As a busy contractor in Michigan, you have a lot to manage. You interface with property owners, coordinate subcontractors and suppliers, and oversee your own staff. Your profit margins on each job are relatively slim, and each dollar counts. Imagine that you have just discovered that a homeowner has failed to pay you the balance of your contract, about $20,000, after your company completed a full-scale renovation of her home. You are concerned about your company’s finances and your ability to pay your subcontractors and suppliers.
Michigan law gives you a critical tool to obtain full payment: construction liens. Liens are a useful for contractors, subcontractors, and suppliers, to ensure that they receive payment for the labor or materials they provide to repair or improve real property. What rights and remedies does your company have under Michigan’s lien laws?
If your company performed work and was not paid, you are probably frustrated. After all, you and the property owner made a deal, and the owner seems to have suddenly decided to ignore its terms. You probably want to fire your full arsenal to obtain payment.
But before you file a lien on the owner’s property, and certainly before you sue the owner for breach of contract, be sure you have exhausted all possible options. In addition to mailing additional copies of your final invoice and/or statements, telephone the owner. Send an email. And try writing a formal demand letter on your company’s letterhead.
Alternatively, hire a lawyer to write a demand letter on law firm letterhead, which will sometimes prompt a response more quickly.
These initial steps towards negotiation are helpful to show the owner that you are serious about guarding your rights; you do not intend to let the nonpayment “slide” (which is what he or she may be hoping). Strongly worded letters are often enough to save you the time, cost, and aggravation of a lien filing or lawsuit. Remember, lawsuits are time-consuming and expensive. To the extent that you can avoid them, your business will be better off.
Despite your best efforts, calls, emails, and letters are not always enough to force an owner to pay for your company’s work. So what can you do? Michigan law allows you to sue a homeowner who has not paid you based on the simple theory of breach of contract, or other related causes of action (such as quantum meruit). But the state also allows you to file a mechanic’s lien (also called a “construction lien”).
Why file a lien? The lien becomes a cloud on the owner’s home title, meaning that the title is subject to your company’s interest in it. This will make it difficult for the homeowner to sell the property or refinance it through a bank or other institutional lender. In other words, the lien can incentivize the homeowner to settle with you in order to get you to clear the title.
A mechanic’s lien is a short document, generally just a few pages. You can easily find model firms on various law firm and bar association websites throughout Michigan. A model form is actually included in the Construction Lien Law itself, meaning that the legislature has laid out all of the elements you need to fill in.
The form asks you to indicate your company’s name, the homeowner’s name, the location of the property, and the amount of money still due, among other pieces of information. You must also describe the labor or material you provided (in other words, how did you improve the property?). You will see that your signature needs to be notarized.
Liens are governed by M.S.A. § 570.1110 et seq. Like with most states’ lien statutes, Michigan’s Construction Lien Law is complex. It is not drafted in a “user-friendly” manner. It contains many rules and exceptions, depending on the type of property involved that the work performed. But there are some general important concepts to remember as you consider filing a lien:
As you can see from these short bullet points, the timing of lien filing is critical. Michigan’s legislature is clearly trying to incentivize potential lienors to make (or settle) their claims quickly, and not allow liens to be filed years after a construction project is completed. While this gives homeowners some comfort in knowing that lien periods have expired, it means that you must act quickly to ensure that you do not lose any lien rights.
You are now aware of an important tool in your arsenal to recover from an owner’s nonpayment. But before you run off and file a lien, consider the message that it sends. Taking this action is likely to be perceived as an aggressive action by homeowners. It might put the homeowner on the defensive, and encourage the homeowner to get lawyers involved or to retaliate by publicly claiming that you did shoddy work. Perhaps this is the direction that you need to take, unfortunately, if the homeowner is refusing to pay.
Second, remember that liens and the laws surrounding them in Michigan can be highly technical. The law has specific provisions for public projects, private projects, condominium projects, and down-tier suppliers, to name just a few. If you are owed a substantial sum of money, it might be worth your investment in a consultation meeting with an experienced construction attorney who can advise you of your rights.