How to document type e sign mechanics lien michigan
good morning everyone we're just going to give it a couple minutes to have a few other attendees join and then we will go ahead and get started all right well thank you good morning again welcome to the construction lean rights in michigan overview webinar my name is rebecca wenglinski i am the director of marketing and business development at kerr russell before we get started there's just a few housekeeping items that you'll see on your screen we're going to have everyone muted throughout the entire webinar but you can submit questions you will see a drop down on your screen for a question area go ahead and submit those we will be looking at those throughout the entire webinar so if there is a question that is pertinent to a slide we'll be sure to get that over to our presenter you can also always raise your hand when we do open it up for some q a at the end and i'll be able to unmute you at that time and you can ask your question at that time everyone will receive the powerpoint and forms referred to in the presentation by the end of the week so if anything should come up uh just feel free to go ahead and let us know with the email address that was in the contact information here at the end but you should be getting that at the end of the week presenting today is mike carroll mike is kerr russell's lead attorney on construction law for more than 25 years he has represented subcontractors suppliers general contractors and owners on a variety of construction project legal matters including the area of liens which will be discussed today before we jump over to mike i would like to turn it over to jim chase for a few comments jim i'm trying to unmute you there you go jim now you're muted sorry about that all right thanks rebecca uh just wanted to take a second on behalf of nika to welcome everyone to this program uh as i'm sure you know this program is on construction lien rights in michigan uh we have a pretty good size group that are tuning in for this program so i hope you all enjoy it with that i'd like to turn it over to mike mike okay great thanks jim um so folks this seminar is kind of a how to uh file your construction liens um and so to give you a little outline of what we're going to be going over today we're going to talk about notices of commencement notices of furnishing the claim of lien itself and how you file those things we'll touch briefly on sworn statements and then waivers and then at the end i'll go through the sequence a summary of the sequence of events that have to occur in order to properly perfect your liens so that is an outline of the slides you'll be seeing today but before we go into the nuts and bolts um i want to back up just for a second and talk about what a lean is because i'm not sure it's very intuitive for for many of us so a lien is something that attaches to property in this case we're talking about real property um so an example would be like a tax lien um if my wife and i failed to pay our taxes the the authorities could file a lien on our house and that would be in the form of a piece of paper that would be recorded at the register of deeds and so it would cloud my wife and my the title to our house and that's a scary tool if you're the owner and a good tool if you're the person the creditor seeking to get paid so um another example of a lien is a mortgage we all have mortgages probably and you know when you go to sell your house that mortgage pops up on the title it's clouding the title if you will if you've ever heard that term and you know before you sell that creditor is going to have to be taken care of in order for him to discharge that lien so in our case it would be um a bank bank of ann arbor would need to get paid off before we'd be able to sell the house in order for their mortgage their lien to be discharged so um and with these types of liens just like the construction lien we're about to talk about they can be foreclosed upon so if my wife and i didn't pay the bank of ann arbor they could come in and foreclose on the house that would be take place in the form of a lawsuit initiated by the bank against us and at the end of the lawsuit they'd be seeking a judgment of foreclosure and then the house would be sold at a sheriff's auction up at the circuit court building and the highest bidder would get it and the bank would be paid out uh on their lien hopefully from from their perspective out of the proceeds of that foreclosure sale so these construction liens that you folks have access to are just like that they go on they attach to the real property they cloud the title they're an encumbrance like a mortgage um if the owner were to try to sell that property while your lien was still valid it would pop up and the buyer would see it and the title company would require that you be paid before the property could be sold you know unless some kind of a work around was was done with insurance but um and then also with regard to a construction lien you can foreclose on it which means you'd begin a lawsuit um to take the property really from the person [Music] um industry um this type of a lien doesn't exist for instance in the auto industry um if you were a lower tier you know tier three supplier in the in the auto world you don't get a lien like this that allows you to hop scotch the person you're in contract with uh and and try to collect against someone that's further upstream from you so it all came about actually every state in the nation uh has liens uh and all of them are old in in michigan um they date back to the 1800s and so why that is i think is because we've all heard the stereotypes of like car salesmen not being trustworthy and there's that stereotype of builders kind of taking the owner's money and absconding with it running off uh and not paying the subcontractors leaving people high and dry well there must be some truth to that stereotype because all the way back in the 1800s they created these lien rights uh in all the states and in michigan in particular um an important piece of legislation was in 1890 when they called it mechanics liens by the way back then but if you hear people talk about mechanics liens it's the same thing really as these construction liens our current statute has it more accurate it's called a construction lien now but um you may hear some people still refer to it in mechanics liens because other states still have that nomenclature and we used to here in michigan but um the legislature thought it was important enough to protect really people like you folks you're really kind of the target audience but also the owners if they follow the lean act correctly to protect those two classes of persons from the um the builder that would run off with your money uh apparently on occasion so it's what i want to emphasize though folks is it it's a second set of rights that you're lucky enough to have and it provides you a separate avenue of collection of a debt it allows you to file this lien to gum up the the title of the owner whose property you're improving and potentially therefore collect from that second bucket that second avenue of collection but your first avenue of collection still exists and that's kind of what i want to say at the front end here your contract is with a general usually you know the wall bridges the bartons the chrisman's or whomever that's who you know your account receivable is with that's who you contracted to perform the work and that's who owes you on the contract that's your first avenue um this lean thing is this second route to protect you hopefully collect on the debt if something goes wrong with the contractor but