Michigan

Lien Law Overview

The Michigan Construction Lien Act (MCLA), MCL 570.1101 et seq., provides contractors, subcontractors, suppliers, and laborers who provide an improvement (as the term is defined in MCL 570.1104(6)) to real property a lien upon such property to secure payment for the labor or materials provided.

Claimants in connection with residential structures do not have a right to a construction lien unless certain contract and licensing requirements are satisfied. MCL 570.1114.

Michigan has two Notice of Commencement forms: one for residential improvements and another for commercial improvements. MCL 570.1108 and 570.1108a. See the section on Notice of Commencement.

A claim of construction lien does not attach to a residential structure, to the extent payments have been made, if the owner or lessee files an affidavit with the court stating that the owner or lessee has paid the contractor for the improvement to the residential structure according to the contract, indicating in the affidavit the amount of the payment. The owner or lessee shall attach to the affidavit copies of the contract, any change orders, and any evidence of the payment that the owner or lessee has, including, but not limited to, a canceled check a credit card, or other receipt. MCL 570.1118a.

On receipt of a sworn statement regarding an improvement to a residential structure, the owner, lessee, or designee shall give notice of its receipt, either in writing, by telephone, or personally, to each subcontractor, supplier, and laborer who has provided a notice of furnishing under or, if a notice of furnishing was not required, to each subcontractor, supplier, and laborer named in the sworn statement. If a subcontractor, supplier, or laborer entitled to notice under this subsection requests a copy of the sworn statement, the owner, lessee, or designee shall provide the requester a copy within 10 business days of receiving the request. MCL 570.1110.

The MCLA limits interest that can be charged on a residential construction project. MCL 570.1107.

The owner of residential property on which a construction lien has been recorded by a person who was not licensed, or any person affected by the lien, may bring an action to discharge the lien. MCL 570.1114a.

Lien Waivers

Lien Waiver Summary

In Michigan, there are strict regulations regarding lien waivers, and the state provides specific statutory forms that must be used. It is not permissible to require the waiving of a construction lien in advance of work being performed as part of any improvement contract. Such a waiver obtained in this manner is against public policy and will be invalid, except if payment has been made to the person granting the waiver for the materials and labor they have provided.

In addition to the standard regulations, residential property lien waivers in Michigan have additional language included as per MCL 570.1115. If a residential structure is the subject of the improvement, the owner, lessee, or designee cannot rely on a lien waiver issued by anyone other than the named lien claimant, unless the claimant has either filed a notice of furnishing under section 109 or is excused from doing so under section 108 or 108a unless the owner, lessee, or designee has first verified the authenticity of the lien waiver with the lien claimant either in writing, by telephone, or personally.

Are title companies required by law to manage construction loan disbursements?

No, but title companies are insurance companies that may require – in exchange for insurance coverage – some level of control over how loan proceeds are disbursed. If they do, the lender either must comply with the title company’s demands or risk not having coverage for the loan (or try another title company, but they tend to share best practices by location/region).

Can a mechanics lien have priority over a pre-existing mortgage in Michigan?

A mortgage, lien, encumbrance, or other interest recorded before the construction lien arises has priority over a construction lien. MCL 570.1119(4).

A construction lien arising under the MCLA has priority over all other interests that are recorded after the construction lien arises, including liens, or encumbrances that may attach to the building, structure, or improvement, or on the real property on which the building, structure, or improvement is erected. MCL 570.1119(3).

A construction lien can arise as early as at the time of the first actual physical improvement. MCL 570.1119(6). If the lien claimant has already filed a notice of commencement, then the lien arises on the date of the notice of commencement.

Preliminary Lien Notifications

Notice of Furnishing
A Notice of Furnishing is required of subcontractors, suppliers, and laborers. MCL § 570.1109. Entities having a direct contract with the owner or lessee do not have to provide a Notice of Furnishing.

A Notice of Furnishing serves as notice to the owner, designee, and general contractor that the subcontractor, supplier, or laborer is providing labor, material, or an improvement to the owner or lessee’s property. It must include the following:

• The name and address of the person or entity supplying the labor, material, or improvement,
• A brief description of the type of labor, material, or improvement,
• A brief description of the type of labor or material being provided,
• Identify the property to which the labor or material is being provided, and
• Identify the entity to whom the labor, material, or improvement is being provided.
  MCL § 570.1109.

Service of Notice of Furnishing
To perfect the construction lien right to the greatest extent possible, the Notice of Furnishing must be sent within 20 days after the first labor or material is supplied to the project. All subcontractors, suppliers, and laborers (anyone who does not contract directly with the owner) must provide a Notice of Furnishing.

