Support Guide for Friends and Family of the Michigan Homeowner’s Lien Recovery Fund
by Aileen M. Leipprandt and Mark A. Rysberg
After years on life support, Governor Granholm approved PA 147 of 2010 effectively pulling the plug on the Homeowner’s Lien Recovery Fund (“Fund”), effective August 23, 2010. Under prior operation of the Construction Lien Act (“Lien Act”), where an owner paid its residential contractor in full for improvements made by subs and suppliers, the subs and suppliers liens would not attach to the owner’s property, and instead, the lien claimants could look to the Fund to satisfy their lien claims. The purpose of the Fund was to protect owners from paying twice and to afford some relief to subs and suppliers who got stiffed by the builder. Since its inception in 1982, however, the Fund has paid nearly $11.5 million in claims and simply ran out of money. With the Fund upside down, the Legislature pulled the plug on it. Without the Fund to bail out lien claimants, subcontractors and suppliers are only left with claims against the builder, an undesirable circumstance if the builder is uncollectible.
To avoid becoming “Bank of Subcontractor”, “Bank of Supplier”, or worse yet a “Charity” you need to be proactive. First, review your credit terms and your policies about those to whom you are willing to extend credit and the limits of such credit. Second, don’t be afraid to require prepayment or deposits, especially on custom products – you don’t get what you don’t ask for. Third, develop a good contract or purchase order so that you can recover collection costs and attorney fees. Without such a contract, these costs are typically not recoverable. Fourth, consult an attorney who knows construction law and the ins and outs of the Lien Act and Builder’s Trust Fund Act. With the Fund dead and gone, residential lien claimants need to move on, tweak their business practices and plan for better days ahead.