HOUSE BILL No. 5741 February 21, 2002, Introduced by Reps. Pappageorge, Gosselin, DeRossett, Kowall, Kuipers, Koetje, Vander Veen, Godchaux and Scranton and referred to the Committee on Regulatory Reform. A bill to amend 1980 PA 497, entitled "Construction lien act," by amending the title and sections 104, 107, 114, 201, 202, and 203 (MCL 570.1104, 570.1107, 570.1114, 570.1201, 570.1202, and 570.1203), sections 104, 107, 114, and 203 as amended by 1982 PA 17, section 201 as amended by 1984 PA 190, and section 202 as amended by 1981 PA 191, and by adding section 114a. THE PEOPLE OF THE STATE OF MICHIGAN ENACT: 1 TITLE 2 An act to establish, protect, and enforce by lien the rights 3 of persons performing labor or providing material or equipment 4 for the improvement of real property; to provide for certain 5 defenses with respect thereto; to establish a homeowner 6 construction lien recovery fund within the department of 7licensing and regulationCONSUMER AND INDUSTRY SERVICES; to 03038'01 * MRM 2 1 provide for the powers and duties of certain state officers AND 2 AGENCIES; to provide for the assessments of certain occupations; 3 to PROVIDE FOR REMEDIES AND prescribe penalties; and to repeal 4certainacts and parts of acts. 5 Sec. 104. (1) "Court" means the circuit court in which an 6 action to enforce a construction lien through foreclosure is 7 pending. 8 (2) "Department" means the department oflicensing and9regulationCONSUMER AND INDUSTRY SERVICES. 10 (3) "Designee" means the person named by an owner or lessee 11 to receive, on behalf of the owner or lessee, all notices or 12 other instruments whose furnishing is required by this act. The 13 owner or lessee may name himself or herself as designee. The 14 owner or lessee may not name the contractor as designee. 15 However, a contractor who is providing only architectural or 16 engineering services may be named as designee. 17 (4) "Fringe benefits and withholdings" means compensation 18 due an employee pursuant to a written contract or written policy 19 for holiday, time off for sickness or injury, time off for per- 20 sonal reasons or vacation, bonuses, authorized expenses incurred 21 during the course of employment, and any other contributions made 22 to or on behalf of an employee. 23 (5) "Fund" means the homeowner construction lien recovery 24 fund created under part 2. 25 (6) "General contractor" means a contractor who contracts 26 with an owner or lessee to provide, directly or indirectly 27 through contracts with subcontractors, suppliers, or laborers, 03038'01 * 3 1 substantially all of the improvements to the property described 2 in the notice of commencement. 3 (7) "Improvement" means the result of labor or material pro- 4 vided by a contractor, subcontractor, supplier, or laborer, 5 including, but not limited to, surveying, engineering and archi- 6 tectural planning, construction management, clearing, demolish- 7 ing, excavating, filling, building, erecting, constructing, 8 altering, repairing, ornamenting, landscaping, paving, leasing 9 equipment, or installing or affixing a fixture or material, pur- 10 suant to a contract. 11 (8) "Laborer" means an individual who, pursuant to a con- 12 tract with a contractor or subcontractor, provides an improvement 13 to real property through the individual's personal labor. 14 Sec. 107. (1) Each contractor, subcontractor, supplier, or 15 laborer who provides an improvement to real property shall have a 16 construction lien upon the interest of the owner or lessee who 17 contracted for the improvement to the real property, as described 18 in the notice of commencement provided for by section 108 or 19 108a, the interest of an owner who has subordinated his or her 20 interest to the mortgage for the improvement of the real proper- 21 ty, and the interest of an owner who has required the 22 improvement. A construction lien acquired pursuant to this act 23 shall not exceed the amount of the lien claimant's contract less 24 payments made on the contract. 