More Ways to Win: Court of Appeals Decision Improves Contractors’ Chances to Recover Attorney Fees

Posted by: Hilger Hammond On: 30th March 2015 | no responses.

checkBy Suzanne Sutherland

The Court of Appeals recently has issued a contractor-favorable decision regarding recovery of attorney fees under the Michigan Construction Lien Act. Ronnisch Construction Grp, Inc. v. Lofts on the Nine, L.L.C. (July 2014). The Court of Appeals expanded the definition of a “prevailing lien claimant” in a case over a contract to build loft-style condominiums.

Lofts on the Nine hired Ronnisch Construction as the general contractor on a project in Ferndale. Lofts failed to pay Ronnisch over $600,000, so Ronnisch filed a claim of lien. Ronnisch later sued Lofts for breach of contract, foreclosure of lien, and unjust enrichment. The contract required the parties to arbitrate their dispute.

After reducing the lien amount due to counter-claims Lofts raised, the arbitrator awarded $451,000 to Ronnisch. The arbitrator left the question of whether Ronnisch was entitled to attorney fees under the Construction Lien Act for the circuit court to decide. The court denied Ronnisch’s request, stating that Ronnisch was not a “prevailing lien claimant” because the arbitrator awarded damages for breach of the contract, not foreclosure of the lien.

The Court of Appeals disagreed, suggesting that it would undermine the spirit of the Lien Act to deny Ronnisch status as a prevailing lien claimant. The Act gives a court discretion to award attorney fees to a prevailing lien claimant, even if contract claims are included. The Court of Appeals adopted a broad approach that provides a contractor the best opportunity to realize the benefits intended by the attorney fee portion of the Act. The ruling is a victory for contractors, who are now eligible for attorney fees in more circumstances, including cases where the underlying contract claim is arbitrated. If a lien is valid and the contractor prevails against the owner because of that lien, the court can make the owner pay the contractor’s attorney fees.

 

Contractors’ Useless Liens Trigger Victory on Unjust Enrichment Claim

Posted by: Hilger Hammond On: 5th December 2014 | no responses.

GolfBagBy Aileen Leipprandt

In a prior blog we summarized an appellate court ruling that contractors could not enforce their construction liens against golf course property that was subject to a land contract; instead, the liens attached only to the actual improvements – sewer and golf cart paths. Those improvements could not be removed or sold, in effect rendering the liens useless. See “Liening Leased or Land Contract Property.

Fast forward three years, and things dramatically improved for these same contractors. Asphalt Specialists, Inc v Steven Anthony Development Co (August 2014). After the owner of the golf course won at the appellate court level, the matter resumed at the trial court level to address the contractors’ claims for unjust enrichment. The trial court granted the contractors a judgment against the golf course owner on the contractors’ claims for unjust enrichment and also awarded the contractors their attorney fees.

The golf course owner appealed, arguing that the Construction Lien Act provided an adequate remedy for the contractors. The appellate court disagreed, ruling that given the unique circumstances of this case – the impracticality of severing the golf course improvements from the real property – the trial court did not err by granting the contractors the equitable remedy of unjust enrichment damages. The liens were “ineffectual” because the improvements could not be separately sold to satisfy the liens.

There was no dispute that the contractors’ improvements enabled the owner to operate the golf course and earn income from the property while the contractors had no realistic opportunity of getting paid for their work. On these specific facts, the appellate court agreed that the golf course owner received a benefit from the contractors and that the owner’s retention of that benefit was unfair to the contractors.

The frosting on the cake – the court of appeals also affirmed the trial court’s award of attorney fees to the contractors.

 

5 Tips To Successfully Recording A Construction Lien In Michigan

Posted by: Hilger Hammond On: 12th December 2013 | no responses.

1221951_27660008 - Copy

By Ben Hammond

Thinking of recording your own construction lien?  If so, make sure you consider the following five tips that go beyond the basics you may have learned in the past.