nine times out of ten you know it's even if there's a dispute or some reason why you're not getting paid initially it resolves through your relationship with the contractor maybe they thought you didn't do something right or maybe they're slow paying you because they had some other thing go wrong with the project but usually at the end of the day you work through those issues with your customer and that's who pays you but it is nice just in case to have this second set of rights that the construction lien act provides you what it really does in the practical world is give you leverage over that general in my experience and and sometimes even the threat of the lien is actually a tool there's the threat of the lien and then there's the filing in the lane itself so for instance i've had clients before on general motors projects and general motors doesn't want you to lean their property they're a big you know 500 ton gorilla and are very resistant to that and they scare essentially their generals into taking care of it immediately if it were to happen so sometimes on on projects if you just start calling a customer and say hey i'm coming up against you know the end of my time frame in which i need to file a lien um you know that threat can help um you know cut through some of the red tape or whatever the dispute might be and by the way that period it's very important to know and i think probably most of you already do know this is that period within which you need to file a lien is it within 90 days of the last date of work so that's the most crucial deadline of them all you need to file within 90 days of your last day to work or you don't have the right to file the lien at all um but back to my point your rights versus the customer never go away you always are able to pursue them so let me illustrate that point by trying to share with you what the suit would look like when and if you had to uh begin foreclosure of the lien so i'm i'm jumping ahead you've you've had problems with your customer you're not getting paid you decide to lean um you know like i said most times either the threat of the lien or the filing a lien will lead to discussions that will hopefully get you paid but in the odd time it doesn't you need to decide whether to begin suit and you only have one year to do that so um although most people who are unpaid for going on a year would wouldn't wait any longer anyways so heaven forbid you're in this situation you need to start the lawsuit that suit's going to look like this so let's say i am one of you let's pick um ferndale i'm ferndale electric and i would start the suit out i'd say county of oakland or wherever the project is i'd go ferndale electric as the plaintiff and then i'd have the versus and then the next entity i'd list would be your your contractor your customer let's say it's you know bart barton mallow because the first count in your complaint is going to be for breach of contract against that entity um they're the person that primarily owes you and then you're also going to list below barton's name the owner which could be you know show stack or often it's just some meaningless you know words like xyz123 co let's say and so then your second count of the complaint after you've laid out your breach of contract action is going to be for foreclosure of your lien against the property owned by xyz one two three co in my example um and then ultimately if again heaven forbid the case doesn't resolve the dispute because usually you go through a mediation or something and everyone finally you know realizes who's to blame and who's not and and compromise is reached and you're paid you know uh almost all cases settle but in that unique instance where the case did not settle you'd be proceeding to uh trial or or the culmination of the case where you ask the judge for a judgment of foreclosure of your lien so it's just like a mortgage um and then that judge would order the sheriff to sell the property at an auction and then hopefully if you have all your ducks in a row that the proceeds of that sale be used to pay off your lien so that's kind of the end goal of the whole lean process that doesn't really happen that often that that you know the lien goes all the way through foreclosure and and sale um one time i was um surveying my partners and between the three of us we had i think it was 80 years of construction law experience and yet between the three of us we only knew of a handful of events where um there had been a share of sale and the property had been sold pursuant to a lean foreclosure action so and that's against thousands and thousands of liens that we filed you know over that time frame so it is somewhat rare it's really kind of this threat that it provides because no owner likes to have a lien on their property it's it's leveraged to get yourself paid is really what it's all about but you do want to know how to do it properly because it decreases your leverage if you don't do it properly and in in heaven forbid that you know kind of once in a lifetime awful situation where you need it to work in order to get paid uh you wouldn't want it to be screwed up so um what i found is that generally if the general contractor is solvent then you you don't end up needing to go the whole way against the owner um so one would hope you know your typical customers like barton and walbridge and and chrisman and the like and clark would you know there's no real fear for them going out of business so that you're ultimately going to be able to deal with your counterparts from your customer and work through whatever issues are existent and and get paid um there was one example of a local contractor that i think was relatively well thought of john m olsen out of gross point during my career that did go out of business and mr olsen did actually flee to the bahamas and folks were left uh holding the bag so i mean it has happened and in those instances you would want to you know have your liens properly perfected so you could turn to the owner of the property for recourse and then the other time it comes up is when when you have a payoff paid clause which many of you with the sophisticated customers you have do get stuck with pay if paid clauses now a lot of times even then though there is room for dispute that you know perhaps the general was partially paid for your work and the reason the owner's withholding the balance is because of you know whatever the defect or the argument is that's holding up payment in general uh but the worst case scenario is you have a payoff paid with your a pay of paid clause in your contract with the general so they don't have to pay you unless and until they're paid and they truly haven't been paid yet which again is is somewhat rare and then you know your rights really end up being just against the owner um and then the worst worst case scenario is that owner then goes out of business and that's what happened on the bloomfield park project of many years ago i think alpha electric was the electrician that got the worst of that but the the contractors on that project all got some pittance uh on their liens they only got something like 14 cents on the dollar so that's the worst worst case you have a payoff paid with your general uh they have truly not been paid and then the owner goes out of business and uh you know there's a bank asking for its money back and all you lean claimants but again very rare that that happens um and uh generally between your rights against the customer and these lean rights we're gonna be talking about um you're you're in really good shape as an industry you guys are really kind of blessed to have this extra set of lien rights okay yeah still on this slide rebecca the second point on this first slide is that these lien rights are only against private property so on if you think about it they wouldn't want you the electrician or the plumber or whomever who has a lien to who went unpaid on a on a public project to be able to foreclose on that we wouldn't want you know you guys to own city hall or the plumber to own the public school you know that's the subject of a public project so long ago back in the 1800s they they disallowed the liens against any pr public projects and that's where the bond claim uh body of law comes from bonds basically replace liens on public projects and and bond rights are kind of a separate subject that i could give a whole separate seminar on um that i'm not gonna go into today but in any event um just know that your lien rights are only good against private property okay rebecca let's go to the next one all right i want to talk about definitions
