Get documents about "Michigan Land Contract Form Free
Description
Michigan Land Contract Form Free document sample
Document Sample
PAY ME! CONSTRUCTION LIEN, BUILDERS TRUST
AND BOND CLAIMS IN MICHIGAN
BY: CLARK HILL, PLC
PRESENTED BY: MATTHEW T. SMITH, ESQ.
AUGUST 18, 2006
1
5306873v.1 09999/09999-006600
PAY ME! Construction Lien, Builders Trust and Bond Claims in Michigan
By: Clark Hill, PLC
August 18, 2006
I. General Concepts – What is a Lien and Who May Record a Lien?
A) For builders and suppliers who contribute labor and materials to real-property
improvements on a credit basis, a construction lien is a statutory vehicle by which
they may secure their right to payment from the owner or lessee of the
improvement, for their contribution to it, by granting them an ownership interest
in the improvement.
B) In Michigan, construction liens are provided for wholly under the Michigan
Construction Lien Act (hereinafter “Lien Act” or “Act”), MCL 570.1101 et seq.
C) The purpose of the Act is to provide contractors, suppliers and subcontractors
with a security mechanism on private construction projects located within
Michigan and to protect owners of construction improvements from having to pay
twice for the same work.
D) Specifically, the Act provides a procedure by which contractors, laborers,
suppliers and subcontractors, as “creditors” to the owner, may protect their
“loan,” with a lien for up to the value of their contract.
E) Once recorded, a lien allows foreclosure on the improvement for the lien’s value,
plus attorney fees.
II. The Michigan Construction Lien Act (hereinafter “Lien Act”)
A) Generally
i. Liens only exist through compliance with the Lien Act’s provisions. Strict
compliance is often required, see e.g. Northern Concrete Pipe, Inc v
Sinacola Cos, 461 Mich 316; 603 NW2d 257 (1999) (90-day requirement
for filing lien is strict).
ii. Protected Parties (see definitions below) (MCL 570.1107)
1. The “Owner” or “Lessee”
2. “Each contractor, subcontractor, supplier or laborer who provides
an improvement to real property shall have a construction lien…”:
a. “Contractors”
b. “Subcontractors”
c. “Suppliers”
d. “Laborers”
e. Not “suppliers to suppliers”
B) Definitions (MCL 570.1103 through 570.1106)
i. “Perfect” – having taken all legal steps needed to complete, secure or
record (a claim, right or interest); to put in final conformity with the law
ii. “Contractor” – one who contracts with an owner or lessee to supply labor,
material or equipment to an improvement
iii. “Subcontractor” – one who contracts with a contractor to supply labor,
material or equipment
iv. “Supplier” – one who furnishes material or equipment “pursuant to
contract with a contractor or subcontractor”
2
5306873v.1 09999/09999-006600
PAY ME! Construction Lien, Builders Trust and Bond Claims in Michigan
By: Clark Hill, PLC
August 18, 2006
v. “Laborer” – one who furnishes labor pursuant to contract with a contractor
or subcontractor
vi. “Owner” – one who holds a fee interest in real property or an equitable
interest arising out of a land contract
vii. “Lessee” – one, other than an owner, who holds an interest, other than a
security interest, in real property
viii. “Improvement” – “the result of labor or material provided by a contractor,
subcontractor, supplier or laborer pursuant to a contract” – including
surveying, engineering, landscaping and architectural services
C) Prerequisites for a Valid Lien – i.e. “Lien Perfection”
i. Lien claimant is a statutorily protected party
1. Contractor, Subcontractor, Supplier or Laborer…
2. Under contract for furnishing labor or supplying materials or
equipment…
3. For an improvement
ii. Conformance to numerous statutory provisions
1. E.g. – MCL 570.1113 – Failure of lien claimant to, within ten days
of a request, provide information as to amount of labor and
material furnished, etc., subjects claimant to liability and allows
owner to withhold payment.
iii. Proper contents
1. Legal description of property
2. Owner’s address
3. General contractor’s address
4. Date of first work on job
5. Date of last work on job
6. Amount of contract
7. Amount paid on contract
8. Amount still due and owing
iv. Contract in writing not absolutely required (exception: residential
property) – but is a very good idea
v. Additional Requirements in Special Circumstances:
1. Liens on:
a. Condominiums (See MCL 570.1126)
i. Construction liens concerning condominiums are
subject to certain limitations.
ii. Subject to the definitions and limitations of the
Condominium Act, MCL 559.101 et seq.