25 (2) A construction lien under this act shall attach to the 26 entire interest of the owner or lessee who contracted for the 03038'01 * 4 1 improvement, including any subsequently acquired legal or 2 equitable interest. 3 (3) Each contractor, subcontractor, supplier, or laborer who 4 provides an improvement to real property to which the person con- 5 tracting for the improvement had no legal title shall have a con- 6 struction lien upon the improvement for which the contractor, 7 subcontractor, supplier, or laborer provided labor, material, or 8 equipment. The forfeiture, surrender, or termination of any 9 title or interest held by any owner or lessee who contracted for 10 an improvement to the property or by any owner who subordinated 11 his or her interest to the mortgage for the improvement, or by 12 any owner who has required the improvement shall not defeat the 13 lien of the contractor, subcontractor, supplier, or laborer upon 14 the improvement. 15 (4) If the rights of a person contracting for an improvement 16 as a land contract vendee or a lessee are forfeited, surrendered, 17 or otherwise terminated, any lien claimant who has provided a 18 notice of furnishing or is excused from providing a notice of 19 furnishing pursuant to section 108, 108a, or 109 and who performs 20 the covenants contained in the land contract or lease within 30 21 days after receiving actual notice of the forfeiture, surrender, 22 or termination shall be subrogated to the rights of the contract- 23 ing vendee or lessee as those rights existed immediately before 24 the forfeiture, surrender, or termination. 25 (5) For purposes of this act, if the real property is owned 26 or leased by more than 1 person, an improvement to real property 27 pursuant to a contract which was entered into by an owner or 03038'01 * 5 1 lessee shall be presumed to have been consented to by any other 2 co-owner or co-lessee, but the presumption shall in all cases be 3 rebuttable. If enforcement of a construction lien through fore- 4 closure is sought and the court finds that the improvement has 5 been consented to by a co-owner or co-lessee who did not contract 6 for the improvement, the court shall order the entire interest of 7 that co-owner or co-lessee, including any subsequently acquired 8 legal or equitable interest, to be subject to the construction 9 lien. A deficiency judgment shall not be entered against a non- 10 contracting owner, co-owner, lessee, or co-lessee. 11 (6) If the real property of an owner or lessee is subject to 12 construction liens, the sum of the construction liens shall not 13 exceed the amount which the owner or lessee agreed to pay the 14 person with whom he or she contracted for the improvement as mod- 15 ified by any and all additions, deletions, and any other amend- 16 ments, less payments made by or on behalf of the owner or lessee, 17 pursuant to either a contractor's sworn statement or a waiver of 18 lien, in accordance with this act. 19 (7) THE CONSTRUCTION LIEN OF A SUPPLIER OR SUBCONTRACTOR FOR 20 AN IMPROVEMENT TO A RESIDENTIAL STRUCTURE RECORDED ON OR AFTER 21 THE EFFECTIVE DATE OF THE AMENDATORY ACT THAT ADDED THIS SUBSEC- 22 TION SHALL NOT INCLUDE ITEMS OF CONTRACT INTEREST CHARGED OR 23 ASSESSED PURSUANT TO THE CONTRACT BETWEEN THE SUPPLIER OR SUBCON- 24 TRACTOR AND THE GENERAL CONTRACTOR. FOR PURPOSES OF THIS SUBSEC- 25 TION, "ITEMS OF CONTRACT INTEREST" INCLUDES, BUT IS NOT LIMITED 26 TO, TIME-PRICE DIFFERENTIALS, FINANCE CHARGES, OR ANY OTHER TERM 03038'01 * 6 1 UNDER WHICH INTEREST IS CHARGED OR ASSESSED UNDER THE CONTRACT 2 BETWEEN THE SUPPLIER OR SUBCONTRACTOR AND THE GENERAL CONTRACTOR. 