A Real Life Lien Story

A.  The Problem.

A few years ago, when I had an office up in Marquette, a contractor-friend of mine named Gary came into my office one day at wit’s end.  It seems that Gary and his excavating company had done a tremendous amount of work on a difficult, mountainous site in the U.P.  The property owner was a very well-heeled individual, who had paid invoices during the project without any issues.  However, the final invoice was substantial and had gone unpaid.  Despite the owner and/or his representative being onsite and observing Gary and his crew at every step of the process, the owner was now objecting to the last improvements to the property.  Gary tried to work the final bill out with the owner, but as my father-in-law says, the landowner was “unique”.  Also, to make matters worse, Gary and his crew had not done any work on the premises for 89 days.

B.  How to solve the problem.

The most immediate step to solving this problem was to file a lien.  The Michigan Construction Lien Act is found at MCL 570.1101 et seq.  While most of us don’t read the Act and ponder it on a daily basis, we would all do well to know the basics of the Act because it is an exceptionally helpful tool to get you paid.

I sent Gary down to the Register of Deeds office where he was able to get a copy of the deed for the property which would of course have the legal description of the property.  The legal description was necessary to file the Notice of Furnishing and the Claim of Lien.  It should be noted that the Notice of Furnishing should have been filed at the start of the project and not at the end.  More important than the Notice of Furnishing was the filing of the Claim of Lien.  The Claim of Lien, if you’ve never seen one, is actually a fairly simple document which indicates the first day of work performed by the contractor, the last day of work, the legal description of the property, the name of the owner or the lessee, the total amount of the contract including extras and any payments received, and the amount of the lien.  The lien itself must be served on the landowner or lessee personally or by certified mail, return receipt requested, within fifteen (15) days of the recording of the lien.  At the time of filing of the Claim of Lien with the Register of Deeds in the county where the property is located, make certain that you file a Proof of Service of the Notice of Furnishing together with a copy of the Notice of Furnishing.

Additionally, it is probably the best practice to provide an up-to-date and accurate sworn statement.  The failure to provide the sworn statement doesn’t invalidate your right to a lien, but it’s going to prohibit you from processing your complaint any further until you have provided that statement.

Gary and I performed all of these tasks on that 89^th day and filed the Lien on the 90^th day, the last day that the lien could have been filed.  The landowner was not any more willing to find his checkbook at that time, but with the lien in place, Gary’s position was now extremely solid.

C.  The results.

With the lien in place, Gary’s claim was difficult to avoid.  The property itself is worth many hundreds of thousands of dollars, and the lien amount can be easily satisfied on foreclosure.  Liens generally have priority over any other obligations on the property, but there are exceptions.

The case proceeded to trial and Gary received a verdict, with judgment interest and attorney fees, worth approximately $120,000.00.  Liens are one of the few areas where you can potentially recover your attorney fees.  Also, a recent court decision allowed the contractor to recover the attorney fees under a breach of contract theory, despite losing on the claim of lien at trial.

D.  A few details.

There are many, many details that come into play in any given lien situation, and I could easily fill a book with the possible scenarios.  That said, if you only remember two things about the Construction Lien Act, please remember in order for a lien to be valid, it must be filed within ninety (90) days of the last time the lienholder worked on that property, and the lienholder must commence its action of foreclosure on the lien within one year after filing the lien.  There are different sets of rules for public projects and commercial projects, but I will leave that for a different article on a different day.

Besides being a licensed contractor, Robert Whims is an attorney and partner at Smith & Johnson, Attorneys, P.C. located at 603 Bay Street, Traverse City, MI  49684.  Telephone:  231-946-0700; Facsimile:  231-946-1735; E-mail:  rwhims@smith-johnson.com