Law Office of Marty A. Burnstein  

30100 Telegraph Road • Suite 428 • Bingham Farms, Michigan 48025
248.723-0803 • FAX 248.723.0116
mburnstein@martyburnsteinlaw.com

New Construction Lien Act Amendments
(Effective June 29, 2007)

Remember those recent January 2007 changes to the Lien Act amending the sworn statement and waiver of lien forms and requiring the owner to notify and upon request, provide a copy of the contractor's sworn statement to subs, suppliers and laborers who have provided notices of furnishings. Now, those changes apply only to residential structures (i.e. new homes & remodeling), and not to commerical, industrial or multi-family improvements.

Under a newly signed (June 29, 2007) Amendment to the Lien Act, the January 2007 changes are now required only with improvements to residential structures --- nothing else. Now, the burden is off commercial owners and contractors to change their form sworn statements and lien waivers. Commercial owners no longer have to provide copies of contractor sworn statements to subs, suppliers or laborers.


THE NEW CONSTRUCTION LIEN ACT AMENDMENTS MEAN NEW SWORN STATEMENTS, NEW WAIVERS OF LIEN, AND OTHER NEW REQUIREMENTS FOR OWNERS AND RESIDENTIAL SUPPLIERS 

            For the past 26 years—since 1982—the Construction Lien Act has remained virtually the same.  No longer.  Effective January 3, 2007, the Construction Lien Act (CLA) was amended in several key areas that will dramatically affect commercial and residential construction.  There are now new sworn statement forms and new full and partial waiver of lien forms.  There are now obligations on owners who receive contractor sworn statements.  There are now new opportunities for subcontractors, suppliers, and laborers to obtain a copy of the contractor’s sworn statement.  There are now new and much tougher requirements for a residential supplier seeking to recover from the Homeowner Construction Lien Recovery Fund.  The new amendments will require a thorough review of owner and contractor payment processing procedures. 

A.        SWORN STATEMENTS

            In the past, a property owner could avoid liens by paying in reliance on a contractor’s sworn statement unless a subcontractor, supplier, or laborer provided a notice of furnishing or unless a notice of furnishing was excused.  A notice of furnishing is excused ^[1]  when an owner fails to record a notice of commencement or fails to provide a copy upon receipt of a 10 day certified demand by a subcontractor, supplier, or laborer.

            Now, a property owner (including a tenant and owner’s designee) must do something more.  Upon receipt of a contractor’s sworn statement, the owner must do two things.  First, the owner must give notice of the receipt of the sworn statement to subcontractors, suppliers, and laborers who have provided a notice of furnishing.  If the notice of furnishing has been excused, the owner must give notice to each subcontractor, supplier, and laborer named in the notice of commencement.  The owner can give the required notice personally, by phone, or in writing.  Second, upon request, the owner must provide a copy of the contractor’s sworn statement within 10 business days of the request to the subcontractor, supplier, and laborer.  The new amendments do not require that the request for a copy of the sworn statement be written. 

            As part of these new requirements for owners who receive sworn statements, the form sworn statement has been changed in two ways.  First, the column listing each subcontractor, supplier, and laborer must now also include an address and telephone number.  Second, there is now a new paragraph in bold capital letters just before the signature line:

ON RECEIPT OF THIS SWORN STATEMENT, THE OWNER OR LESSEE, OR THE OWNER’S OR LESSEE’S DESIGNEE, MUST 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 SECTION 109 OR, IF A NOTICE OF FURNISHING IS EXCUSED UNDER SECTION 108 OR 108A, TO EACH SUBCONTRACTOR, SUPPLIER, AND LABORER NAMED IN THE SWORN STATEMENT.  IF A SUBCONTRACTOR, SUPPLIER, OR LABORER WHO HAS PROVIDED A NOTICE OF FURNISHING OR WHO IS NAMED IN THE SWORN STATEMENT MAKES A REQUEST, THE OWNER, LESSEE, OR DESIGNEE SHALL PROVIDE THE REQUESTER A COPY OF THE SWORN STATEMENT WITHIN 10 BUSINESS DAYS AFTER RECEIVING THE REQUEST.

B.        FULL AND PARTIAL WAIVERS OF LIEN

            Typically, subcontractors and suppliers provide waivers of lien for amounts already paid or amounts currently owing to contractors as part of the owner’s payment procedures.  The new CLA Amendments have also changed all the waiver of lien forms.  Now, both the full and partial conditional and unconditional waiver of lien forms have a new last paragraph which must say:

If the owner or lessee of the property or the owner’s or lessee’s designee has received a notice of furnishing from me/one of us or if I/we are not required to provide one, and the owner, lessee, or designee has not received this waiver directly from me/one of us, the owner, lessee, or designee may not rely upon it without contacting me/one of us, either in writing, by telephone, or personally, to verify that it is authentic.