3 Sec. 114. A contractor shall not have a right to a con- 4 struction lien upon the interest of any owner or lessee in a res- 5 idential structure unless the contractor has provided an improve- 6 ment to the residential structure pursuant to a written contract 7 between the owner or lessee and the contractor.and anyANY 8 amendments or additions to the contract also shall be in 9 writing. The contract required by this section shall contain a 10 statement, in type no smaller than that of the body of the con- 11 tract, setting forth all of the following: 12 (a) That a residential builder or a residential maintenance 13 and alteration contractor is required to be licensed under arti- 14 cle 24 ofAct 299 of the Public Acts of 1980, as amended, being15sections 339.2401 to 339.2412 of the Michigan Compiled LawsTHE 16 OCCUPATIONAL CODE, 1980 PA 299, MCL 339.2401 TO 339.2412. That 17 an electrician is required to be licensed underAct No. 217 of18the Public Acts of 1956, as amended, being sections 338.881 to19338.892 of the Michigan Compiled LawsTHE ELECTRICAL ADMINISTRA- 20 TIVE ACT, 1956 PA 217, MCL 338.881 TO 338.892. That a plumber is 21 required to be licensed underAct No. 266 of the Public Acts of221929, as amended, being sections 338.901 to 338.917 of the23Michigan Compiled Laws1929 PA 266, MCL 338.901 TO 338.917. 24 THAT A MECHANICAL CONTRACTOR IS REQUIRED TO BE LICENSED UNDER THE 25 FORBES MECHANICAL CONTRACTORS ACT, 1984 PA 192, MCL 338.971 TO 26 338.988. 03038'01 * 7 1 (b) If the contractor is required to be licensed to provide 2 the contracted improvement, that the contractor issoPROPERLY 3 licensed. 4 (c)IfTHAT IF a license is required FOR THE CONTRACTED 5 IMPROVEMENTS, the contractor's license number IS PROVIDED. 6 SEC. 114A. (1) IF A CONSTRUCTION LIEN HAS BEEN PLACED ON 7 RESIDENTIAL PROPERTY AND THE PARTY WHO PLACED THE LIEN WAS NOT 8 PROPERLY LICENSED AS REQUIRED UNDER SECTION 114, THE OWNER OR 9 LESSEE OF THE RESIDENTIAL PROPERTY OR ANY PARTY THAT IS AFFECTED 10 BY THE LIEN MAY BRING AN ACTION IN A COURT OF COMPETENT JURISDIC- 11 TION UNDER THIS SECTION TO HAVE THE LIEN REMOVED. 12 (2) IF THE COURT FINDS THAT THE CONSTRUCTION LIEN WAS 13 INVALID BECAUSE THE RESIDENTIAL CONTRACTOR WAS NOT PROPERLY 14 LICENSED AS REQUIRED UNDER SECTION 114, THE COURT SHALL ORDER THE 15 LIEN REMOVED FROM THE PROPERTY AND AWARD THE PARTY THAT BRINGS 16 THE ACTION UNDER THIS SECTION COSTS AND ACTUAL ATTORNEY FEES. 17 (3) A PERSON, A QUALIFYING OFFICER FOR A CORPORATION, A COR- 18 PORATION, OR A MEMBER OF THE RESIDENTIAL BUILDER OR RESIDENTIAL 19 MAINTENANCE AND ALTERATION CONTRACTOR THAT FILED THE CONSTRUCTION 20 LIEN SHALL NOT BRING OR MAINTAIN A CLAIM, ACTION, OR COUNTERCLAIM 21 UNDER THIS SECTION FOR THE COLLECTION OF COMPENSATION FOR THE 22 PERFORMANCE OF AN ACT OR CONTRACT FOR WHICH A LICENSE IS REQUIRED 23 UNDER SECTION 114 WITHOUT ALLEGING AND PROVING THAT THE PERSON, 24 CORPORATION, OR CONTRACTOR WAS LICENSED AS REQUIRED UNDER SECTION 25 114 DURING THE PERFORMANCE OF THE ACT OR CONTRACT. 26 Sec. 201. (1) A homeowner construction lien recovery fund 27 is created within the department.of licensing and regulation.03038'01 * 8 1 The fund shall be self-supporting and shall consist of 2 assessments charged in the following manner: 3 (a) Except as provided in subsection (4), when applying for 4 renewal licensure for 1982 and when applying for initial licen- 5 sure, each of the following persons shall be assessed in addition 6 to the license fee, a fee of $50.00 for deposit in the fund: 7 (i) A person applying for a residential builders license or 8 a residential maintenance and alteration contractor's license 9 under article 24 of the occupational code,Act No. 299 of the10Public Acts of 1980, as amended, being sections 339.2401 to11339.2412 of the Michigan Compiled Laws1980 PA 299, MCL 339.2401 12 TO 339.2412. 13 (ii) A person applying for an electrical contractor's 14 license under the electrical administrative act,Act No. 217 of15the Public Acts of 1956, as amended, being sections 338.881 to16338.892 of the Michigan Compiled Laws1956 PA 217, MCL 338.881 17 TO 338.892. 