m under the lean act so the the lean act is a series of statutes which frankly are kind of hard to read there are other statutes i might direct you guys just to google and you could read for yourself they're fairly plain english like the the builders trust fund act is one that's really short it's only about four or five sections and it's just perfectly clear what it means um the builders trust fund act i mentioned only in passing that is yet another different legislative angle that has been provided to you people to collect on a debt and under the case law [Music] under that statute it actually allows you to go after individuals at the customer who made the decision about paying persons other than yourself the trust fund act says that a contractor who receives funds from an owner must first use that to pay subcontractors and suppliers before anyone else and as i mentioned the case law actually allows you to reach the decision maker who holds the checkbook at the customer to potentially claim against him or her if they fail to pay the downstream vendors like they're supposed to so that's actually a third different angle that you folks have available to you um but that also would be the subject of a different seminar i've given that seminar to different groups before actually i know some of you on this call that have been there for that but i do have to do that again that have is good chance of understanding it this internet i'll tell you i can't really say too many nice things about it it's it's archaic it's difficult to read you could google it and and look if you wish um but i'll tell you it's a real uh it's a real bummer to have to try to slog through it's kind of got like middle english almost uh in it and and you have to read the whole thing to to hope to understand it at all and it's it's a real pain but anyways in the beginning of the statute they'll give you some definitions and i wanted to focus on a couple of them with you um an owner is a person who has the fee interest so um or or it could be this land contract vendee as you'll see there on the slide which doesn't come up very often so what is a fee interest um my wife and i for instance own our home as fee simple owners that's kind of the broadest uh type of description of ownership you can have now we still hold it subject to a mortgage and we have you know easements for utilities on it so if you were to pull our title you'd see that we got it from you know uh bob and sue smith in 001 and that you know mike and teresa carroll own the property and then you'd see mortgage and you'd see these easements referenced on the title and so when and if you file a lien that also would then pop up on that title of the owner um so that's known as owning a fee and and fee simple um and that's the easiest to comprehend when you're leading someone if theresa and i had used a a plumber and failed to pay him that plumber could lean our house and and that's a fairly simple scenario a little more complicated is if the person who contracted for the improvement is a lessee so let's see is kind of everyone else for instance someone with an option to buy a property an option e fits within this definition of lessee but the more typical scenario is a true lessee a tenant on a property and the reason i bring this up is um it could be the tenant that contracted for the improvement so a classic example in my experience is the shoe store at a strip mall at seven and mac had had some people help with the build-out and then they wanted to lean you know the shoe store well what's odd about that is when you file a lien it encumbers the interest of the person who contracted for the improvement so again with teresa and me it would be our whole house and and that would be very effective but with the shoe store really your lien would just encumber what that tenant what what rights that tenant had in the real property which are you know described by his lease with the landlord of the strip mall so that renders your lien a lot less valuable because if you were to foreclose on the shoe store then you'd have to take up the balance of his lease you have to pay the landlord the rent and you know you wouldn't get his inventory necessarily so now you just have a space in a mall and you're a plumber or in our case electrical subcontractor that doesn't really do you a lot of good so and and this can be quite disheartening to clients when i inform them of this uh that their rights against a tenant aren't as great as they would be if they were against the feasible owner so i kind of wanted to mention that um i would still though always lean folks it's still really valuable to lean because like a 90 odd percent of cases work out um and it's nothing but good leverage to to employ so it's a right you folks have and you should always even when it's a tenant situation employ it um i'll tell you a war story i had a project in brighton uh very recently just concluded and it was a huge facility the tenant was making pills uh for pharmaceutical companies and um so it was this kind of really sophisticated space with a lot of hvac and other things involved and my client on that was the mechanical guy and so he had a huge amount of money owed as did the general and the other trades from this tenant and we were trying to pressure them into paying and ultimately they entered into a payment plan and finally did pay our folks off but um the tenant's lawyer was was saying to the judge she had us back in chambers for a settlement conference and of course she wants the case to go away so she's kind of working the sides to to make us get off her docket and hopefully settle and he had told her that myleene was only of so much value because he's just a tenant what am i what am i going to do take over his tenancy and uh she came to me with that i said well first of all judge don't she said mike you know your your lien doesn't have much worth what are you going to take over this tenant space and become a pill manufacturer i mean that's not likely the the landlord owns the property and your lien's not valid against them so um well i said first of all judge don't say that in front of you know the tenant because i'm i'm trying to pressure him into paying us and i want him to be fearful of me taking this you know his tenant space right so and then i said furthermore judge you know there's a lot of money at issue here and and nothing's impossible so you know we could get a receiver involved and that receiver could hire the the types of people with phds that would be necessary to run this outfit so you know we could take over that lease we could take over the business and we could run it um in that instance there was the opportunity