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.

 

Excavator’s Lien Valid Despite Procedural Deficiencies

Posted by: Hilger Hammond On: 26th November 2013 | no responses.

excavatorBy Benjamin H. Hammond

How many times have you held off on recording a lien because of perceived problems with the technical requirements of the Michigan Construction Lien Act? After this case, you may want to think again.

An excavator’s construction lien was recently upheld by the Court of Appeals even though the excavator failed to serve a notice of furnishing on the owner’s “designee” identified in the notice of commencement, it submitted invoices instead of sworn statements, and it purportedly provided signed full unconditional lien waivers.

In Rogers Excavating, Inc. v Mana Properties, L.L.C., et. al., decided October 24, 2013, Rogers Excavating, Inc. (“Rogers”) contracted directly with the owner, Mana Properties, L.L.C. (“Mana”) to perform initial site work on the project. Mana also hired a construction manager – advisor to oversee the project.

Rogers was not paid approximately $95,000 and recorded a construction lien. In the subsequent lawsuit, Rogers sought to recover from Mana for a breach of contract and to foreclose on its construction lien. Mana and the current holder of its mortgage defended the lawsuit on various grounds. The Court noted that the Michigan Construction Lien Act (“CLA”) is meant to be a remedial statute, should be liberally construed, and that substantial compliance is sufficient to establish the validity of a construction lien in many circumstances. Specifically, the Court held as follows:

First, the lien was valid despite Rogers technically failing to properly serve its notice of furnishing. The notice of commencement clearly indicated that the lender was the “designee” for the owner. While Rogers did not serve the designee, it did serve the owner directly with the notice of furnishing. The Court noted that there was no requirement to serve a notice of furnishing in the first instance because Rogers’ contract was directly with the owner. Nevertheless, the Court concluded that serving the notice of furnishing on the owner substantially complied with the CLA’s notice of furnishing requirement.

Second, Rogers’ lien was valid even though Rogers did not provide any sworn statements throughout the project. Instead, Rogers submitted invoices for the work it performed. In essence, the Court held that these invoices substantially complied with the CLA’s sworn statement requirement even though they were not sworn before a notary. While the invoices were not in the exact form specified in the CLA for sworn statements, they did provide the owner with notice of the amount owing for the material and labor supplied. Moreover, Rogers provided a sworn statement that complied with the CLA shortly after it filed its lawsuit.

Third, Rogers had a valid lien despite the production of full unconditional lien waivers purportedly signed by Rogers. Mana argued that it was entitled to rely on these waivers, particularly since it paid some of Rogers’ invoices to the construction manager who in turn failed to pay those sums to Rogers. Mana presumably argued that it should not be responsible to pay twice for some of Rogers’ work. Rogers claimed the signatures on the waivers were forgeries. We further note that prior case law has held that a forged waiver of lien can be effective if the homeowner makes payment in reliance on it. See DLF Trucking, Inc v Bach, 268 Mich App 306, 707 NW2d 606 (2005). Nevertheless and based on the record in this case, the Court concluded that the waivers could not be attributable to Rogers.

Therefore, the Court held that Rogers’ construction lien was valid. It also found that Rogers was entitled to the full $95,000 from Mana, despite the fact that Mana had paid once for some of this work pursuant to a forged sworn statement.

This case should serve as a warning to owners who contract directly with contractors on projects where they have also employed a construction manager – advisor. The CLA may apply and force an owner to pay twice for some work despite the fact that the construction lien may have technical deficiencies and the owner received full unconditional waivers.

The lesson to contractors is to never give up hope on your lien rights despite some lien irregularities and the fact that you may have signed a full unconditional lien waiver. (In addition to the arguments raised in this case, a lien claimant could argue that since it was not paid there was no adequate consideration for the lien waiver and rescind it. The CLA allows a contractor to withdraw, or rescind, a full unconditional waiver if it was given in exchange for payment and that did not materialize. See MCL 570.1115(6).)

 

Late Sworn Statement Dooms Subcontractor’s Construction Lien Claim

Posted by: Hilger Hammond On: 17th July 2013 | one response.

construction lien

By Aileen Leipprandt

A contractor learned a hard lesson in Apache Carpet & Floor Covering, LLC v Banah Corporation (April 2013).  In that case, the contractor, Banah, provided extensive improvements to a church construction project.  The church secured construction financing through Comerica Bank.  When the church failed to pay Banah for its work, Banah filed a lien foreclosure lawsuit.  The church allowed a default to be entered against it.  Comerica Bank, however, contested Banah’s lien claiming that Banah did not timely provide a sworn statement.  The trial court agreed with Comerica and ordered Banah to release its lien.