18 (iii) A person applying for an authorized master plumber's 19 license underAct No. 266 of the Public Acts of 1929, as20amended, being sections 338.901 to 338.917 of the Michigan21Compiled Laws1929 PA 266, MCL 338.901 TO 338.917, which license 22 authorizes the securing of plumbing installation permits. 23 (iv) A person applying for a license under the FORBES 24 mechanical contractors act, 1984 PA 192, MCL 338.971 TO 338.988. 25 (b) A laborer who seeks to recover from the fund shall not 26 be required to pay a fee until he or she obtains a recovery from 27 the fund, at which time a fee of $15.00 shall be withheld by the 03038'01 * 9 1 fund from the laborer's final recovery. However, in no event 2 shall the total amount withheld by the fund from a laborer in a 3 1-year period exceed $50.00. 4 (c) Except for persons described in subdivisions (a) and 5 (b), all other lien claimants may become members of the fund by 6 paying a fee of $50.00 prior to the date of the lien claimant's 7 contract for the improvement to the residential structure. A 8 lien claimant under this subdivision shall not pay a fee of more 9 than $50.00 in a calendar year. NONLICENSEE MEMBERS OF THE FUND 10 SHALL NOTIFY THE DEPARTMENT IN WRITING OF A CHANGE OF INDIVIDUAL, 11 FIRM, OR CORPORATE NAME, DBA NAME, OR CHANGE OF ADDRESS WITHIN 30 12 DAYS OF THE CHANGE. 13 (2) If, on December 1 of any year, the balance in the fund 14 is less than $1,000,000.00, the director oflicensing and15regulationTHE DEPARTMENT may require an additional assessment 16 or payment, not to exceed $50.00, from each of the persons 17 described in subsection (1)(a) and (c), unless, within 30 legis- 18 lative days after the director requires an additional assessment, 19 the legislature, by majority vote of the members elected and 20 serving in both houses by record roll call vote, adopts a concur- 21 rent resolution to prohibit the additional assessment. As used 22 in this subsection "legislative day" means a day on which the 23 senate and house is called to order and a quorum of the senate 24 and house is present. 25 (3) A person shall not be entitled to recover from the fund 26 unless he or she has paid into the fund as required by this 27 section. IF AN ADDITIONAL ASSESSMENT OR PAYMENT IS REQUIRED 03038'01 * 10 1 UNDER SUBSECTION (2), A PERSON SHALL NOT BE ENTITLED TO RECOVER 2 FROM THE FUND UNLESS HE OR SHE HAS PAID THE ASSESSMENT OR PAYMENT 3 BY THE DATE DESIGNATED BY THE DEPARTMENT. 4 (4) Notwithstanding subsection (1)(a), a person shall not be 5 assessed more than $50.00 in an assessment period regardless of 6 the number of licenses applied for or held. 7 Sec. 202. (1) The director oflicensing and regulation8 THE DEPARTMENT shall manage the affairs of the fundpursuant to9 UNDER this act. A detailed financial statement of the condition 10 of the fund shall be published by the director OF THE DEPARTMENT 11 annually. This fund shall be subject to an audit by the auditor 12 general. The state treasurer shall deposit or invest money from 13 the fund, in the same manner and subject to all provisions of law 14 with respect to the deposit or investment of state funds by the 15 state treasurer, and interest earned shall be credited to the 16 fund. The unexpended fund balance shall carry forward to the new 17 fiscal year at the end of each fiscal year. 18 (2) The department may employsuchoffice clerical and 19 professional help and claims investigatorsas arenecessary to 20 carry out the provisions of this act. The attorney general shall 21 assign members of his or her staff and may supplement that staff 22 by contracting withthoseprivate attorneysas arenecessary 23 to adequately defend the actions against the fund. All wages, 24 professional fees, and other administrative expenditures neces- 25 sary for operation and defense of the fund including legal coun- 26 sel shall be charged to and payable from the fund. Except as 27 provided in subsection (3), wages, professional fees, and other 03038'01 * 11 1 administrative expenditures necessary for the operation of the 2 fund shall not exceed 20% of funds collected by the fund in the 3 previous fiscal year. 4 (3) If the $50.00 fee is not assessed against license appli- 5 cations and renewals during a year under section 201, the limita- 6 tion on fund expenditures provided in subsection (2) shall be 7 calculated on the basis of the closest previous year in which the 8 $50.00 fee was assessed and collected for license application and 9 renewals under section 201. 