to do that take over the business so um you know nothing's impossible and then that story did end well through the pressure that we applied um the tenant did ultimately make all its payments to us so uh that ended well but uh i guess my point there is even when we're in this lessee situation the leverage is really good of the lien uh to scare people because they obviously didn't want to give up their cash cow the business to a receiver or to us for closing on even that tenancy okay next slide please and then a few more definitions um so contractor is the person in direct contract with the owner um subcontractor is that person at the next tier down supplier as well the reason i'm showing you this is that these are the definitions under the statute and sometimes someone that looks and smells like a trade subcontractor a specialty subcontractor can be a quote unquote contractor under the act and that's in a situation where you are in direct contract with the owner so sometimes um when there's a construction manager and it's it's the type of construction manager we call us an agent construction manager agent where they kind of have a contract off to the side with the owner but the owner holds all of the trade contracts directly with you folks like you um that would be a situation where under the lean act you would actually qualify as a quote unquote contractor um in my experience that's usually a little more on the public side um like university work uh it seems that the the bartons and the wall bridges managed to um just have a construction manager agency relationship with the owner and you have a direct contract so you can't really lean on those those are public but um it does affect your bond rights which are kind of similar to lien rights in terms of this this tier discussion whether in direct contract or not can affect your rights and so that's kind of the point i want to make about this the main thing i would take out of this is as to whether you're defined as a quote unquote contractor is whether or not you have to give your notice of furnishing or on the bond side whether you had to give your notice your your uh um 30 day notice under the bond and if you're in direct contract you don't have to give the notice um but in all other times in the more typical scenarios where you folks are you know one tier removed from the owner where there's a general between you and he's the person that has the direct contract with the owner then you do have to give the notice of furnishing um which kind of brings me to the discussion of the the nuts and bolts on how you file your lean so there's this what i call kind of a complicated dance that is set forth in the different things one must do in order to perfect a lean there are dance steps that have to occur both from the owner's side for him to protect his rights and from your side in order for you to protect your lien rights and um those are made up of the notice of commencement the notice of furnishing and and the claim of lien primarily so the first step uh rebecca we can move on to the notice of commencement slide the first step in the dance is the owners if he wants to protect himself under the lean act he is supposed to file a notice of commencement and it's supposed to contain the information shown on your slide now there are there are red lights and there are yellow lights as one of my senior partners once described to me um for you folks in the lean act and why i say that is the lean act is it even says it right now it's supposed to be liberally construed to protect the likes of you guys and substantial compliance with the act is it says it right in this in the statute is allowed so if you just kind of substantially comply with some of these requirements you you may still be okay which i'll touch on as we go forward the only one that you can't kind of get by with you know ah shucks i tried is the 90-day period for the filing of the claimaline that one is a real red light if you screw that up you're done there's no getting around that but many of these other things like notice of furnishing as we'll discuss or if the owner were to screw up and not file his notice of commencement those i would qualify more as yellow lights they might be a problem but you might be able to get around them um so let's look at uh let's look at a notice of commencement form okay here's how uh one might look you may have seen this before you get these from the owner um it it is supposed to tell you the legal description which is important because when and if you are going to file a lien you need to have that that's what the registry of deeds goes off of they don't go off of people's names they don't go off the street addresses if you want to file a lien you need to have that legal description it might say lot 21 of you know beauface subdivision or it might be meets and bounds where it says you know 384 feet west from such and such but whatever it looks like you need that in order to do your lean okay and the number two it talks about the party contracting for the improvement and then you see below there for three the fee owner so that throws people off when they're filling out the forms they're like what's fiona mean well as we discussed there can be instances where someone like a lessee contracts for the improvement and that would need to be put forth in paragraph two of this form and then you also get to know who the owner of the uh the real owner of the property is the landlord in that in that instance sometimes they're the same people most often they're the same people if my wife and i uh were contracting with someone uh it would say both of our name under both those two categories and then owner designee um you you see the word designee sometimes and dealing with the lean act and that is someone the owner can designate to receive notices um so if it's a big enough project the owner may have hired jones lane lasalle or someone like that to be the owner's representative that might appear there sometimes they'll put their architect in there or uh it'll just be kind of the you know managing member of the llc that that's owning the property and then there's the general contractor and then there's a statement that follows which you can just scroll down rebecca this is required by the lean act it's something alerting people like yourselves that you know you might have lean rights so that's it for that slide or that uh handout rebecca and these handouts are going to be provided to you those exhibits that form that we just looked at um you folks on the webinar will be provided a copy of all the forms that rebecca will be showing you as we go through this as well as actually my powerpoint that we're we're running through so with regard to the notice of commencement um the owner is supposed to record it at the register of deeds in the county where the improvements being done and he's supposed to keep it posted at the site and then this next bullet points the important one for you guys um if you want a copy of the notice of commencement you need to send a request by certified mail in a perfect world um the accounting staff at your company would know to send out that request via certified mail for the host of commencement that are trained to you know do these steps this is the first one that is incumbent on you folks to to do which is to send out a certified mailing requesting the notice of commencement the next one is the notice of furnishing which we'll get to in a minute and um i have gone out and trained uh clients personnel on how to do this because between the the lean projects and the bond projects it can get a little bit confusing but um i think i've