On appeal, Banah argued that it substantially complied with the Michigan Construction Lien Act because it provided a sworn statement during the course of the litigation.  The appellate court disagreed with Banah.  Citing the clear language of the Lien Act, the court of appeals noted that the Act specifies that a contractor cannot file suit to enforce its construction lien until it has provided a sworn statement.  Banah did not provide a sworn statement until the parties were engaged in litigation.  The court reasoned that delaying the statement until after litigation begins does not provide an owner with relevant information that could help avoid the litigation or move it along more quickly.

Lesson learned – contractors must take care to strictly follow all of the requirements of the Michigan Construction Lien Act, otherwise, their lien rights may be lost. 

Sworn Statements and Substantial Compliance with the Michigan Construction Lien Act

Posted by: Hilger Hammond On: 1st May 2013 | no responses.

carpetBy: Mark A. Rysberg

The Michigan Court of Appeals recently addressed the issue of whether a subcontractor substantially complied with the Michigan Construction Lien Act by providing an owner with a sworn statement after litigation commenced. In general, the Michigan Construction Lien Act requires a contractor to provide an owner with a sworn statement when the contractor requests payment. However, the act does not identify whether a failure to do so can be remedied after litigation commences.

In Apache Carpet & Floor Covering, a contractor filed suit to enforce its construction lien. The contractor, however, failed to provide the owner with a sworn statement before doing so. The owner’s lender argued that the contractor’s lien was invalid and that the lien foreclosure action must be dismissed. In response, the contractor argued that it substantially complied with the Michigan Construction Lien Act by providing the owner with a sworn statement after the lawsuit commenced. The trial court disagreed with the contractor and dismissed the lien claim. The Michigan Court of Appeals agreed with that result and noted that the contractor failed to substantially comply with the Michigan Construction Lien Act.

The substantial compliance application of the Michigan Construction Lien Act is a potential pitfall for unwary contractors and lawyers. The requirements of the act can at times be confusing and there are areas of the law that are not well developed. The prudent approach to preserving and perfecting lien claims is to engage effective counsel as early as possible when faced with non-payment. Doing so may avoid the costly pursuit of foreclosing a construction lien when the possibility of recovery is marginal.

 

New Broker Lien Act Provides Tool for Brokers to Get Paid…But Is It Being Used?

Posted by: Hilger Hammond On: 4th December 2012 | no responses.

By Benjamin H. Hammond

In October of 2010, the Commercial Real Estate Broker’s Lien Act was enacted. This Act provides a mechanism for commercial real estate brokers to secure commissions earned by placing a lien on the real estate being sold. In order for the lien to attach, there must be:

1. A written commission agreement;

2. The broker must be entitled to a commission under a written commission agreement; and

3. The lien must be recorded before the conveyance of the real estate.

The broker must serve a copy of the lien on the owner of the property and the person who signed the written commission agreement within ten (10) days after the lien was recorded. If the lien is not served timely, it will be void and unenforceable.

Interestingly, a broker lien can be recorded if the broker is owed a commission as a result of a lease as long as the lien is recorded within sixty (60) days after the lease is signed. Also, a broker may record a lien if the broker is owed a commission in the future as a result of an option to purchase commercial real estate.

The statute provides that in the event a lien is recorded, the closing of the transaction involving the real estate shall proceed except that an escrow account shall be established from the proceeds in an amount to satisfy the lien. The statute provides that neither the buyer nor the seller are permitted to refuse to close the transaction because of the requirement to establish an escrow account for this purpose. The money remains in the escrow account until the rights have been determined with regard to the parties and the commission owed.

Lastly, similar to the Construction Lien Act, the broker has one (1) year to file a lawsuit to enforce its lien. Failure to commence such a lawsuit within one year after the lien is recorded will result in the extinguishment of the lien.

However, should a court ultimately find that the broker lien is valid, that court may enter a judgment ordering the sale of any interest in the commercial real estate or part of the commercial real estate to which the lien attached by way of a foreclosure sale. The court may, in its discretion, award costs to a prevailing broker, including attorneys’ fees, litigation costs, and pre-judgment interest. However, if the court determines that the action by the broker was frivolous, the court may, in its discretion, award these same costs to the defendants.

A final interesting section of the statute provides that the owner of commercial real estate, upon receipt of the broker’s lien, may make a written demand that the broker file a lawsuit to enforce the lien or that an answer be provided to the owner essentially substantiating the lien. If the broker does not commence an action or an answer is not filed within thirty (30) days of the demand, the lien is extinguished.

Practically speaking, relatively few, if any, broker’s liens have been recorded in West Michigan. This is likely due to the fact that many brokers insist and confirm that their commissions are included on the proposed closing statement prior to the closing. So far, the enactment of the statute has not resulted in broker liens being filed in every transaction simply to preserve the right to collect commissions. However, this Act has impacted title companies, many of which now require the buyer and seller of commercial real estate to provide a representation and warranty that they have not signed any written commission sales agreements with any other brokers.