b. Residential Structures
i. Definition of “residential structure” is non-obvious
and “tricky” - typically refers to those structures
built under contract with the actual homeowner and
dweller
3
5306873v.1 09999/09999-006600
PAY ME! Construction Lien, Builders Trust and Bond Claims in Michigan
By: Clark Hill, PLC
August 18, 2006
1. A “residential structure” is “an individual
residential condominium unit or a residential
building containing not more than two
residential units, the land on which it is or
will be located, and all appurtenances
thereto, in which the owner or lessee
contracting for the improvement is residing
or will reside upon completion of the
improvement.” MCL 570.1106(3).
ii. Important Distinctions –
1. Special Notice of Commencement required.
See MCL 570.1108(a).
2. Enable claims against the Homeowner
Construction Lien Recovery Fund. See
MCL 570.1201.
a. Generally, residential builders pay
into fund through licensing fees, and
in appropriate cases, are entitled to
recover from it. An unlicensed party
may need to pay into the fund
separately to be entitled to recovery.
3. Residential builders require state licenses,
see MCL 339.2401 et seq., and are barred
from suing for compensation if unlicensed,
see MCL 339.2412. Under Stokes v Millen
Roofing Co, 466 Mich 660; 649 NW2d 371
(2002), unlicensed residential builders are
also barred from perfecting liens on
residential structures.
c. Public Improvements
i. The Lien Act does not apply to governmental
improvements.
ii. Payment bonds secure payment on governmental
improvements. See below.
D) Nature of Liens
i. A lien is a right, as against the property upon which the improvement was
made, under contract with the owner; it is not a right as against the owner.
The right follows the property, not the owner of the property and will not
be defeated by the forfeiture, surrender, or termination of any title or
interest to which it is attached.
ii. An underlying contract also created a right. However, that right is apart
from the lien right. The contract right is as against the owner and follows
the owner, not the property.
4
5306873v.1 09999/09999-006600
PAY ME! Construction Lien, Builders Trust and Bond Claims in Michigan
By: Clark Hill, PLC
August 18, 2006
iii. The two rights may be pursued in concert or separately – i.e. foreclosure
on the lien, suit on the contract.
E) Value of the Lien
i. The value of a lien claimed cannot exceed the value of the contract, minus
payments already made under contract.
ii. Where the value of the contract and the value of payments made are in
dispute, the maximum value of the lien may be in dispute. Where a
claimed lien is later found excessive, the entire lien is forfeit only where
bad faith is evident. Excessive, but good faith, liens are remedied by
reduction, not elimination.
iii. The sum of construction liens by all lien claimants cannot exceed the
amount that the owner or lessee agreed to pay the contractor, less
payments made.
F) Dating of Lien
i. Perfected and recorded construction liens date from the time the lien
claimant first furnished labor, equipment or material and from the last
furnishing of the same. See lien priority, below.
III. Perfecting the Lien - Notice Requirements of the Lien Act
A) Notice of Commencement (MCL 570.1108 and 570.1108(a))
i. “Before the commencement of any actual physical improvements to real
property, the owner or lessee…shall record in the office of the register of
deeds…a notice of commencement, in the form set forth in this section.”
MCL 570.1108(1).
ii. Contents (partial list, see MCL 570.1108(a) for residential structures):
1. Legal description of the property
2. Name, address and capacity of the owner or lessee contracting for
improvement
3. Name and address of owner of property if lessee is contracting
4. Name and address of the owner’s or lessee’s designee
5. Name and address of general contractor, if any
6. This statement: “To lien claimants and subsequent purchasers:
Take notice that work is about to commence on an improvement to
the real property described in this instrument. A person having a
construction lien may preserve the lien by providing a notice of
furnishing to the above named designee and the general contractor,
if any, and by timely recording a claim of lien, in accordance with
law….”
iii. Additional notes:
1. Incorrect information in the Notice of Commencement does not
affect the rights of the lien claimant. See MCL 570.1108(4).
5
5306873v.1 09999/09999-006600
PAY ME! Construction Lien, Builders Trust and Bond Claims in Michigan
By: Clark Hill, PLC
August 18, 2006
2. If owner or lessee fails to record notice, time is extended in which
subcontractor or supplier may provide Notice of Furnishing.
3. In addition to recording Notice of Commencement, owner/lessee
must post the notice at the project site and provide a copy to
requesting sub-contractors, suppliers and laborers; consequences
attend failure to do so.
4. Beware of furnishing work or materials to a job without first
receiving a copy of the Notice of Commencement.
