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Jun 2007
11
June 11, 2007

Construction Lien Changes Demand Attention

There are important new additions to the Michigan Construction Lien Act that place greater burdens on owners, tenants, lenders, title companies, suppliers and others.

Owners, tenants, title companies and lenders can no longer rely on lien waivers when making a draw payment without first verifying the authenticity of each lien waiver in writing, by phone or personally. An owner, tenant, title company or lender is also required to provide notice of the receipt of the sworn statement to the subcontractors, suppliers and laborers named in the sworn statement.

Suppliers, such as lumberyards, can no longer look to the Homeowner Construction Lien Recovery Fund in the case of an insolvent residential contractor unless the supplier took specific steps to verify the contractor's creditworthiness before supplying the supplies. For example, if the supplier has not done business with the contractor in the previous year, then the supplier must require the contractor to complete a credit application and the supplier must obtain a credit report on the contractor to determine the financial stability of the contractor. In addition, if the contractor is not a public company, then the supplier must obtain a credit report on the owner or qualifying officer. Further, if the contractor has been in business for less than four years, the supplier must obtain a personal guaranty from the owner or one or more of the partners, officers or directors of the contractor.

Suppliers also cannot recover money from the Fund for supplies if the contractor was delinquent in paying the supplier for 180 days or more when the supplies were delivered. Supplier's payments from the Fund are also limited where the contractor's indebtedness exceeded the supplier's normal credit limit when the supplies were delivered.

Other significant changes to the Act include:

  • The maximum Fund payment to subcontractors, suppliers and laborers increased from $75,000 to $100,000 per residential structure.
  • The interest payable from the Fund is limited to interest that accrued within 90 days after a claim of lien was filed.
  • The fees charged to potential lien claimants that fund the Fund have been changed. Potential lien claimants are now required to pay Fund renewal fees in addition to license fees.
  • In order to recover from the Fund, lien claimants must now establish that the contractor with whom the lien claimant contracted with is the same individual or legal entity with whom the owner or lessee contracted.

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Michael B. O'Neal practices in the areas of bankruptcy and creditors' rights and general litigation. He regularly represents commercial banks, bankruptcy trustees, corporations and individuals in all facets of bankruptcy and civil litigation.

MiBiz West

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