come up with some ways to kind of dumb that down as much as possible or or make it as kind of universally applicable i guess is a better way of saying it a series of steps that could protect you on both public and private projects and so i did give a training to a mechanical equipment supplier and their staff not too long ago on how to do that so i would uh make myself available for that to any of you but also some of you may already be ahead of the curve on that and this may just be a refresher for you which would be great so the one thing though you want your staff to do in a perfect world would be send out this demand for the notice of commencement so you get it back so you know how to do the notice of furnishing all right let's go on rebecca now the key thing about from the owner's perspective if they fail to do the notice of commencement that extends the time within which you as the subcontractor needs to provide your notice of furnishing so um a notice of furnishing is a requirement for you folks you know when you're a second tier like you normally are when you're a subcontractor to the general who's the person who has the direct contract with the owner you're required to give a notice of furnishing if the owner doesn't do his step in the dance though first and doesn't provide you within 10 days of a proper request a copy of it then that does extend the time within which you must do your notice of furnishing okay next slide please you know and there can be this supposed penalty for a general that fails to give you the notice of commencement but it's kind of toothless um they supposedly have to pay you your costs for having had to track down the correct information about the owner and the legal description that you you couldn't get because he didn't give you the notice of commencement but i've actually never seen anyone um proceed under this i mean when it comes time
to lean you need to know the legal description but there are ways of finding that out besides the notice of commencement you can do a title search or you know my staff the paralegals will go to the city taxing information and usually the person who pays the bills for the taxes there's a legal description and a fee owner there so there are different ways to get to you know who and and what you're leaning and to then come back after this general contractor under this provision to ask for costs i actually never seen anyone bother to do that okay so next slide okay so what is the notice of furnishing it it's a notice to the designee we saw that word designee earlier basically to the owner that you're out there and the reason that it makes sense that you need to do that is um the owner might not otherwise know about you okay because his contract is with the general so at your tier and maybe even tears below you or if you happen to be a couple tears down in a certain situation how is the owner to know about you unless you give a notice of furniture once you do give them that though now you're on their radar and they need to take into account you and you getting paid as they move forward through the payment progress so with every pay application going forward after you've sent them a notice of furnishing they know about let's uses ferndale they know about you that that you're out there and uh and they won't be forgiven for ignoring uh the fact that they know the general is supposed to be paying you and they're supposed to be able to track that the general's paying you so it's a very valuable tool and a one that the remote people when i say remote people that aren't in direct contract with the owner need to give to the owner and here's the information uh that it must contain basically who you are what you're providing you know where the property is and who your customer is so let's show the handout if you would please rebecca and so the the handout is the the form that uh my firm uses it um matches the statute which really kind of sets forth what you're supposed to say so at the top you send it to the designee or owner designee is that word we saw on the notice of commencement that tells you who they expect you to send your notices to and then the contractor and then these blanks are the things that i mentioned you're supposed to fill in the legal description is usually contained in an exhibit a and you say who you are and what you're supplying it to whom so this okay actually we're not going to go to that page rebecca let's go back to the powerpoint please all right so the important part is the next slide rebecca which is when well who who must serve we've covered anyone who's not in direct contract with the owner um and then how you serve it you have to do it by hand delivery or certified mail okay and next slide please okay and here's the kicker you got to do it within 20 days of the first work um so that's the second piece that if you were operating perfectly in this lean world you'd have uh people trained at the company to you know as we discussed send out that request for the notice of commencement by certified and then following up on the information provided sending out the notice of furnishing within the first 20 days or at least within the first 20 days after having received back the notice of commencement so um both by certified mail by the way so that that would be the perfect scenario if you had your uh staff trained to be able to do that that would protect you the most why i say that would be perfect is a lot of times with some members of this group i've you don't always lean that often the supply groups have to lean more often so they usually have accounting wired to do this but i've run into situations with many a contractor before including some of you electrical subs who don't have to lean very often so they usually are calling you know me or their attorney at that juncture and they haven't done the notice of furnishing what i would say is no matter when it comes to light that you haven't yet given a notice of furnishing just do it then it's better late than never um i've had some scenarios where i try to think through oh gosh my client didn't give the notice of furnishing should i bring light to that by by sending it now everyone knows it's way past 20 days after the start of the project well i can tell you that there's never been a scenario where i concluded it would be better for the client not to send the notice of furnishings so that's the benefit of my experience on this better late than never always send it the minute you figure out it hasn't been sent and this um this notice of furnishing thing is one of those yellow lights i would like for you to all be perfect and always send it out timely um but i'm kind of realistic i'm kind of realistic in my experience it doesn't happen all the time and if you fail to do it this is one of those that i would call a yellow light rather than a red light remember the only red light is the 90 day period after last work that you have to file the claim of lean in um and the reason that it's only a yellow light is your failure to provide a notice of furnishing only defeats your lien and it can defeat your lien if you're remote and you didn't do the notice of furnishing that's kind of what the concern is is that your lien rights will be negatively impacted maybe even lost but what i want to say about that is the the only way your lien is defeated for failure to provide a notice of furnishing is if in the meantime the owner has paid to sworn statements so it's always better to get it in because you don't know necessarily whether the owner's already paid for your work to the general and you don't know whether he did it right he needs to have done it quote