The Notice of Furnishing must be served upon the designee named in the Notice of Commencement and the general contractor, either by hand delivery or by certified mail, return receipt requested.

Proof of Service of Furnishing Notice
After the Notice of Furnishing is served either by hand delivery or certified mail, return receipt requested, the person who served it or mailed it must fill out and have notarized a Proof of Service of Notice of Furnishing setting forth the date on which the Notice of Furnishing was served, the method of service and the person who made the service. The Proof of Service must be notarized and retained for use in connection with the filing of the Construction Lien at a later date.

Claim of Lien
The claim of lien must be recorded with the register of deeds for the county (or counties) in which the real property upon which the improvement was made is located. If the real property upon which the improvement was made is located in more than one county, a claim of lien must be filed in each county. MCL § 570.1111(1).

The claim of lien sets forth various information including the name of the lien claimant, the name of the owner and fee owner, a description of the property, the lien claimant’s total contract amount, the total amount the lien claimant has been paid to date, and the amount owed at the time of the filing of the lien. The lien must be signed by an authorized representative of the lien claimant and notarized. To be validly perfected, it must have attached to it the original Proof of Service of Notice of Furnishing. The filing should include the original green return receipts evidencing actual service of the Notice of Furnishing, a copy of the Notice of Furnishing, and a copy of the Notice of Commencement.

Within 15 days after the date of the recording of the claim of lien with the register of deeds, the lien claimant must serve a copy of the claim of lien upon the owner, the designee, and the general contractor, either by hand delivery or certified mail, return receipt requested.

The person who hand delivers or serves the claim of lien by certified mail, return receipt requested, must fill out a proof of service evidencing service of the claim of lien upon the designee and the general contractor. The proof of service must be notarized and must set forth the date on which the service was made and the place of service. It should be retained in the file for use if foreclosure of the construction lien is required.

Notice of Completion

Michigan does not have a Notice of Completion, however, it does have an ‘Owner Affidavit of Payment’ used for residential structures and affords similar protection that you would see to owners and lenders in states that require a Notice of Completion.

MCL § 570.1118a A claim of construction lien does not attach to a residential structure, to the extent payments have been made, if the owner (or lessee) files an affidavit with the court stating that the owner has paid the contractor for the improvement.

The recorded Affidavit must include

1. Reference to said parties, contract, and project. (Implied requirement)
2. Statement of the owner that all the payments were made as required by the attached contract, change orders, and evidence. (Implied requirement)
3. Amount of the payment(s) made
4. Copies of the contract
5. All change orders
6. Evidence of the payment (canceled check, a credit card statement, or other receipts)

Use of the Affidavit prevents liens from attaching to a residential structure.

Contractor Licensing

General Contractors
In Michigan, under Mich. Comp. Laws Serv. § 339.2401, residential builders must be licensed by the Michigan Department of Licensing and Regulatory Affairs. A residential builder is defined as “a person engaged in the construction of a residential structure that . . . undertakes . . . the erection, construction, replacement, repair, alteration . . . of a residential structure.” Michigan does not require general commercial contractors to be licensed at the state level, but local city or county governments typically impose general contractor licensing requirements.

Subcontractors
Michigan requires various trades to be licensed, and those trades could be subcontractors under a general construction project. For example, under Mich. Comp. Laws Serv. § 339.5701, Michigan requires electricians to be licensed, under Mich. Comp. Laws Serv. § 339.5801, Michigan requires mechanical contractors to be licensed, and under Mich. Comp. Laws Serv. § 339.5801, Michigan requires plumbers to be licensed.

Contractor Licensing Requirements
Licensing Requirements for Commercial or Industrial Projects Contractors and subcontractors providing improvements to commercial or industrial projects do
not need to be licensed to avail themselves of the benefits of the Construction Lien Act. However, certain trade contractors, most notably electrical contractors and mechanical contractors, may need to have individuals who are licensed in order to obtain permits. Commercial or industrial contracts need not be in writing for there to be lien rights.

Licensing Requirements for Residential Projects
When providing improvements to residential structures, the contract between the contractor and the owner or lessee must be in writing and, in type no smaller than that of the body of the contract, contain a statement that the residential builder, electrical/mechanical contractor or plumbing contractor is licensed under the various state statutes governing those professions (see MCL § 570.1114(a)), and include that such professionals are licensed and their license number (MCL § 570.1114(b)).
Unlicensed contractors or subcontractors can perform work on residential projects and have contract or breach of contract claims if left unpaid. However, unlicensed contractors or subcontractors have no construction lien rights.

Contractor License Search

Bond
Unlike other states, Michigan doesn’t require all contractors in the state to hold a contractor license bond as a licensure requirement.

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