Have you ever worked on a job and not been paid? Have you sought an attorney only to find that it would cost more to fight for your payment than the payment you were owed? Well, fear not, in Michigan the law provides the ability for contractors, subcontractors, suppliers, and laborers to issue a construction lien.
A construction lien only applies to projects performed on private property (i.e. hotel, office building, restaurant, manufacturing plant) as opposed to land owned by a city, township, village, state, county, public school, or college. The privately-owned land must be in Michigan. The construction lien is recorded against the land of the private owner. The contractor, subcontractors, suppliers, and laborers must be able to prove that they performed work to the owner’s land.
To establish a construction lien, a party must be one of the following:
- Contractor: one who provides an improvement pursuant to a direct contract with the owner or tenant of the land.
- Subcontractor: one who provides labor and material to either a contractor or subcontractor.
- Supplier: one who only provides or rents material or equipment to a contractor or subcontractor used in the improvement to the owner’s land. Suppliers to suppliers have no lien rights.
- Laborer: an individual who only performs labor for a contractor or subcontractor.
Before the owner (or tenant) begins construction, the owner must fill out a document called a notice of commencement, then record it with the register of deeds for the county where the property being improved is located, and post a copy on the property. The notice of commencement will contain the information that can be used and relied upon by the contractor, subcontractor, supplier, or laborer to prepare and record a claim of lien.
The notice of commencement must contain the legal description of the land; the name and address of the general contractor; and the name and address of the person the owner designates to receive notices on the project, otherwise known as owner’s designee.
Before starting their work, the contractor, subcontractor, supplier, and laborer should obtain a copy of the recorded notice of commencement from their customer or the owner, either informally or by a formal certified mail demand. We recommend you send a written request, because that triggers the time within which the owner and general contractor must provide you a copy, and their failure to comply timely may extend the time for filing a notice of furnishing — the next step in the process.
In all cases, the recorded claim of lien has a one-year life span; meaning that a lawsuit to enforce or to foreclose the lien must be filed within one year after the date the claim of lien is recorded. If no lawsuit is filed within the one year, the lien claim dies. The lawsuit to enforce the lien must have attached the proof of service of the claim of lien, and a sworn statement and must join all other lien and mortgage holders. If successful in litigating the lien claim, the lien claimant can recover reasonable attorney fees and costs.
To establish a lien, subcontractors, suppliers, and laborers must perform five steps:
- Within 20 days after first providing labor or material, serve a Notice of Furnishing on the General Contractor, and Owners Designee, by certified mail (effective upon mailing) or personal delivery.
- Prepare a Proof of Service of Notice of Furnishing. This is a notarized statement saying how and when the Notice of Furnishing was served. Keep and attach to Claim of Lien when recorded. (We also recommend stapling the returned certified mail “green card” to this document as double proof of service.)
- Record the Claim of Lien in the County Register of Deeds where the Owner’s property is located, within 90 calendar days after last providing labor or material. (Note: warranty work does not count as “last providing” labor or material, but clean up and demobilization usually will count.)
- Serve a copy of the recorded Claim of Lien on the Owner’s Designee within 15 days from date of recording by certified mail or personal delivery.
- Prepare Proof of Service of Claim of Lien. Keep and attach to lawsuit if filed. (Again, we recommend stapling the returned certified mail “green card” to this document.)
To establish a lien, a Contractor must perform only three steps:
- Record a Claim of Lien in the County Register of Deeds where the Owner’s property is located with 90 calendar days after last providing labor or material. Before recording Claim, give the Owner a final Sworn Statement.
- Serve a copy of the recorded Claim of Lien on the Owner’s Designee within 15 days from date of recording by certified mail or personal delivery.
- Prepare Proof of Service of Claim of Lien. Keep and attach to lawsuit if filed.
Eric Flessland, ABC SEMI Secretary and construction lawyer at Butzel Long, recommends,
“Get into the habit of following this process on every private work or contract you perform. Before the ink is dry on each contract you sign, send your prime contractor a written request for a notice of commencement and blank notice of furnishing form. Make a “what to do when” check list and create a separate folder for each project in which you should put these completed forms so you can easily check to see if you have sent the forms timely.”
Sending a notice of furnishing informs the owner you are working on their project when they may not have otherwise known. A prudent owner (or its bank) will make sure you get paid to avoid a claim of lien on the property. Often, recording the claim of lien alone will cause the owner to make sure you get paid just to clear title to its property. Eric Flessland noted, “If litigation is regrettably necessary and you have followed these steps, and placed the documents in a separate file along with a copy of your contract or purchase order, it is a simple matter to send that information to your attorney.” Be smart and make sure you protect your company and your investment in the project.