unquote pursuant to sworn statements and waivers and lord knows that the owners on their side don't always follow these all these steps absolutely 100 accurately so so even if you're late it might be okay um and what i want to share with you is an experience from kind of the other side of the coin on that um we were representing dematia back when they were still going concern a general contractor and they were working on dominoes and a subcontractor below them had gone bankrupt and so that subs sub subs and suppliers leaned the project and because domino's was a big client to media they dematia was stepping in and handling the lien claims for the owner and was going to have to pay them if they were valid and i got tasked i was a junior associate at the time back in the 90s i got tasked with going through the sworn statements to try to prove that the owner had indeed already paid for each of the you know that subcontractor and his sub subs work pursuant to sworn statement in order to try to avoid the liens because sure enough several of those subs had not filed notices of furnishing at the beginning of the of the project like they were supposed to this is kind of like a common thing that uh lead claimants failed to do their notices of furnishing again with this type of seminar we hope to get you to where you know you don't ever fail to but what i want to kind of say is that if if you did happen to fail to do the notice of first thing all is not lost because in this example when i was on the other side of the coin trying to defeat defeat claims like your focuses would be um that was a terribly monumental task i had a whole conference room at the law firm with you know each of these pay applications and sworn statements and trying to follow through you know to prove that that recalcitrant sub the the bankrupt sub and its sub subs had already been paid was really difficult and um so the point of that being from the other side of the coin on your side of the coin you're always kind of once you're into a dispute situation where you haven't been paid frantic and thinking oh gosh i didn't do the notice of furnishing you know and you're you're worried sick about it and like i said you first thing you do is send it off to you know as soon as you realize you haven't but but i kind of tell you that story to maybe you know take the edge off that panic for you because um from the other side of the coin it's really kind of hard to prove that you know uh your failure to provide the notice of furnishing defeats your lean so and that's why i call that a yellow light okay let's move on to the next one okay now when you do the notice of furnishing the other thing that you your staff has to be trained to do is to fill out a proof of service and go ahead and click on the on the form for that rebecca so this just stays in the file guys so you've sent the notice of furnishing off to the owner and the and the contractor and then on my form it's the second page of the form you fill out this with the certified numbers for you know the green card that you sent to each of them and i think it's got a notary block at the bottom rebecca if you go down and then you just stick that in the file guys because you need that proof of service if ever you need to file a lien that needs to be attached to the lien um so that's kind of the third form i draw your attention to besides the the notice of commencement the notes of furnishing and this proof of service okay let's move on to the next slide please all right and here's the big dog the claim of lean there's the thing about the 90 days [Music] basically this whole slide just tries to tell you the importance of filing it because the lien ceases to exist otherwise and and this is one that their failure to do the notice of commencement doesn't save you actually you can go to the next slide before uh you you can you can either click on the claim a lien now rebecca or okay when you folks are asking me to fill out a lien for you i always i've got it down to i asked for seven data points uh the first and last states of work need to be put in the lien so that's two data points the legal name of the owner and the legal description of the property which we've seen you should have from the notice of commencement if you've done everything properly but otherwise my firm has to scramble or if you were doing this yourself you'd have to scramble and try to figure out what those two are and then the last three pieces of information is the total contact amount which are allowed to include extras for the larger than 15 experts that haven't been reduced to change that's always something that instead of that last let's say that um and so those are the seven points that you need um to fill in the lean form and so now would be a good time to look at the handout rebecca you might have to go back yeah okay so at the top of this if you don't mind rebecca what's funny is the first thing that they have you fill in is the date of the first day to work which might throw you uh because normally you'd be putting like today's date at that top of a document but that first blank is actually if you read through the whole thing it's supposed to be the first day to work and then you have your company name your address um the project you're improving and then you've got to have the legal description either in this space or attached as exhibit a then you list the owner and um you know where his address if other than the property is then you've got a line for the last day to work and then that next series of blanks relates to your contract amount how much you've been paid and so on and so forth so this form will provide to you guys and our notary block down there actually is a little bit expanded from that which appears in the lean act which is a little more stripped down and um in the past wayne county's been a little bit of a pain in the butt to get to accept filings so they required this little bit more verbiage so we just put that on all of our forms now um that's probably overkill for oakland or some of the other counties but um that's a handy little tip with regard to that so um let's go back okay so um what's the next slide rebecca okay um what i want to emphasize with regard to the lean filing deadline of the 90 days is that it is very strict um for instance you wouldn't want to rely on mail to send it in there's a case where someone mailed it in then there was some kind of snafu the mail didn't get delivered they got notice of it and they sent it in by mail again this is all before the 90 days expired but it didn't get there in time and so despite all those kind of good faith efforts there they lost their lien because the 90 day is such a harsh deadline unlike with the notice of furnishing or a sworn statement or some of these other things you might be able to be a little late or show that you tried and substantially complied um the lien finally deadline is a harsh one and so i will share an anecdote last holiday season our client knew it its last its 90th day was on january 2nd and so that's the day after new year's obviously and so kind of with the holidays we were going back and forth and they you know were a little bit slow getting me the information and then you know having to sign it and so forth um it came down to the last day so nowadays you electronically file so my secretary was electronically filing it that morning of the 90th day and it wasn't being accepted and then ultimately we got on the phone with someone at oakland county registered deeds and they informed us that they had were experienced they had a computer meltdown and were experiencing a one or two day delay in items that