Michigan Residential Builder Exam — Study Guide

Michigan state portion · Insurance, Bonds and Liens (liens placement under the Construction Lien Act)

Introduction

The Construction Lien Act, 1980 PA 497 (MCL 570.1101 to 570.1305), decides who can put a lien on an owner's property, what notices preserve that right, how fast the claim must be recorded and enforced, and how an owner avoids paying twice. The exam tests the documents (notice of commencement, notice of furnishing, sworn statement, waivers, claim of lien), the clocks (10, 15, 20, 90 days and 1 year) and the special protections for a homeowner's residence.

Key numbers

Item	Michigan rule	Authority
Owner provides notice of commencement on written request (residence)	within 10 days of the request's mailing	MCL 570.1108a(5)
Subcontractor or supplier serves notice of furnishing	within 20 days after first furnishing	MCL 570.1109(1)
Laborer serves notice of furnishing for unpaid wages	within 30 days after wages were due	MCL 570.1109(2)
Owner gives sworn statement copy on request (residence)	within 10 business days	MCL 570.1110(6)
Owner's first direct payment to lien claimants	5 business days' notice to the general contractor	MCL 570.1110(7)
Record the claim of lien	within 90 days after the claimant's last furnishing	MCL 570.1111(1)
Serve copy of recorded claim on designee	within 15 days after recording	MCL 570.1111(5)
Start foreclosure action	within 1 year after the claim of lien was recorded	MCL 570.1117(1)
Bond to discharge a lien	twice the amount claimed	MCL 570.1116(1)
Homeowner Construction Lien Recovery Fund	repealed, effective Aug 23, 2010	2010 PA 147 (former MCL 570.1201–570.1207)

Part A — Who has a lien, and on what

Each contractor, subcontractor, supplier or laborer who provides an improvement to real property has a construction lien on the interest of the owner or lessee who contracted for it (MCL 570.1107(1)). The definitions matter (MCL 570.1103–570.1106):

• A contractor contracts directly with the owner or lessee. A general contractor contracts with the owner to provide substantially all of the improvements.
• A subcontractor contracts with someone other than the owner (usually the contractor) to perform part of the contractor's work.
• A supplier provides material or equipment to a contractor or subcontractor.
• A laborer is an individual who provides personal labor under a contract with a contractor or subcontractor.
• An improvement is broad: surveying, engineering and architectural planning, construction management, clearing, demolition, excavating, building, landscaping, paving, leasing equipment, and installing fixtures or material.

Limits on the amount. One claimant's lien cannot exceed its contract amount less payments received (MCL 570.1107(1)). All liens together cannot exceed what the owner agreed to pay its own contractor, adjusted for changes, less payments the owner made under a contractor's sworn statement or a lien waiver (MCL 570.1107(6)). That cap is the core of owner protection.

A residential structure has its own definition in this act. It is an individual residential condominium unit, or a residential building with not more than 2 residential units, together with the land and appurtenances, in which the contracting owner or lessee lives or will live on completion (MCL 570.1106(4)). The owner must occupy it. A rental duplex is not a "residential structure" for lien purposes even though it is a residential structure under Article 24.

Part B — The notice of commencement

Nonresidential and non-owner-occupied jobs (MCL 570.1108). Before work starts, the owner or lessee records a notice of commencement with the register of deeds in each county where the property lies, posts a copy on the site, and gives a copy to the general contractor. The notice names the owner, the fee owner if different, the owner's designee (who receives notices; it may not be the contractor), the general contractor, and carries a legal description and a statutory warning to lien claimants. A blank notice of furnishing form must be attached to copies.

Residential structures (MCL 570.1108a). Section 108 does not apply to a residential structure (MCL 570.1108(18)). Instead, the homeowner is not required to record a notice of commencement. The homeowner must prepare and provide one, with a blank notice of furnishing attached, within 10 days after the mailing of a written request sent by certified mail from a contractor, subcontractor, supplier or laborer. The person asking must enclose a blank notice of commencement form. If the homeowner does not live at the site, the homeowner must post a copy there. The form carries a boldface "Warning to Homeowner" telling the owner these duties.

