a limited common element, the lien only attaches to the condominium unit to which the improvement was furnished;
(b) if the improvement was authorized by the developer of a condominium project and performed on the common elements, the lien only attaches only to units owned by the developer at the time of recording of the claim of lien; and
(c) if the improvement was authorized by the association, the lien attaches to each condominium unit only to the proportional extent that the co-owner of the condominium unit is required to contribute to the expenses of administration in the condominium documents.
Therefore, if you own a condominium unit, the chance that a lien for work performed within the development outside of your unit will attach to your property is slim (unless you are the party that contracted to do the work).
It should also be noted that the Michigan Condominium Act, specifically, MCL 559.232 contains similar limitations and states that liens arising under the Michigan Construction Lien Act are subject to the following limitations:
(a) Except as provided in this section, a construction lien for work performed upon a condominium unit or upon a limited common element may attach only to the condominium unit upon which the work was performed or to which the limited common element is appurtenant;
(b) A construction lien for work authorized by the developer, residential builder, or principal contractor and performed upon the common elements may attach only to condominium units owned by the developer, residential builder, or principal contractor at the time of recording of the statement of account and lien;
(c) A construction lien for work authorized by the association of co-owners may attach to each condominium unit only to the proportionate extent that the co-owner of the condominium unit is required to contribute to the expenses of administration as provided by the condominium documents; and
(d) A construction lien may not arise or attach to a condominium unit for work performed on the common elements not contracted by the developer, residential builder, or principal contractor or by the association of co-owners.
Can Lien Rights under the Michigan Construction Lien Act be Waived by a Party?
Lien rights cannot be preemptively waived by the parties in a contract, and any such waiver is deemed to be contrary to public policy and invalid. MCL 570.1115. However, a property owner can, and should, require a waiver of lien in exchange for each payment made during the project. Waivers of lien that are provided in consideration for each individual payment are enforceable.
What are the Responsibilities of a Property Owner under the Michigan Construction Lien Act?
There are multiple responsibilities for homeowners under the Michigan Construction Lien Act. The first is that, under MCL 570.1108a, if any contractor, subcontractor, supplier, or laborer makes a written request, the homeowner must, within 10 days, prepare and provide what is called a “Notice of Commencement.” The Notice of Commencement must include specific information about the construction project, including a legal description of the property and specific information about the owner and general contractor doing the work. If the Notice of Commencement is not properly provided, it may extend the time for a contractor to have to provide notice of its claim (as outlined below).
An owner can (and should) demand a sworn statement from all contractors performing work on the project. MCL 570.1110 The Michigan Construction Lien Act requires such a statement be provided whenever payment is due or when payment is requested. This sworn statement provides critical information to the homeowner about all parties who are performing work, the amount of each contract and the amount still due and owing after the payment is made. After receipt of a sworn statement, the homeowner must give notice of its receipt to all subcontractors, suppliers and laborers named in the sworn statement and to any such party that requests it within 10 business days after any such request. After an owner or lessee receives a sworn statement, payments can be made directly to the subcontractors, suppliers and laborers identified on the sworn statement and withhold those amounts from the party providing the sworn statement. It is important that the owner obtain sworn statements from all contractors that are known to the owner, because an owner cannot rely on a sworn statement from a general contractor to limit the rights of a subcontractor if that subcontractor had provided a Notice of Furnishing (described below) to the owner. Steelcon, Inc. v. Bennett & Wright Group, Inc., 257 F.Supp.2d 895 (E.D. Mich. 2003).
If at any time, a lien claimant makes a written demand for a copy of the contract between the owner or lessee and the general contractor, the owner must make it available for inspection or copying within 10 days after receipt of any such demand. Similarly, an owner may also make a demand on a lien claimant to provide a written statement of the amount of work performed, and amount of work to be performed, and that demand must be answered within 10 days by the lien claimant. Therefore, if at any time an owner feels that something is not right about the work being performed, or that the project is getting off track in the slightest, a demand to the contractor should be made to provide that requested information.