10 Sec. 203. (1) A claim of construction lien shall not attach 11 to a residential structure, to the extent payments have been 12 made, if the owner or lessee files an affidavit with the court 13 indicating that the owner or lessee has done all of the 14 following: 15 (a) Paid the contractor for the improvement to the residen- 16 tial structure and the amount of the payment. 17 (b) Not colluded with any person to obtain a payment from 18 the fund. 19 (c) Cooperated and will continue to cooperate with the 20 department in the defense of the fund. 21 (2) In the absence of a written contract pursuant to section 22 114, the filing of an affidavit under this section shall create a 23 rebuttable presumption that the owner or lessee has paid the con- 24 tractor for the improvement. The presumption may be overcome 25 only by a showing of clear and convincing evidence to the 26 contrary. 03038'01 * 12 1 (3) Subject to section 204, a person who has recorded a 2 claim of lien and who is precluded from recovering a construction 3 lien under subsection (1) may recover from the fund the amount 4 for which the lien is established. A person who seeks recovery 5 from the fund shall establish all of the following: 6 (a) That he or she would be entitled to a construction lien 7 on a residential structure except for the defense provided in 8 subsection (1). 9 (b) That payment was made by the owner or lessee to the con- 10 tractor or subcontractor. 11 (c) That the contractor or subcontractor has retained or 12 used the proceeds or any part of the proceeds paid to the con- 13 tractor or subcontractor without having paid the person claiming 14 the construction lien. 15 (d) That he or she has complied with section 201. 16 (e) That he or she has not colluded with another person to 17 obtain a payment from the fund. 18 (f) That he or she has complied with any applicable licens- 19 ing acts. 20 (g) That he or she has made a reasonable effort to obtain 21 payment from the contractor or subcontractor. 22 (h) That the contractor or the subcontractor, with whom the 23 person claiming the construction lien contracted,with,is 24 licensed if required by law to be licensed AND THAT THE CONTRAC- 25 TOR HAD A WRITTEN CONTRACT WITH THE HOMEOWNER FOR THE IMPROVEMENT 26 THAT GAVE RISE TO THE LIEN. 03038'01 * 13 1 (4) A subcontractor, supplier, or laborer who seeks 2 enforcement of a construction lien on a residential structure 3 through foreclosure shall join the fund as a defendant in the 4 foreclosure action, and a summons and complaint shall be served 5 on thedirectorFUND by certified or registered mail, or by 6 leaving a copy thereof at the office of thedirectorFUND. The 7 failure to serve a summons and complaint upon the fund shall con- 8 stitute a bar to recovery from the fund. After service upon the 9 defendant of a summons and complaint in an action in which 10 enforcement of a construction lien through foreclosure is sought, 11 the department may intervene in the action as a party defendant 12 with respect to other construction liens. 13 (5) The attorney general shall make every reasonable effort 14 to defend the fund and may assert any defense to a claim of lien 15 that would have been available to the owner or lessee. 16 (6) Payment from the fund shall be made only if the court 17 finds that a subcontractor, supplier, or laborer is entitled to 18 payment from the fund. Subject to section 204, after the judg- 19 ment has become final the department shall pay the amount of the 20 judgment out of the fund. 03038'01 * Final page. MRM