Information to Homeowners

If there is a problem that cannot be worked out with the contractor, the homeowner may withhold funds; file a formal complaint against the licensee with the Michigan Department of Licensing & Regulatory Affairs (LARA), Commercial Enforcement Division (517) 241-9202; ask the local building official to help; complain to a private arbitration mediation program; or may consult an attorney for assistance.

When a person decides to work with a contractor to build or improve a home, there are several things that should be considered:

·         Make sure the contractor is licensed. State law requires residential builders, home improvement contractors (when labor and materials equal $600 or more), electrical contractors, fire alarm contractors, mechanical contractors and plumbing contractors to be licensed. Contractors are issued licenses to be displayed at the place of business and contractors are required to carry a pocket license at all times. To check if a residential builder or maintenance and alteration contractor is properly licensed, contact the Michigan Department of Licensing & Regulatory Affairs (LARA), Builders Licensing Unit at (517) 373-8376, or the Department's "Check A License" webpage.

·         If the unlicensed contractor files a construction lien upon the residential property, the owner or any person affected by the lien may bring an action in court to discharge the lien. In addition, if the court determines that the person who recorded the lien was not licensed as required, the person is liable to the person who brought the action for all damages that result from recording and any attempts to enforce the lien, including actual costs and attorney fees. Legal Reference: Construction Lien Act 570.1114a)

·         Make sure the contract and any changes are in writing. If different materials or design changes are decided upon, those changes should be written down and agreed to by both the homeowner and the contractor. The homeowner should be given a copy of the contract and any changes to the contract to keep. The contractor's license number should be written on the contract. (Reference: Construction Lien Act 570.1114)

·         With the contract, the homeowner may be asked to provide information that is used to prepare a NOTICE OF COMMENCEMENT. This document is a formal notice that work is beginning on the property and notifies everyone involved in the project of the name and address of the owner (or his or her designee) so that the proper legal notices and bills can be sent. Be sure the information is filled out completely and correctly! Post the Notice of Commencement at the work site. ( Reference: Construction Lien Act 570.1108a)

·         As work progresses the homeowner should receive a NOTICE OF FURNISHING from each person or company providing labor or materials. These notices should be retained so that the homeowner can check whether or not these people are paid. (Reference: Construction Lien Act 570.1109)

·         When the contractor asks for any payment, he or she is required to provide a SWORN STATEMENT, which is a notarized document showing the name, address and phone number of every subcontractor, supplier and laborer who provided labor and materials to the project. The owner or lessee must give notice of its receipt of the Sworn Statement to each subcontractor, supplier or laborer who has provided a Notice of Furnishing under Section 109 or if the Notice of Furnishing is excused under Section 108 or 108a, to each subcontractor, supplier or laborer listed on.  If the subcontractor, supplier or laborer makes a request, the owner, lessee or designee must give the requestor a copy of the sworn statement within 10 business days of the request.  This statement should be checked against the Notices of Furnishing to see if each subcontractor, supplier or laborer is getting paid. The homeowner should not make any payments to the contractor until a Sworn Statement is received. (Reference: Construction Lien Act 570.1110)

·         Upon reviewing the information on the Sworn Statement and advising the homeowner as to what arrangements are being made with each supplier and subcontractor, the contractor will ask the homeowner for a payment - the contractor's "draw". Payment options for the homeowner could be: (1) pay all bills through the contractor, OR (2) upon giving the contractor 5 days written notice, pay the subcontractors, suppliers and laborers directly. (Reference: Construction Lien Act 570.1110(6))

No matter what payment plan is used, Waivers of Lien should be given. These forms are agreements by the subcontractors, suppliers or laborers that they will not file claims of lien against the property because they have already been paid or have an agreement with the contractor on how they will be paid. The owner, lessee or designee may not rely on a full or partial unconditional or conditional waiver of lien received from a person other than the lien claimant named in the waiver if the lien claimant has filed a notice of furnishing or is excused from doing so, unless the owner, lessee or designee has verified the authenticity of the lien waiver in writing, by telephone or personally.  WAIVERS may be complete and unconditional if the subcontractor, supplier or laborer has been paid in full; or partial and conditional stating terms under which the contractor will be making payments. (Reference: Construction Lien Act 570.1115)

What happens if the contractor leaves unpaid bills behind?

• The first notice will be filing of a CLAIM OF LIEN on the homeowner's property. This legal notice informs the homeowner that a person who furnished labor or materials has not been paid. If no Claim of Lien has been filed within 120 days (90 days to file the lien, 15 - 30 days for service) after the job has been completed, one can assume that everything has been paid for properly. A Claim of Lien is recorded with the county Register of Deeds so that a person buying the property would become aware of unpaid liens during the title search process.  (Construction Lien Act 570.1111)
• When a homeowner receives notice that a claim of lien was filed against their property, he or she may wish to first consult an attorney. This information is no substitute for legal counsel in the event a lien is filed, but it explains the basic steps that must be followed to make sure everyone has complied with the law. You should always contact an attorney for legal advice relating to your personal situation.
• The lien claimant who wishes to enforce the claim of lien on the property must file a lawsuit in circuit court within one year to foreclose on the lien. The foreclosure action will first determine whether the lien is valid. The court will make the determination as to who should make payments. (Construction Lien Act 570.1117)
• If a lawsuit is not filed within one year from the date of recording the Claim of Lien the property owner or that person's agent may request an affidavit from the county clerk stating that legal proceedings to enforce the lien were not started as required by law.  The affidavit of the county clerk should be then filed with the register of deeds office to invalidate (discharge) the expired claim of lien. (Construction Lien Act 570.1128)

If a lien is placed against a home and the homeowner has already paid the contractor, the homeowner should file an affidavit with the circuit court indicating payment has been made to the contractor. The affidavit should included any evidence of payment, such as receipts, cancelled checks, credit card receipts, etc., (Construction Lien Act 570.1118a - as amended by Public Act 147of 2010)

Be certain to choose a licensed contractor. Carefully monitor the work and the payments being made. If you have any problems, you may wish to consult an attorney, or check with the lending institution that is helping finance the project for advice.