What are the Deadlines Provided for under the Michigan Construction Lien Act?
The deadlines under the Michigan Construction Lien Act are different depending on whether the party asserting the lien is a design professional and whether the party has a direct contract with the owner.
Under the Michigan Construction Lien Act, a design professional must record a Notice of Professional Services Contract with the register of deeds for the county where the property is located at any time after the contract is executed and up to 90 days after that design professional last performed professional services. The Notice of Professional Services Contract is good for 1 year, and subsequent notices can be recorded after the expiration of the 1-year period.
Any subcontractor or supplier who performs work on a construction project must, within 20 days after it starts its work, provide a “Notice of Furnishing” to the owner and the general contractor by personal service or certified mail. The period is extended to 30 days for any laborer who has not been paid wages due to him or her. The failure to timely provide the Notice of Furnishing does not bar a lien claim but does limit the claim to unpaid amounts after the notice is eventually provided.
All parties who are owed funds on a project, and who wish to assert a lien under the Michigan Construction Lien Act, must record a lien within 90 days after the last date in which labor or material is provided. The actual recorded claim of lien must then be served on the owner within 15 days of the recording.
What happens if a Subcontractor is not paid by the General Contractor?
Unfortunately, there are times in which an owner and a subcontractor on a project both do nothing wrong, and the general contractor runs off with the monies that are earmarked for the subcontractor. Michigan, unlike many other states, provides some relief to the residential owner in a situation like this.
More specifically, the Michigan Construction Lien Act states that a lien will not attach to a residential building if an owner (or lessee) files an affidavit swearing that payments were made to the contractor in accordance with the contract. MCL 570.1118a(1). Attached to the affidavit should be the contract, including any modifications or changes to the contract, and proof of payment. Therefore, if an owner has fully paid its primary or general contractor, and the Lien Act has been followed by the owner, a lien from a subcontractor, supplier or laborer should not be successful. As a practical matter, if a subcontractor is provided proof of the above and refuses to voluntarily release its lien, the owner should be able to request attorneys’ fees in its favor as part of any action filed by the subcontractor to enforce its lien rights.
What are my Rights if an Invalid Construction Lien is Placed on my Property?
Unfortunately, there are situations where a construction lien is placed on your property and that lien is invalid for one of many potential reasons, including: (1) the lien is untimely; (2) the lien claimant did not provide a Notice of Furnishing; (3) the lien claimant did not actually perform the work that it claims it did on the property; (4) the lien claimant did not perform lienable work; (5) the lien claimant is not licensed; (6) there was no written contract for the work allegedly performed; or (7) the lien is grossly inflated. If an improper or invalid lien is placed on your property, you, as the homeowner, have a few options. Before any actions are taken, however, it is important to understand that, under the Michigan Construction Lien Act, a lien is not automatically invalid simply because the provisions of the Act were not followed exactly. MCL 570.1302 If you are an owner and have questions regarding the validity of a lien claim, it you should contact an attorney who can provide you with guidance as to what can, and cannot, be done to protect you in a situation where a lien claimant has not followed the provisions of the Michigan Construction Lien Act. However, if there is an invalid lien on your property, there are a few steps that can be considered.
The first potential step covers the situation where a lien was recorded by a subcontractor, and the amount claimed is covered by a payment already made to the contractor. In that situation, typically a demand would be made on the general contractor to have the lien immediately removed. After receipt of the demand, the general contractor should immediately get the lien removed from the property, or it could face significant consequences in the form of a claim for damages being asserted by the homeowner.
If the lien if invalid for one or more of the reasons outlined above, a demand letter could also be written to the lien claimant threatening a lawsuit for damages. In Michigan, a lawsuit for slander of title to your property or a quiet tittle action is available in the situation where an improper lien was recorded, especially if the lien claimant intentionally records the lien knowing that there is no basis to assert the lien.