were submitted being recorded so i stroked out and jumped in the car and drove up telegraph to pontiac and got there at 4 27 and ran into the office at 4 29 before they closed and the manager stuck around to help me and um she stamped you know good old-fashioned hand stamped my filing and sh you know and just to show you that i'm not paranoid she said to me she said well we discussed this with the computer system being down and we decided that the only way to protect yourself if you were on the last day would be to do what you did which is to come in and get proof that you were here because sure enough the next week when i got back my lien from the you know electronic uh filing system it was stamped the next day the third which would have been the 91st day and would have led to a huge hassle trying to submit affidavits and stuff that we sent it in the day before and i don't know what would have happened so um i provide that anecdote to kind of just injecting to you a little bit of that paranoia that i have that um you know if heaven forbid you're filing on the last day you better be ready to drive it up there the old-fashioned way just to make sure you can prove you got it there on time and another thing about the lien i want to talk about briefly is the risk of overstatement of the lien so i mentioned that you can you know put in a lien your contract amount and then you can put in good faith extras so say you had a hundred thousand dollar contract and they gave you 10 000 in change orders so you both agree you and and your customer that you're out 110 or i'm sorry that the contract amount is 110 000 and now let's say you've got submitted some requests for change orders for another 5 000 they haven't accepted or you know that they're fighting with you about you'd still put in that five uh a thousand into your contract amount so you'd be going for a hundred and fifteen thousand in my example your contract for a hundred the approved change orders for ten and then that five thousand that you're so you've submitted but there's a dispute about as long as it's a good faith that's okay then you would indicate to the reader and the claim of lien what you've been paid to date and then the corresponding amount still owed but what you don't want to do is overstate your lien um purposefully uh that could result in the lien being dismissed so i usually preach caution if people are thinking about adding something else that doesn't qualify as a good faith extra the fear is that the whole lien can be dismissed i mean if it's a if it's a clerical error often they'll just be you know the court will decide that they're just revised down to the correct number but the fear uh with overstatement is is you lose the whole lead so just a word to the wise on that okay and let's click on the proof of service fo
the claim moline so like with the um notice of furnishing when you when you file the lien you have you have to serve it by the way within 15 days that's another of these deadlines and the sequence of events uh but that is probably another one that's just a yellow light um meaning if you were late it might not be the end of the world but when you do send out the lien you need to fill out one of these proofs of service now often the clients will have my law firm do the lien like in that example i shared with you where i had to drive out to oakland and then so my secretary will fill this out and like the other one fill in the certified numbers of to whom it was sent and you hold on to that in your file as well why that is is because when you go to finally if you ever have to sue to foreclose on a lien you need to have this item attached to your complaint according to the statute so these proofs of service are necessary documents that you need to keep in your file as you proceed through this this dance that we've been talking about okay i think if we go back to the slides that might be it for the claim of lean and so we're almost done folks i'm just going to go through a few more things and then provide the summary the summary of the sequence okay um i want to touch briefly on sworn statements um that's the document that's supposed to be submitted to the owner by the general that lists people like you and how much you've been paid and how much is owing on this current payment this current payment application and how much remains on your contract and that's a means for the owner to be able to track you especially if you've given them a notice of furnishing they're kind of obligated to track you and make sure you're taken care of out of each draw um and then you folks actually are many of you are of sufficient size that you're asked for these actually by your customers and so you may be familiar with them for having had to fill them out yourselves listing all your subcontractors and suppliers so yeah let's look at a the handout on that okay here's one that my firm uh or i actually i drafted that matches what the statute requires it's really kind of verbatim um so deponent's going to be you you would circle subcontractor usually for an improvement in whatever county and then either insert the legal description if it's small or attach it and then these categories i've included all of them that are in the statute but um you know i mean the labor and labor fringe benefits and withholdings usually um doesn't appear on most people's so you're you're citing the name of the sub the type of improvement furnished the contract price how much you've already paid and what's currently owing and then at the bottom you need to have someone sign that under notary there can be criminals infractions for intentionally defrauding people by what you insert in the sworn statements so it's always important to be careful with the information you provide in there now let's go to the next slide if you don't mind rebecca um so when it needs to be provided basically it needs to be provided when you're asked for it or when you're applying for payment and then most certainly it needs to be provided before you file suit so this is another thing that you know clients come to me um when the when the dispute has begun and they don't get in them they're very that often and for instance they'll come to me when it's time to file the lien and we're closing in on the 90 days and they haven't done a notice of furnishing i'll just shoot off the notice of furnishing for them like on day let's say 88 and then file the lien for them with the proof of service of the notice of furnishing attached to it the next day because as i mentioned you know it's never too late better late than never with regard to the notice of furnishing and then with regard to the sworn statement um a lot of times people haven't done those again if you're on these more sophisticated projects you may have been doing them with each pay application but a lot of times my clients haven't done them yet and at the latest i need i need to send one out before i file the suit and that includes for you guys as subcontractors okay let's move on um this basically says why you have to do it you can't file a complaint without it okay let's keep going all right then the other big red light that's more usually with your lawyer than it is uh you although you need to be aware of it as well is that one needs to file his suit to foreclosing his lien within one year of the recordation of the lien so in my example i gave you where i raced out to oakland county on january 2nd that means that on january 2nd of 2021 i have to have filed the complaint in court to foreclose on the lien otherwise the lien becomes invalid um so that's a hard deadline that's good for you to be aware of but usually at