B) Notice of Furnishing (MCL 570.1109)
i. “[A] subcontractor or supplier who contracts to provide an improvement
to real property shall provide a notice of furnishing to the designee [of the
owner or lessee] and the general contractor, if any, as named in the notice
of commencement at the address shown in the notice of commencement,
either personally or by certified mail, within 20 days after furnishing the
first labor or material….A contractor is not required to provide a notice of
furnishing to preserve lien rights arising from his or her contract directly
with an owner or lessee.” MCL 570.1109(1).
ii. Applies to all potential lien claimants except:
1. Those contracting directly with the owner
2. 20-day deadline may lose importance where owner meets with
claimant, knows who claimant is and is aware of the work they
will perform. See Vugterveen Systems, Inc v Olde Millpond Corp,
454 Mich 119; 560 NW2d 43 (1997).
iii. Service of Notice of Furnishing
1. May be personal or via certified mail
2. Must be on the designee and general contractor
3. Must be within twenty days of the date of furnishing the first
materials or services
iv. Recommended contents:
1. Name of owner
2. Name of subcontractor, etc.
3. Description of the project
4. Description of the work performed or materials furnished
5. Dates between which work performed or materials furnished
v. Optional Contents:
1. Contract or purchase order
2. All relevant invoices
3. Delivery tickets or project records demonstrating work performed
4. Copy of deed
5. Copy of Notice of Commencement
vi. “The failure of a lien claimant to provide a notice of furnishing within the
time specified in this section shall not defeat the lien claimant’s right to a
6
5306873v.1 09999/09999-006600
PAY ME! Construction Lien, Builders Trust and Bond Claims in Michigan
By: Clark Hill, PLC
August 18, 2006
construction lien for work performed or materials furnished by the lien
claimant after the service of the notice of furnishing.” MCL 570.1109(5).
1. Note: A subcontractor’s failure to provide timely notices of
furnishing defeats its right to liens for work performed before the
notices were provided, only to the extent that an owner made
payments to the contractor pursuant to the contractor’s sworn
statement or a waiver of lien. See Horton v Verhell, 231 Mich App
667; 588 NW2d 144 (1998) (construing MCL 570.1109(6)).
vii. Laborer and supplier/sub-contractor Notices of Furnishing differ. Refer to
MCL 570.1109.
C) Sworn Statements (MCL 570.1110)
i. When required:
1. Contractor must provide a sworn statement to owner/lessee when
payment is due from owner or lessee, or when contractor requests
payment from owner/lessee or when a demand has been made by
the owner.
2. Subcontractor must provide the owner or lessee with a sworn
statement on demand.
3. Subcontractor must provide a contractor with a sworn statement
when payment is due or requested from the contractor.
ii. Contents:
1. List of each subcontractor and supplier with whom the person
issuing the statement has contracted, in regards to the improvement
2. List of laborers with whom the person issuing the statement has
contracted, in regards to the improvement
3. Amounts due each of the listed entities, including fringe benefits
for laborers
4. This statement: “I make this statement as the [contractor] to
represent to the owner or lessee of the property and his or her
agents that the property is free from claims of construction liens, or
the possibility of construction liens, except as specifically set forth
in this statement….”
iii. Notes:
1. Parties may rely on sworn statements to avoid claims and liens.
2. Contractors are not entitled to any payment, nor can they file a
claim to enforce a lien, until they have provided a sworn statement.
3. Failure to provide a sworn statement before filing a lien does not
destroy the lien.
D) Filing/Recording of the Lien (MCL 570.1111)
i. “[T]he right of a contractor, subcontractor, laborer or supplier to a
construction lien created by this act shall cease to exist unless within 90
days after the lien claimant’s last furnishing of labor or material for the
7
5306873v.1 09999/09999-006600
PAY ME! Construction Lien, Builders Trust and Bond Claims in Michigan
By: Clark Hill, PLC
August 18, 2006
improvement, pursuant to the lien claimant’s contract, a claim of lien is
recorded in the office of the register of deeds...” MCL 570.1111.
ii. Within 15 days of filing, lien claimant must serve owner/lessee with copy
of lien.
iii. The 90 day requirement is strict, substantial compliance is not enough – if
deadline is missed, the lien is squandered. See Northern Concrete Pipe,
Inc v Sinacola Cos, 461 Mich 316; 603 NW2d 257 (1999).
