Contractors, subcontractors, and suppliers have protection under Michigan construction lien law if they make “actual physical improvements” to real property or real estate (such as a home, other building or land) and are not paid. These people have the right to file a construction lien with the Register of Deeds if they do that within 90 days of the last date of furnishing labor or supplies to the project.
The Construction Lien Act (the “Act”) defines “actual physical improvement” as follows:
"Actual physical improvement” means the actual physical change in, or alteration of, real property as a result of labor provided, pursuant to a contract, by a contractor, subcontractor, or laborer which is readily visible and of a kind that would alert a person upon reasonable inspection of the existence of an improvement. 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.
Sometimes a bank finances a project, and the contractor then gets disbursements or "draws" from the bank after periodic inspections. When the bank is about to make a disbursement, it will require the contractor to supply a "sworn statement." Most title companies have "forms" that can be used for this purpose, but the format is set forth in the Act at MCLA 570.1110. The sworn statement requires the following information at the least:
The statement is considered “sworn” because it must be signed in front of a notary. If the contractor is asking for a disbursement that includes money owed to subs and suppliers, then the bank will require the contractor to provide "waivers" from the subs of rights to lien the property.
Michigan is considered a “race recording” state, which means that the priority of interests in property are determined by the date they are recorded in the Register of Deeds office. For example, if a mortgage for $100K is recorded on 10/17/17 and another mortgage or lien for $200K is recorded on 10/18/17, then the $100K mortgage has priority over the $200K mortgage because it was recorded first.
There is an exception to this general rule in the Act. Under the Act, if a lien is timely recorded (i.e., recorded within 90 days of the last date of furnishing), then it “relates back” to the date of the first actual physical improvement—regardless of who made that improvement. Every construction lien that is ever recorded against a property shares the same effective date if the lien is foreclosed. Because of this law, painters (who normally do their work at the end of a project) are treated the same as excavators (who are normally among the first on the job).
Construction liens must be “foreclosed” within one year of the date they are filed. Otherwise, these liens expire as a matter of law. If a lien is filed, it is imperative that the contractor, sub, or supplier contact an attorney familiar with construction law immediately. The attorney will then discuss filing a complaint to foreclose the lien. Under the law, the contractor is likely to be awarded attorney fees in addition to the amount owed.
Faupel Musser Love, P.C. is very familiar with Michigan construction law and foreclosure law. We are available to consult with contractors, subs, and suppliers.
Faupel Musser Love in Ann Arbor, Michigan is ready to discuss your legal issue, please call one of our skilled attorneys at (734) 677-0776 or contact Faupel Musser Love online or via e-mail.