This new paragraph in all the waiver of lien forms means that if a subcontractor, supplier, or laborer has provided a notice of furnishing or it is not required and they do not provide their lien waiver directly to the owner, then the owner (lessee and designee) cannot rely upon it without first contacting the subcontractor, supplier, or laborer to verify that it is authentic.  The owner can verify authenticity either personally, by phone, or in writing. 

            In plain English, unless the owner receives the lien waiver directly from the subcontractor, supplier, or laborer who has provided a notice of furnishing, the owner cannot rely upon it without first verifying its authenticity by contacting the subcontractor, supplier, or laborer.  Remember, this new owner’s burden only applies if subcontractors, suppliers, and laborers have provided a notice of furnishing or it is excused, and only when their lien waiver is provided to someone other than the owner. In summary, if a supplier has provided a notice of furnishing and delivers its lien waiver to its subcontractor or the general contractor, the owner cannot rely upon the supplier’s lien waiver without first contacting the supplier to verify its authenticity.  

C.        RESIDENTIAL SUPPLIERS SEEKING TO RECOVER FROM THE HOMEOWNER CONSTRUCTION LIEN RECOVERY FUND HAVE NEW AND MORE STRINGENT REQUIREMENTS TO PROVE.

             If a homeowner can prove that the contractor has been paid in full, unpaid subcontractors, suppliers, and laborers that have otherwise valid liens must seek recovery from the Homeowner Construction Lien Recover Fund (the Fund).  The Fund was originally established by the Department of Licensing and Regulation now called the Department of Labor and Economic Growth.  The Fund is represented by the State Attorney General.  The Fund does not pay attorney fees and only paid up to a maximum of $75,000 per residential structure.  The maximum has now been raised up to $100,000.

            The new CLA Amendments target primarily residential suppliers (not subcontractors or laborers).  Now, the Fund will not pay a residential supplier who extends credit to a contractor (i.e., builder) or subcontractor unless the supplier establishes by documentary proof that it did 3 things before supplying its material or equipment:

1.   obtained a credit application from the contractor or subcontractor.

2.   obtained a credit report on the owner or qualifying officer or the principal partners, officers, members or stockholders; and the credit report does not disclose insolvency within 2 years, receivership or judgments of more than $1,000.  If the contractor or subcontractor is a publicly traded corporation, the supplier must have obtained a credit report on the owner or qualifying officer or the principal partners, officers, members or stockholders; and the credit report does not disclose insolvency within 2 years, receivership or judgments of more than $1,000.  Section 203(j) and (k).  

3.   if the contractor or subcontractor is less than 4 years old; obtained a personal guaranty from the owner or 1 or more of the partners, officers, directors, members or shareholders of the contractor or subcontractor.  

            Now, suppliers as well as subcontractors and laborers can only recover interest, service charges, or time price differential charges up to but not after 90 days after the lien is recorded. 

            Beginning in 2007, the Fund will not pay residential suppliers who sell to a contractor or subcontractor that was delinquent more than 180 days (6 months), 150 days (5 months) in 2008, 120 days (4 months) in 2009; and 90 days (3 months) in 2010 and each year thereafter.

D.        HOMEOWNERS WHO RECEIVE LIENS FROM UNLICENSED CONTRACTORS

             Michigan law is very clear that a contractor (one dealing directly with the owner) must be licensed when working for a homeowner.  The contractor must have a plumber’s license, mechanical contractor’s license, electrical contractor’s license, a residential builder’s license, or residential maintenance and alteration contractor’s license.  If the contractor does not have the required license, the contractor cannot sue for money and cannot lien the homeowner’s property.

            Under the CLA Amendments, if an unlicensed contractor records a lien, the homeowner (or anyone else affected by the lien) can sue the unlicensed contractor to discharge the lien and for damages that result from the lien.  If successful, the homeowner can recover their actual costs and attorney fees.

E.         CONCLUSION

            The new CLA Amendments are initially going to cause a lot of questions, confusion, and misunderstanding.  It will take some time to see  how these changes will be practically integrated into the payment process between owners and contractors.  There are now new responsibilities for owners and their designees as well as new opportunities for subcontractors, suppliers, and laborers who provide notices of furnishing.  Now, owners will need to be more selective in choosing their designee, more vigilant in recording a notice of commencement before a project starts, and more responsible when receiving sworn statements from a contractor before making payment. 

            For residential suppliers, seeking payment from the Homeowner Construction Lien Recover Fund was never easy before 2007 and was to be avoided if possible.  Now, it’s the last place you want to go to collect because there are so many more hurdles to jump through.