E) Enforcing the Lien (MCL 570.1117)
i. If a perfected lien is not paid and discharged, it is squandered unless a
lawsuit for foreclosure is brought within one year of its recording.
ii. A lien claimant may also simultaneously sue on their contract.
iii. Consult an attorney for help in proper complaint filing procedures,
including filing of lis pendens.
IV. Proper Payment - Waiver and Discharge of Liens under the Lien Act
A) The Lien Act also protects owners. By insisting on lien waivers and sworn
statements, prior to payment, owners can ensure that they do not pay twice for the
same work. Projects running smoothly should result in full payment, issuance of
waivers and no lien filings.
B) Lien Waivers Generally (MCL 570.1115)
i. Bar assertion of lien to extent waived – once waived, a construction lien
cannot be resuscitated absent an express agreement, binding on those
whose interests are involved
ii. Must be in writing
iii. Contract provision calling for lien waiver, prior to performance of work on
credit basis, is invalid
C) Four Forms of Lien Waiver Acknowledged under Michigan Law
i. Full Unconditional Waiver – must be provided by a lien claimant who
receives full payment, including retention
ii. Partial Unconditional Waiver – must be provided for the amount paid, if
requested, by a lien claimant who receives partial payment
iii. Conditional Waivers – effective only upon actual payment of the amount
indicated in the waiver; are not required by law, but are mentioned in the
Lien Act and may be required by contract between the parties
1. Full – for payment of full contract amount
2. Partial – for partial payment of contract amount
D) Note: Under the Act, non-payable retainage is not considered due for lien law
purposes; partial waivers for amounts due through a certain date do not waive
claimant’s right to a lien for retainage.
8
5306873v.1 09999/09999-006600
PAY ME! Construction Lien, Builders Trust and Bond Claims in Michigan
By: Clark Hill, PLC
August 18, 2006
V. Your Spot at the Front of the Line - Lien Priorities
A) Perfected construction liens, regardless of date of recording, have equal priority,
attaching to real estate as of the date of the first actual physical improvement, and
are subject only to interests recorded before the first actual physical improvement.
See MCL 570.1119
B) Note: the priority of a contractor’s lien is unaffected by changes made to the
construction project as long as all of the contractor’s work related to the same
building project and the contractual modifications all related to the project as
originally contemplated.
C) Relevant Definitions (MCL 570.1103 through 1106)
i. “Actual Physical Improvement” – “the 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 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. Actual
physical improvement does not include supplies delivered to or stored at
the real property.”
ii. “Improvement” – “the result of labor or material provided by a contractor,
supplier, or laborer, including, but not limited to, surveying, engineering
and architectural planning, construction management, clearing,
demolishing, excavating, filling, building, erecting, constructing, altering,
repairing, ornamenting, landscaping, paving, leasing equipment, or
installing or affixing a fixture or material, pursuant to a contract.”
D) Construction Liens vs. Mortgages
i. “A mortgage…or other interest recorded before the first actual physical
improvement…shall have priority over a construction lien arising under
this act. The priority of the mortgage shall exist as to all obligations
secured by the mortgage except for indebtedness arising out of advances
made subsequent to first actual physical improvement. An advance made
pursuant to the mortgage, but subsequent to the first actual physical
improvement shall have priority over a construction lien if, for that
advance, the mortgagee has received a contractor’s sworn statement…has
made disbursements pursuant to the contractor’s sworn statement, and has
received waivers of lien from the contractor and all subcontractors,
laborers, and suppliers who have provide notices of furnishing…” MCL
570.1119(4).
VI. The Owner’s Remedies
A) Lien law also protects owners – Allowing them to Avoid paying twice of the same
improvement
9
5306873v.1 09999/09999-006600
PAY ME! Construction Lien, Builders Trust and Bond Claims in Michigan
By: Clark Hill, PLC
August 18, 2006
B) Specific Protections
i. Permitted reliance on sworn statements
ii. Direct payment to subcontractors
iii. Lien values reduced by amount paid – subject to forfeiture in bad faith
iv. Lien bonds
VII. Other Protections: Builders Trust Fund Act (MCL 570.151 et seq.)
A) Formal name: The Building Contract Fund Act, 1931 PA 259, MCL 570.151 et
seq.
B) Purpose of the act is to protect both subcontractors and owners from financially
irresponsible general contractors by creating protection in addition to the Lien
Act.
C) Applicability: The Building Contract Fund Act applies only to private
construction contracts/projects.