that point you've got this in the hand of your hands of your attorneys okay let's move on when you do start a construction lean foreclosure suit one of the requirements of the act is that you name everyone else that has a pro an interest in the property so in my example of the plumber leaning my house he would have to name bank of ann arbor because they would show up on the title search as having an interest and again this is a little bit more for the lawyers probably than you folks okay let's move on also we have to file a notice of list pendants that there's an ongoing suit so that that also clouds the title because there's the lien but then the people going to look at the title wouldn't necessarily know if you followed through on the lien with a lawsuit so you want to file actually these notice of list pendants is another piece of paper that shows up on the title that indicates that you did indeed proceed through with a lean foreclosure suit okay let's move on all right briefly on waivers so you're all probably familiar with waivers on projects where um you know before you receive the payment it's a conditional waiver i mean you know often it's a partial conditional waiver that you you give to the general and he submits with the pay application then he gets paid by the owner pays you your part and the next month they'll look for a partial unconditional from you saying yeah i got the money it's unconditional my waiver i'm not conditioning my waiver on receipt of any payment and then perhaps you'll give a conditional waiver for the next month's draw saying but i am owed this next amount coming out of this next draw so here's a conditional waiver for that saying if conditioned upon my receipt of that money um i'll waive my rights now a lot of times if there's a dispute we'll get it resolved and then i'll have the general or the owner say to my client all right give me a full unconditional waiver and so the advice is kind of underlined here for you guys and you may already be on top of this but you wouldn't want to give them that full unconditional waiver until you have money that cleared the catch your bank that's you know almost invalid that would be fine um i usually have to tell my clients that's that chance but certainly that's always my advice so let's go into the waiver so i can show you some examples of these so here's a full unconditional and it says in the one two three four fourth line down by signing this waiver all our construction lien rights are waived and released all right now let's go to a conditional one so i can show them do you have the next waiver in line i just kind of want to highlight for you folks the kind of the magic language for the conditional piece okay so uh it's funny this reads the same as the unconditional one folks it says by signing this wave or in the fourth line there all our lien rights are waived and released but the key part is that next sentence this waiver is conditioned on actual payment of blanks so this is what you'd give if if you're going to settle and you know they didn't have it in the form of a cashier's check or cash you give them a full conditional saying okay we waive all our rights but it's conditioned on me actually getting that last 50 grand or whatever is at issue and then that protects you that little that little sentence there protects you and giving them the conditional waiver that it's conditioned on that happening if it doesn't happen you haven't waved anything so i just kind of wanted to show you folks uh the difference between uh unconditional conditional so okay we're almost done let's move on to this i want to give a summary of the sequence of events all right in this dance so number one you send out the notice i'm sorry the demand for the notice of commencement um that's almost always for you guys you wouldn't have to if you're in direct contract but um when i'm giving training i kind of like i was saying try to make it kind of universal i would just i would just send it out regardless you know why take a chance in in trying to interpret whether your contract's direct or whatnot if i were training for instance my staff on this i'd ask them just to send it on every project uh and on the bond side at that same time you'd send a demand for the bond so you could even get a potentially a letter that covers both bases or uh probably more likely you just want your staff to be able to appreciate the need for sending out a demand for the bond for those projects that have them as well as this lien law uh demand for notice of commencement so anyways in liens that's the first step you send out the demand okay then next step is a notice of furnishing that we've talked about quite a bit today supposed to go out within 20 days of your first providing labor or material so if you were trying to train someone you'd want them to be aware of that 20-day mark it can be extended by the time it takes for the owner to get back to you with a notice of commencement so within 20 days of getting that back is actually kind of the extended deadline but again if you want to simplify things um you know you can send the notice of furnishing before you get the notice of commencement you can figure out who the owner is i mean usually you you kind of know it's it's tiffany's you know that's having you do a build out and you have an address for them so you can send a notice of furnishing even before you get the notice of commencement back all right the third item is that proof of service a notice of furnishing that you need to fill out and keep in your file that we went over okay let's keep going okay the fourth is uh if if you're in the situation you haven't been paid recording the construction lien and one must do that within 90 days after you last provide labor or material so um the um the the one thing about that is there can be some dispute if it's warranty work or not so um you're technically not supposed to be able to use warranty work to calculate your your 90 days i would say as long as you have a good faith basis for arguing that the work you were providing was in furtherance of the base contract that you could use that date as your last date because the way that the courts have interpreted what is warranty work seems to kind of go both ways i sometimes they they act like something that sounds like warranty work is not and other times they'll characterize something that's more like punchless work as warranty work uh and act like you were too late so you know the sooner the better obviously for filing your lien if it went in doubt i'd use an earlier date if you still have time within the 90 days okay then the next step number five is service of the construction lien that is by sending it by certified mail and that has to happen within 15 days after the recordation and then um the sixth thing is to fill out the proof of service and keep in your file that you did send out that lien okay now the next slide rebecca um the seventh is a sworn statement that you have to provide before you start suit okay keep going and uh then you need to foreclose on a lien within one year after it was filed i don't think there's anything after that is there rebecca okay that brings to a conclusion on my speech on the nuts and bolts of filing a lien thanks mike so we will turn it over to the attendees if anybody has a question just go ahead and raise your hand and i will go ahead and unmute you also knowing that you will be receiving the slides and forms in an email later this week if there are no questions uh we'll go ahead and close it out thanks again mike for presenting and thank you to jim for allowing us to present to nika have a good day everyone you