A contractor or subcontractor who has a notice of commencement must pass it on, within 10 days of a certified-mail request, to the people it contracted with; if it has none, it must give them the owner's name and address (MCL 570.1108a(6)–(7)).

What happens if the owner does not cooperate. The deadline for a subcontractor or supplier to serve a notice of furnishing is extended until 20 days after the notice of commencement is actually provided (MCL 570.1108a(9)). An owner who fails to post a required copy is liable for the claimant's actual expenses in finding the information (MCL 570.1108a(11)). Incorrect information in a notice of commencement does not hurt a lien claimant's rights (MCL 570.1108a(4)).

Part C — The notice of furnishing

A subcontractor or supplier must serve a notice of furnishing on the designee and the general contractor, at the addresses in the notice of commencement, personally or by certified mail, within 20 days after first furnishing labor or material (MCL 570.1109(1)). If no designee is named, serve the owner. Service by certified mail is complete on mailing.

A contractor with a direct contract with the owner does not serve a notice of furnishing; the owner already knows who it is.

A laborer serves notice within 30 days after wages were contractually due but unpaid (MCL 570.1109(2)), and for unpaid fringe benefits or withholdings by the 5th day of the second month after they were due (MCL 570.1109(3)).

Late notice is not fatal, but it is costly. A subcontractor or supplier who serves late keeps its lien for work furnished after service. For work furnished before service, it keeps the lien except to the extent the owner already paid the contractor under a sworn statement or waiver (MCL 570.1109(5)–(6)). In other words, the late claimant loses the money the owner paid in good faith before learning the claimant existed. A laborer who fails to notify the designee loses the lien for those wages (MCL 570.1109(7)).

Part D — Sworn statements and lien waivers

Sworn statements (MCL 570.1110). A contractor must give the owner a sworn statement when payment is due or requested, and whenever the owner demands one. A subcontractor gives one to the contractor when it requests payment, and to the owner on demand. The statement lists every subcontractor and supplier the issuer contracted with, plus laborers owed wages or fringe benefits, with the contract price, the amount paid, and the amount owing for each.

• On a residential structure, when the owner receives a sworn statement, the owner (or designee) must give notice of its receipt, in writing, by phone or in person, to each subcontractor, supplier and laborer who served a notice of furnishing; on request, the owner gives a copy within 10 business days (MCL 570.1110(6)).
• The owner may withhold from the contractor enough to pay those listed, and must withhold on the contractor's written demand. The owner may pay lien claimants directly. If the contract calls for paying the general contractor, the first direct payment requires 5 business days' notice to the general contractor (MCL 570.1110(7)).
• An owner, lender or contractor may rely on a sworn statement prepared by someone else to avoid a claim, unless that claimant served a notice of furnishing (MCL 570.1110(8)).
• A contractor who records a claim of lien without first giving the owner a sworn statement still has a valid lien, but is not entitled to payment and may not file suit to enforce it until the sworn statement is provided (MCL 570.1110(9)).
• A false sworn statement given with intent to defraud is a crime that rises with the amount. A statement for $1,000 or more but under $20,000 is a felony punishable by up to 5 years or a fine of up to $10,000 or 3 times the statement amount, whichever is greater (MCL 570.1110(11)(c)).

Lien waivers (MCL 570.1115).

• No advance waivers. A contract may not require a party to waive lien rights before the work is performed. Such a waiver is void except to the extent payment was actually made (MCL 570.1115(1)).
• A claimant who is paid in full must give a full unconditional waiver. A claimant paid in part must give a partial unconditional waiver for the amount received if the owner asks (MCL 570.1115(2)–(3)).
• A conditional waiver (partial or full) becomes effective when the stated payment is made (MCL 570.1115(4)).
• On a residential structure, the owner may not rely on a waiver that came from someone other than the claimant named in it, if that claimant served a notice of furnishing, until the owner verifies it with the claimant in writing, by phone or in person (MCL 570.1115(7)).
• Retainage that is not payable until some later event is not "due" when the work is provided (MCL 570.1115(5)).