1. Double check the legal description. More and more individuals are recording documents without professional assistance, and frequently legal descriptions are inadvertently miscopied from one document to another. The legal description will rule the day and recording a lien on another’s property without a legal right could be considered a slander on that other person’s title.  Follow these tips to keep you out of hot water:

  • Avoid abbreviations. Several register of deeds offices throughout the state, but not all, require that the legal description be “spelled out” instead of using abbreviations.  In legal descriptions there are significant differences between “west” and “westerly,” for example. If you were to shorten one or the other to “W” in a legal description, it may not accurately describe the property.
  • Be careful copying. You may need to re-type the legal description so that it can be attached in the proper form to your lien.  Always double check the description when you do this to make sure it was accurately transposed.
  • Watch out for tax descriptions and parcel numbers. Tax descriptions and parcel numbers are NOT the same thing as a legal description and should not be relied upon in your lien.
  • Don’t strictly rely on the NOC. While the notice of commencement may be the best place to start your search for the proper legal description, you should not assume that you can strictly rely on that description when recording your lien in every circumstance.  For example, what if the notice of commencement contained an inaccurate legal description? What if you provide improvements to property in addition to or beyond what is legally described? If you find yourself in these or similar situations, you should consult a construction lawyer to explore your rights and options.  Any time the scope of your project expands to another property you should ensure that you have the correct legal description in case you need to record a lien later on.

2. Make sure the lien is in “recordable form”.  Ever wonder what this phrase means? It simply refers to technical compliance with a list of rules. These rules are identified in Michigan statute MCL 565.201, are typically listed on the website for each county register of deeds, and require the following:

  • Signatures must be original and names must be typed, stamped or printed beneath all written signatures.
  • No discrepancy can exist between names printed in the notary acknowledgment and as printed beneath signatures.
  • The name and address of the person who drafted the document must appear on document.
  • The document must be notarized.
  • The document must be legible.
  • The document must have a margin of unprinted space at least 2 ½ inches at the top of the first page and at least ½ inch on all remaining sides of each page.
  • The document must have a title on the first line on the first page, which is typically “Claim of Lien”.
  • The document must be printed with black ink in at least 10-point font.
  • The paper on which the document is printed must be white and not less than 20-pound weight.
  • The size of the document and any attachments must be at least 8 ½ inches by 11 inches; at most 8 ½ inches by 14 inches.

3. Don’t wait until the last minute. While you have 90 days to record your lien, what happens if you send it in on the 87th day, only to have it rejected and returned on the 91st day? Do you get a pass because you tried in good faith to get it right before the deadline and got tripped up by a technicality like one outlined above? Generally speaking the answer is no. The Michigan Construction Lien Act requires “strict compliance” when it comes to the deadline to record a lien.

4. Attach a copy of the proof of service of your notice of furnishing.  If you are required by the Michigan Construction Lien Act to serve a notice of furnishing (i.e., you do not have a contract directly with the owner), you will need to attach a copy of the “proof” that you served the notice of furnishing on the appropriate parties called a “proof of service”. The lien should reference the fact that you are attaching the proof of service of the notice of furnishing so that it doesn’t get lost in the shuffle.

5. Send in the correct amount of money for the recording fee.  While this may sound simple, the fee to record a lien depends on how many pages are included in your lien and where the lien is filed.  You will need to count the pages of the particular lien you are recording as it may not be the same number of pages in every lien you record.  For example, a lien could include more pages if it attached a proof of service of a notice of furnishing or if it attached a long legal description.

 In most counties in Michigan, the fee is $14.00 for the first page and $3.00 for each additional page. However, the Michigan statute allows individual counties to pass ordinances increasing the filing fees in that particular county.  For example, the filing fee in Wayne County is $15.00 for the first page and $3.00 for each additional page. Be sure to double check the fees required in the county where you will be recording your lien (which, by the way, should be the county where the project is located) .