An interesting scenario may arise where a broker lien is recorded on the day of closing, after the title company last ran its title search, but before the recording of the new deed. This may leave title companies open to exposure under this new Act.

 

Construction Lien Forms Available at HilgerHammond.com

Posted by: Hilger Hammond On: 6th September 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 the Resource section of our website.

 

 

Construction Lien Has Priority Over Mortgage Regardless of Change in General Contractor and Project Ownership

Posted by: Hilger Hammond On: 13th May 2011 | no responses.

By Aileen Leipprandt

Michigan Construction Lien ActIn a recent Court of Appeals case,  First Community Bank v Mountainaire, LLC (October 2010) involving the interpretation of several provisions of the Michigan Construction Lien Act, the appellate court affirmed the remedial nature of the Lien Act and rejected a lender’s arguments that a contractor’s construction liens were untimely.

In Mountainaire, the parties contested the priority of a construction lienvis-a-vis a mortgage.  The case arose from a failed multi-parcel mixed use development project called Pier 33.  Though the complete facts are not set forth in the legal opinion, it appears that the general contractor, Pioneer General Contractors, Inc., (Pioneer) entered into contracts for various portions of the same project.  Actual physical improvement to the property first occurred in the early spring of 2004.  The notice of commencement and mortgage were recorded in June 2004.  The developer, Mountainaire LLC, later transferred the property in August 2005, for one dollar, to a separate legal entity, Cheboygan Yacht Club at Pier 33 LLC (Yacht Club), of which the developer was the majority owner.  Thereafter, Pioneer was hired as general contractor and recorded a notice of commencement in September 2005.

The lender, First Community Bank (FC Bank) argued that a new project (with new priorities) began when the developer transferred ownership to the Yacht Club and Pioneer filed a new notice of commencement.  Therefore, Pioneer’s “well house” and “site work” liens were untimely because Pioneer recorded the liens more than 90 days after Pioneer completed those portions of the work.  Essentially, FC Bank argued that a contractor performing work on a single project, but under various contracts, had to record a lien within 90 days after the contractor completed each contract.

The trial court rejected FC Bank’s argument and granted summary disposition in favor of Pioneer.  The Court of Appeals affirmed the ruling in favor of Pioneer.  Citing a provision in the Lien Act that defines “project” as the “aggregate of improvements contracted for by the contracting owner” the appellate court ruled that a change in ownership did not necessarily signal the commencement of a new construction project, particularly in this case where FC Bank understood all along the Yacht Club was developed for the purpose of managing the development, the project was conceived and presented to FC Bank as a whole, and FC Bank continued funding the project after the transfer of ownership.  The appellate court concluded that the Yacht Club assumed the developer’s role as the “contracting” owner.  Consequently, it was entirely appropriate for Pioneer’s construction lien to relate back to the first physical improvement in early 2004 which predated FC Bank’s recording of its mortgage.

While the result in this case favored the contractor, the outcome could have been different had the facts not so strongly shown a continuum in the project development and ownership.  A contractor can never be too careful in assessing project ownership and the proper time for recording a claim of lien.

Michigan Construction Law Update

Posted by: Hilger Hammond On: 4th February 2011 | no responses.

Warranty Work Does Not Extend 90 Days to Record Construction Lien

by Benjamin H. Hammond

faucetOn January 25, 2011, the Michigan Supreme Court issued a decision concerning the construction lien act.  A plumbing subcontractor installed a kitchen sink, garbage disposal and faucet, bathtub and shower, whirlpool bathtub, hot water heater, laundry tub, etc. in a residential home. More than 90 days after the original installation of the work, the plumbing subcontractor returned to the project to perform repair/warranty work.

 

After the plumber was not paid, it recorded a construction lien more than 90 days after it had completed its original work, but within 90 days of the repair/warranty work.  As the Michigan courts have previously held, this repair/warranty work did not extend the 90-day deadline by which the plumbing subcontractor must have recorded its claim of lien in order for it to be found valid by the courts.

 

Predictably, the court held that the plumber’s lien was invalid.  This case is a great reminder that while there can be a fine line between what constitutes final punch list work on a project and what is considered warranty work, a contractor only has 90 days from the date that it last performed any significant work to record its construction lien.  Returning to the project for repair work or warranty work will not be sufficient to extend the deadline by which a contractor must record its construction lien.

 

This issue is a frequent topic of conversation and we receive many calls on this issue.  While it is a factually driven issue, and each case must be analyzed on its own facts.  The wisest course of action is to start calculating the 90 days from the last date any meaningful work was done on the project as outlined in the original scope of work for the project in order to best protect your lien rights against an untimely recorded lien.  Remember, if you miss the 90 day deadline, you will forever be barred from recording a construction lien and pursuing lien rights.