Part E — Recording, serving and enforcing the claim of lien

Record within 90 days. The lien ceases to exist unless a claim of lien is recorded with the register of deeds of each county where the property lies within 90 days after the claimant's last furnishing of labor or material under its contract (MCL 570.1111(1)). A subcontractor, supplier or laborer attaches proof of service of its notice of furnishing (MCL 570.1111(4)).

Serve within 15 days. Within 15 days after recording, the claimant serves a copy of the claim of lien and any recorded proof of service on the designee (or owner), personally or by certified mail, return receipt requested (MCL 570.1111(5)).

Foreclose within 1 year. The action to enforce the lien must be brought no later than 1 year after the claim of lien was recorded (MCL 570.1117(1)), in the circuit court for the county where the property is located (MCL 570.1118(1)). The plaintiff records a notice of lis pendens when filing (MCL 570.1117(2)). A contractor's or subcontractor's complaint must show the owner was given any requested or required sworn statement (MCL 570.1117(7)). The court may award reasonable attorney fees to a prevailing lien claimant, and to a defendant if the lien suit was vexatious (MCL 570.1118(2)). The lien claimant may also sue on the contract (MCL 570.1117(5); MCL 570.1302(2)).

Bonding off. An owner (or anyone) can vacate and discharge a claim of lien by filing a bond with the county clerk, with the lien claimant as obligee, in twice the amount claimed (MCL 570.1116(1)).

Worked example (the clocks). A drywall subcontractor first furnishes labor on April 1 and last furnishes on June 15, and is never paid.

• Notice of furnishing: by April 21 (20 days after April 1).
• Claim of lien: recorded by September 13 (90 days after June 15: 15 remaining days in June, 31 in July, 31 in August, and 13 in September).
• Service of the recorded claim: within 15 days after the recording date.
• Foreclosure: within 1 year after the recording date. If recorded September 10, suit must be filed by September 10 of the next year.

Note that the 90-day clock runs from last furnishing, but the 1-year clock runs from recording, not from last furnishing.

Part F — Homeowner protections on a residence

Three rules shield a homeowner who lives, or will live, in the house.

1. Written contract required for the contractor's lien. A contractor has no lien on a homeowner's residential structure unless the improvement was provided under a written contract with the owner, with all amendments and additions also in writing. The contract must state, in type no smaller than the body of the contract, that residential builders and M&A contractors must be licensed under Article 24 (and that electricians, plumbing contractors and mechanical contractors must be licensed under the skilled trades regulation act), and, if the contractor must be licensed, that it is licensed and its license number (MCL 570.1114).
2. Paid-in-full affidavit. A claim of lien does not attach to a residential structure to the extent of payments made, if the owner files an affidavit with the court stating that the owner paid the contractor according to the contract, with copies of the contract, change orders and evidence of payment attached (MCL 570.1118a(1)). If there was no written contract, the affidavit creates a rebuttable presumption that the owner paid, which can be overcome only by clear and convincing evidence (MCL 570.1118a(2)).
3. Licensure. An unlicensed builder or M&A contractor may not take any action to impose a lien on real property (MCL 339.2412(3)).

The old recovery fund. Michigan once had a Homeowner Construction Lien Recovery Fund that licensees paid into and that protected homeowners who had paid their contractor. The Legislature repealed it in 2010 PA 147, effective August 23, 2010, and LARA lists the fund as abolished in August

1. The paid-in-full affidavit in MCL 570.1118a was added by the same act. Older study material

that describes fund membership or fund claims is out of date.

Worked example (paying twice). A homeowner signs a written $60,000 contract for an addition and pays the builder in full on sworn statements. The builder fails to pay a window supplier $8,000. The supplier served its notice of furnishing on time and records a claim of lien. The homeowner files an affidavit of payment with the contract and canceled checks. The lien does not attach to the house to the extent of the payments made, so the supplier's remedy is against the builder. Had the builder used the homeowner's payments for another job, the builder also faces discipline for diversion (MCL 339.2411(2)(b)) and possible prosecution under the Building Contract Fund Act.