If the lien claimant is not licensed, the Michigan Construction Lien Act allows the owner of residential property to bring an action against the claimant to discharge the lien as well. MCL 570.1114a If the court finds that the person who recorded the lien was not licensed, that person is liable to the owner for all damages that result from the recording and any attempts to enforce the lien, including out of pocket costs and attorneys’ fees.
Another option would be to file a bond to cover the lien. If a bond is filed, the Michigan Construction Lien Act states that it must be equal to twice the lien amount and can be either a cash bond or a surety bond executed by the party seeking to have the lien removed and a surety company authorized to do business in Michigan. MCL 570.1116. If a decision is made to file a bond, there are specific time limits that must be followed, and it is best to retain a competent construction attorney to help you through the process.
What happens if the Lien Claimant is not Paid?
If a facially valid lien is recorded and the lien is not satisfied or resolved, one of three things will happen: (1) a bond can be filed with the county clerk which vacates and discharges the lien; (2) the time for filing an action for enforcement of the lien expires; or (3) the lien claimant files an action for enforcement of the lien. The bond process is outlined in the section above.
If a lien claimant fails to file an action for enforcement of its lien in accordance with the provisions of the Michigan Construction Lien Act, any person with an interest in the property, or its attorney, can provide a statement to the county clerk with an affidavit laying out these facts. The clerk will then review the records, and if a proceeding was not commenced in accordance with the statutory requirements, it will provide a certificate to the owner with a seal from the clerk. That certificate can then be recorded, and the lien will no longer have any effect. MCL 570.1128
The worst-case scenario for an owner is that a lien claimant files an action for enforcement of a lien. Such an action must be brought within 1 year of the date in which the lien was recorded. The Michigan Construction Lien Act identifies the step-by-step process for a lien claimant to foreclose on the property, and as part of any proceeding, the court may grant attorneys’ fees to any prevailing lien claimant, or to any defendant if the court finds that the action to enforce the lien was vexatious. MCL 570.1117-570.1124. Michigan, unlike other states such as Florida, Illinois and Indiana, does not provide a mechanism for an owner to shorten the time period for filing the action to foreclose on the lien.
Conclusion
The key things to remember on any residential construction project in Michigan are:
- Construction lien rights cannot be waived in a construction project.
- Only licensed contractors have the right to a construction lien.
- Owners who have been asked must provide a Notice of Commencement within 10 days of the start of any residential construction project.
- Whenever a contractor requests payment, or whenever payment is to be made to a contractor, the owner should be supplied with a Sworn Statement.
- Any claim for lien must be recorded within 90 days after the contractor’s last date of work on the project and the lien claimant has 1 year to file a lawsuit.
- In order to obtain the protections of the Michigan Construction Lien Act, an owner must comply with the provisions of the Act, and as such, knowledge of these provisions is critical.
- If a lien claimant has improperly recorded a construction lien, there are avenues to pursue to have any such recorded liens removed.
The Michigan Construction Lien Act includes rigid timelines and responsibilities for both the owner of residential property, as well as for parties performing the improvements. The provisions of the Michigan Construction Lien Act are also somewhat confusing, and each construction project potentially provides unique issues that should be analyzed. Inevitably, questions or issues will arise and many times, the contractor performing work on your property will have legal counsel already retained and providing advice before, during and after the project is completed. Retaining an experienced construction attorney to review and negotiate construction contracts and to provide owners with guidance regarding these statutory requirements can provide a safeguard to lessen the chance that an issue develops or that a lien is recorded.
Adam Toosley is a member at Hirzel Law, PLC and focuses his practice on real estate litigation, zoning and land use, construction, and financial services litigation. Over the course of his career, he has represented property owners, landlords, condominium associations, lenders and all parties in the construction chain, handling all aspects of real estate-related disputes, including construction defect cases, payment and landlord-tenant disputes as well as real estate foreclosures, mechanic’s lien cases and fraud and business tort claims in state and federal court as well as in mediations and arbitrations throughout the United States. He can be reached at (248) 480-8704 or at atoosley@hirzellaw.com.