Since your lien could be returned if you do not submit the correct fee amount, it is important to properly calculate the fee. This is particularly true when you are near the end of your 90 days to record the lien.

 

Samples of all of the lien forms you will need are on our website, hilgerhammond.com, and do not hesitate to give us a call if you need any help along the way.

Title Company Not Liable For Construction Liens Recorded Against Property

Posted by: Hilger Hammond On: 12th April 2013 | no responses.

documents and penBy Aileen Leipprandt

 

In a recent Court of Appeals case, Hosey v Fifth Third, et al (February 2013), the Court found a title company not liable for liens recorded against an owner’s property, even though the title company failed to obtain sworn statements and lien waivers as it had agreed to do. In this case, Mr. & Mrs. Hosey entered into a typical construction financing arrangement whereby they secured a construction loan from Fifth Third Bank to build a home. Fifth Third, in turn, secured title insurance from a title company who agreed to obtain sworn statements and lien waivers before making the construction loan disbursements. The Hoseys signed a document which indemnified the title company from all losses resulting from construction liens.

Unfortunately for the Hoseys, their contractor failed to pay its subs and suppliers, even after receiving money from the Hoseys’ construction loan. The subs and suppliers then recorded liens against the Hoseys’ property. The Hoseys fired their contractor and sued the title company claiming that the Hoseys were beneficiaries of the agreement between the bank and the title company and that the title company breached that agreement when the title company failed to obtain waivers and sworn statements. The trial court disagreed with the Hoseys and dismissed the title company finding that the title company’s agreement with the bank was an agency agreement and created no rights in favor of the Hoseys. The trial court also rejected the Hoseys’ argument that the title company owed the Hoseys a separate duty to protect them from liens. The trial court ruled that the title company’s duty was to the Bank, not the Hoseys. And, even if the Hoseys could state a claim against the title company for some common law duty separate from the title company’s agreement with the bank, that claim was barred by the Hoseys’ agreement releasing the title company from liability. The Court of Appeals affirmed the trial court’s ruling.

 

Court Declares Contractor Has Right to Pursue Construction Lien Claim

Posted by: Hilger Hammond On: 5th March 2013 | no responses.

gavel

By Aileen Leipprandt

In the recent case of Karaus v Bank of New York Melon, (December, 2012), the contractor entered into an oral agreement with defendant owners to improve residential property. Unpaid for its work, the contractor filed a lawsuit asserting foreclosure of a construction lien of $325,000, breach of contract and unjust enrichment. As to the unjust enrichment claim, the contractor claimed that the owners and the owners’ lender were unjustly enriched because they received the improvements to the property without paying for the work.

The owners’ bank filed a motion to dismiss the lien claim arguing that because the contractor did not have a written contract, he was not entitled to a lien. Citing the plain language of the Michigan Construction Lien Act (CLA), the bank correctly pointed out that for residential construction, a contractor is not entitled to a lien unless the work is done pursuant to a written contract conforming to the requirements of the Act. The contractor argued that the property should be treated as commercial property for purposes of the CLA because the owner’s limited liability company bought the property for investment purposes, fixed it up, and rented it to third parties. That is, the owners of the property never intended to live in the home. The trial court rejected the contractor’s argument and dismissed the lien. The Court of Appeals, however, reversed the trial court and ruled that the contractor presented enough evidence to raise a material question of fact about whether the owners intended to live in the home. Therefore, the trial court should not have dismissed the claim and the contractor should be given the opportunity to prove his claim at trial.

The Contractor, however, did not fare so well on its unjust enrichment claim against the owners’ bank. The bank moved to dismiss the claim arguing that it never unjustly received a benefit. The trial court agreed and dismissed the claim. The appellate court affirmed the trial court’s ruling noting that there was no evidence that the bank was aware of the work being performed, requested any of the work be performed, or misled the contractor to believe that the bank would pay for the contractor’s work.

