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.

 

The Legislature Jump-Starts Housing Development

Posted by: Hilger Hammond On: 16th January 2013 | no responses.

By Stephen A. Hilger

In the last few days of December 2012, the 96th Legislature of the State of Michigan, as approved by the Governor, passed House Bill 4134 which deals with taxes and assessments on real property.  In short, the legislature created a three-year tax exemption on development property.  Development property, as defined by House Bill 4134, includes real property on which a residential dwelling, condominium unit, or other residential structure is located, which residential dwelling, condominium unit, or other residential structure meets all of the following conditions:  (1) It is not occupied and never has been occupied; (2) It is available for sale; (3) It is not leased; and (4) It is not used for any business or commercial purpose. In short, this means residential development built by real estate developers who want to market and sell residential real property.  For all the units in their inventory, there is now a moratorium on the assessment of certain taxes for a three-year period.  The exemption ends as soon as the property is no longer “development property,” in other words, if it sells, leases, or ceases complying with any one of the four criteria.

To claim the exemption, the real estate developer needs to prepare and file with the local taxing authority an affidavit claiming the exemption.  The exemption can be granted, denied, or granted and later denied, and there is also an appeal process.  In short, this House Bill 4134 should encourage real estate developers to invest in new projects as a three-year moratorium will give them a fair period of time within which to sell the units.  If you would like a copy of House Bill 4134, please let us know

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.

 

Liening Leased or Land Contract Property

Posted by: Hilger Hammond On: 13th April 2012 | no responses.

By Aileen Leipprandt

Contractors learned a painful lesson about the limits of construction liens for improvements made to property under land contract in the recent Michigan Court of Appeals case, Asphalt Specialists, Inc v Steven Anthony Development Co (2011).

In that case, GTR Glacier Golf Holdings (Glacier) contracted with Wells Venture Corporation (WVC) to buy a golf course.  Glacier then hired contractors to improve the golf course infrastructure, including installing water, sanitary and storm sewer, and asphalt golf cart paths.  Glacier later defaulted on its payments to buy the golf course and eventually forfeited all of its interest in the property to the seller, WVC.  Unpaid for their work, the contractors liened the golf course and later sued to foreclose those liens.  The Court of Appeals ruled that the liens could not attach to the “dirt,” because Glacier did not actually own the property.  Instead, the liens attached only to the actual improvements themselves.  Unfortunately, because the improvements were to the infrastructure, the improvements could not be removed and sold.

This case is an important reminder of the limited power of a construction lien when the lien claimant contracts with someone who is buying or leasing property, as opposed to contracting with the actual owner.  While the Lien Act gives a lien claimant the right to step into the shoes of the buyer/lessee and assume the buyer/lessee’s contract to buy or lease the property (and thereby protect the lien claimant’s investment), this remedy is rarely effective because few contractors can assume such a large financial obligation, particularly in the Asphalt Specialists case which involved the purchase of a struggling golf course.

Lesson learned – where a contractor contracts with a buyer/lessee, the contractor should carefully consider how it will secure payment, as the Lien Act’s protection is more limited and sometimes impractical.  Efforts to secure payment may include requiring the seller/lessor to sign the construction contract, requesting buyer/lessee to post additional collateral, and/or requesting as much payment up front as feasible.

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

Posted by: Hilger Hammond On: 16th December 2011 | 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.