D) Key Provisions
i. “In the building construction industry, the building contract fund paid by
any person to a contractor, or by such person or contractor to a
subcontractor, shall be considered by this act to be a trust fund, for the
benefit of the person making the payment, contractors, laborers,
subcontractors or materialmen, and the contractor or subcontractor shall be
considered the trustee of all funds so paid to him for building construction
purposes.”
ii. Contractors or subcontractors who, with intent to defraud, keep certain
payments for purposes other than first paying their subcontractors,
laborers, etc., are guilty of a felony.
E) Aggrieved parties may sue for damages under the Building Contract Fund Act.
F) Case Note: Under Lipan v Kriegish, 275 BR 838 (ED Mich, 2002), the Building
Contract Fund Act makes the general contractor a fiduciary obliged to exercise
proper and honest judgment and to pay their subcontractors before they apply
payments received to any other costs. Debts incurred under the statute cannot be
discharged in bankruptcy. In Kriegish v Lipan, 97 Fed Appx 4 (6 CA, 2004), the
court affirmed the district court and held that failure to adhere to the Building
Contract Fund Act constitutes a defalcation.
G) Case Note: The criminal sanctions of the Building Contract Fund Act apply to
corporate officers of contractors who cause the corporation to violate the act.
People v Brown, 239 Mich App 735; 610 NW2d 234 (2000).
H) Case Note: Under Trustees of the Michigan Regional Council of Carpenters
Employee Benefits Fund v Accura Concrete Walls, Inc, the court held an
executive of the defendant personally liable for his participation in the
defendant’s violations of the Building Contract Fund Act and held that his
liability is not limited to the balance of funds in the trust account.
10
5306873v.1 09999/09999-006600
PAY ME! Construction Lien, Builders Trust and Bond Claims in Michigan
By: Clark Hill, PLC
August 18, 2006
VIII. Other Protections: Payment Bonds (MCL 129.201 et seq.)
A) Parties to the bond:
i. Obligee (contracting governmental entity)
ii. Principal (general contractor)
iii. Surety (issuer of bond)
iv. Third-party beneficiaries (claimants)
B) Statutory Provisions
i. When Required (MCL 129.201)
1. Payment bond required for public project exceeding $50,000
a. Public projects include projects at constitutionally created
universities (UM, MSU, WSU).
b. Non-state highway projects – see MCL 129.211
c. State highway projects – see MCL 570.101 et seq.
ii. Value of the Bond (MCL 129.203)
1. At least 25% of the contract price
2. For sole benefit of “claimants”
iii. Surety Qualifications (MCL 129.204)
1. Issuing surety must be authorized to do business in Michigan
iv. Filing Requirements (MCL 129.205)
1. Bond must be filed at the office of the governmental unit awarding
the contract
v. Qualifying Claimants (MCL 129.206)
1. Those furnishing labor or materials to the project, including water,
gas, power, telephone service, etc.
vi. Suing on the Bond (MCL 129.207)
1. Claimant may file suit on the bond 90 days after last providing
labor or materials to the project
vii. Notice Requirements (MCL 129.207)
1. For claimants not under contract with general contractor:
a. Notice of Furnishing to general contractor within 30 days
of first providing labor or materials
b. Notice of claim to general contractor and owner within 90
days of last providing labor and materials
viii. Limitation Period (MCL 129.209)
1. Action by claimant must be initiated within one year of final
payment to general contractor
ix. Government Obligations (MCL 129.208)
1. Must provide a certified copy of the payment bond on request;
certified copy is prima facie evidence of the contents of the bond
a. Government vouches for validity of certified copy
2. Must verify the validity of payment bonds provided upon request
a. Government is liable for invalid bonds where copy was
furnished on request
x. Remedies
11
5306873v.1 09999/09999-006600
PAY ME! Construction Lien, Builders Trust and Bond Claims in Michigan
By: Clark Hill, PLC
August 18, 2006
1. Language of the bond may provide broader remedies than those
under the statute, i.e.:
a. Longer notice periods
b. Elimination of notice requirements
c. Longer limitations periods
2. Where bond requirements are more stringent than those in the
statute, the statute’s control.
IX. Appendix: Form Documents
Notice of Furnishing
Public
Private
Proof of Service for Notice of Furnishing
Sworn Statement
Public
Private
Claim of Lien
Partial Unconditional Waiver
Partial Conditional Waiver
Full Conditional Waiver
Full Unconditional Waiver
Discharge of Construction Lien
Notice of Completion
Proof of Service of Notice of Completion
Notice to Surety of Bond Claim
Construction Checklist
12
5306873v.1 09999/09999-006600
Related docs
