Home > Uncategorized > Michigan Construction Liens and Sworn Statements: Case Law Update

Michigan Construction Liens and Sworn Statements: Case Law Update

Someone asked me the other day what I liked to read for fun… I had to admit that I am a nerd.
I read case law for fun.
I am always interested in whenever a new appellate decision comes out, one of my particular interests is in the area of construction lien law. This area of the law can be nuanced, and any case that can provide clarity on a business/real estate client of mine’s unique situations is always welcomed.
Construction liens can be an effective tool for businesses that work in real estate development to get paid for monies owed for improvements provided to real estate.
Clients of mine in the real estate industry, whether subcontractors, general contractors, suppliers, sometimes run into the following unfortunate scenario:
They provide services for the improvement to real estate, and they do not get paid.
Often times, that is when they come to  me and tell me to “file a lien” and hope the threat of foreclosing on a lien is sufficient to convince the owner to pay them what is owed, and thereafter discharge the lien and move on to the next job.
But in those instances where the property owner (or some other party up the chain of command) refuses to pay, for whatever reason, they are forced with two options: 1. let the one year statute of limitations period run, or 2.  foreclose on the lien.
This decision must be thought through well, because:
Construction Liens can be tricky.
Is it even worth the trouble of recording a construction lien?
Before answering that question, I note that there are many problems that could arise resulting in a contractor considering filing a construction lien  –  contractors, suppliers, subcontractors know these problem areas all too well –
  •                     the multiple layers of business relationships involved in a project (Owner – GC – multiple subs – multiple suppliers);
  •                     the sometimes lack of discipline/precision in documentation of the contractual relationships of all the parties,                                 (e.g. verbal and/or poorly documented change orders)
  •                      and let’s face it, sometimes people just make mistakes.
All three of these problem areas were present in an October 24, 2013 Michigan Court of Appeals decision.
The case is Rogers Excavating, Inc. v. Mana Properties, L.L.C., 308514, 2013 WL 5763028 (Mich. Ct. App. Oct. 24, 2013)
This case provides a general background in answering the question:
what must a contractor do in order to be entitled to foreclose on a lien?
The Answer:
Generally, substantial compliance with the Construction Lien Act is what is required.
Michigan Construction Lien Act, Generally, Requires That a Lien Claimant Substantially Comply with the Act.
The Michigan legislature understood that problems could arise with builders, subs, suppliers. That is why they clearly outlined the purpose of the Construction Lien:
 MCL 570.1302(1), provides:

This act is declared to be a remedial statute, and shall be liberally construed to secure the beneficial results, intents, and purposes of this act. Substantial compliance with the provisions of this act shall be sufficient for the validity of the construction liens provided for in this act, and to give jurisdiction to the court to enforce them. [Emphasis added.]

Facts of Rogers v Mana Properties
These facts are numerous and complex, for the sake of brevity, below is a cliff notes’ version:
  • Defendant Mana owned real property in Southfield, Michigan, upon which it planned to construct a daycare facility.
  • In May 2007, Mana executed a construction management agreement with McQuillan.
  • McQuillan was to serve as the construction manager with respect to the project to build the daycare facility.
  • McQuillan was required to “supervise the completion of the [c]onstruction” under the agreement.
  • Ken McQuillan, the sole member of McQuillan, informed  Carroll Rogers, the sole shareholder of Plaintiff Rogers, about the construction project and asked Carroll to submit a bid.
  • Rogers was a construction company that engaged in excavation work
  • Rogers submitted a proposal to Mana, which was subsequently accepted and formalized into a contract in October 2007.
  • The contract expressly indicated that it was between Mana and Rogers, contract price was approx. $120,000.
  • The contract was signed by Carroll Rogers on behalf of his company and by Mack Allen, who, along with his wife, were the sole members of Defendant, Mana.
  • Ken McQuillan signed the contract as a witness, but he also placed his initials on all of the remaining pages of the contract where it called for the developer’s initials
  • During construction the price was increased on the basis of five change orders and the cost of a permit, bringing the price to $170,976, which included $2,832 in late fees.
  • Rogers was paid $71,950 during the course of its work, leaving a total amount due of $95,824.
  •  McQuillan conceded that it received loan draws totaling approximately $130,898 on Mana’s construction loan with Stearns Bank that were earmarked for payment to Roger

    Rogers Excavating, Inc. v. Mana Properties, L.L.C., 308514, 2013 WL 5763028 (Mich. Ct. App. Oct. 24, 2013)
Note  – although hindsight is 20/20 – you can already spot the problem areas in this business relationship –
1. multiple business relationships involved,
2. multiple change orders, and
3. mistakes in execution of documents.
Rogers sued Defendant, Mana for breach of contract and for foreclosure of its construction lien
Defendant, Mana, argued that Rogers’ failure to provide Mana with sworn statements as required by the CLA effectively defeated any claim of lien.
After trial, the Court found the construction lien invalid, finding that Rogers was not entitled to a lien for failure to comply with certain requirements of the CLA.
The Court of Appeals reversed.

Substantial Compliance with the CLA is all that is required.
The Court of Appeals disagreed that the mere fact that the Sworn statement provided to Mana was in the exact statutory form required by the CLA invalidated the lien.
The Court held:
“With respect to the failure of Rogers to provide sworn statements in the exact form specified in MCL 570.1110, not only does MCL 570.1302(1) require us to employ a substantial compliance test, MCL 570.1110(4) itself expresses that a sworn statement must be “substantially” in the form of the sworn statement set forth in the statute.”Rogers Excavating, Inc. v. Mana Properties, L.L.C., 308514, 2013 WL 5763028 (Mich. Ct. App. Oct. 24, 2013)

Rogers provided statements in “substantially” the form required by the CLA.  The trial court got it wrong when it held Roger’s sworn statement wasn’t good enough.
My Take away:
Construction Relationships can be complex, and the pitfalls numerous. It is a good thing that the Legislature, in its wisdom, did not generally require a “strict compliance” standard in order to recover under a claim of lien.
Questions? Comments?
Email: Jeshua@dwlawpc.com
Ph: 616 454-3883
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