Lesson learned: ALWAYS have a written contract when providing improvements to real estate and make sure that the written contract conforms to the requirements of the Michigan Construction Lien Act.

Construction Lien Forms Available at hilgerhammond.com

Posted by: Hilger Hammond On: 16th October 2012 | no responses.

Construction lien forms are used to preserve and protect payment claims for labor, materials and services provided on a construction project.

As a legal resource in our industry, and to help contractors, subcontractors and suppliers protect their lien rights, we provide construction lien forms for free download.  Please let us know if you have questions.

 

To download construction lien forms, go to the Resource section of our website.

Michigan Construction Lien Law Update: Lumber Supplier’s Lien Found Invalid

Posted by: Hilger Hammond On: 9th October 2012 | no responses.

By Ben Hammond

In July 2012 case of Ben’s Supercenter, Inc. v All About Contracting & Excavating, LLC, et. al. Earl and Roberta Crank hired a contractor to build them a barn on their property.  The Cranks paid in full for the barn, but before it was complete, the contractor abandoned the job and failed to pay the lumber supplier.  The lumber supplier recorded a lien on the property and sued to foreclose on its lien. The supplier also sued the owner for unjust enrichment on the theory that the owner received the benefits of the lumber unjustly.

The Michigan Construction Lien Act states that a lien does not attach to a “residential structure” to the extent payments have been made for those improvements by the owner. This meant that if the barn was a “residential structure” as defined by the act, the lien would not be valid since the owner had already paid once for the lumber.  Otherwise, the owner would be forced to pay twice for the same material.

Somewhat surprisingly the Court held that the barn was in fact a “residence” under the Act because it was an improvement to a residential structure.  Since the owner paid once for the lumber, the Court was not inclined to force them to pay twice in this case.

In addition, the Court found that there was no unjust enrichment because the owners did nothing to contribute to the supplier’s loss or lead the supplier to believe that its interests would be protected by the owners.

Suppliers need to continue to take caution when supplying materials to construction projects and protect themselves with risk minimizing strategies such as joint check agreements and personal guarantees in addition to construction liens and other measures.

Unjust Enrichment Claim in Construction Lien Foreclosure Lawsuit Fails

Posted by: Hilger Hammond On: 2nd October 2012 | no responses.

By Aileen Leipprandt

In the recent case of Arlington Transit Mix v Countrywide Home Loans, (June 2012), Countrywide Home Loans provided financing for the construction of a home, secured by a future advance mortgage.  The homeowner defaulted on the loan and Countrywide foreclosed its mortgage on the property.  Several subcontractors and suppliers who supplied improvements to the home foreclosed on their construction liens.  One of these suppliers, West Friendship, also sued Countrywide on a theory of unjust enrichment, claiming that when Countrywide took title to the property, Countrywide received a benefit from the material and services West provided and for which West never received payment.

The trial court dismissed West’s unjust enrichment claim and the court of appeals affirmed that ruling.  The appellate court noted there was no evidence that Countrywide was part of the decision making process as to contractors on the project or that Countrywide encouraged the general contractor not to pay the subs and suppliers.  There was no proof that Countrywide actively participated in the decision to use West’s materials and Countrywide had no control of or responsibility for completing the project.  There was no evidence that Countrywide requested a benefit from the general contractor or West, or that Countrywide misled the contractors to receive such a benefit.  Furthermore, there was no claim that Countrywide gave assurance that it would pay West for the materials.

Though one cannot tell from the legal opinion, Countrywide’s mortgage interest probably had priority over the supplier’s lien.  Faced with a “second” position on its lien, the supplier tired to tag Countrywide on the equitable theory of unjust enrichment, hoping it could convince the trial court that it was unfair for the lender to get the value of improvements without paying for them.  The lesson learned from this case – absent strong evidence that the lender encouraged or requested the improvements and provided assurances of payment, subcontractors and suppliers may have little recourse against lenders.