A Conundrum for Residential Builders

House Bill No. 4668 (2021), introduced on April 20, 2021, would amend Section 114 of the Michigan Construction Lien Act to impose new requirements on residential builders and Registers of Deeds when it comes to recording a construction lien on residential projects. 

First, new §114(2) would require a residential contractor, who is required to be licensed, to display its business contractor’s license, and if the builder is an individual, the builder’s personal identification (i.e., driver’s license) when presenting a lien for recording.  If the builder does not present the claim of lien in person for recording, the builder must attach to the claim of lien, copies of the builder’s contractor’s license and personal identification if the lien is by an unincorporated builder.

Second, new §114(3) requires the Register of Deeds (ROD) to examine the documents provided by the residential builder, and if the builder is required to be licensed, the ROD must reject a claim of lien unless the builder displays the business contractor’s license and personal identification or attaches copies of the contractor’s license and personal identification to the lien.

Finally, new §114(4) makes a residential builder’s failure to comply with §114 (as amended), a misdemeanor punishable by imprisonment or a fine of not more than $500, or both. 

While the purpose of amendment to §114 may be well intentioned – preventing liens on residential property by unlicensed builders – the methods imposed by House Bill 4668 may be problematic and unnecessary.  Saddling the Register of Deeds with the task of determining whether the lien claimant performed the type of work that required a license (i.e., is the project residential or commercial, is the nature of the work the type that requires a license, etc.), may impose an unwelcome duty on the ROD to make legal determinations for which it may not be qualified. Further, evaluating whether a license is required (and therefore, whether additional documentation is required) may slow the recording process. Often liens are recorded on the eve of expiration, if not the last day.  If there are delays recording the lien while the ROD considers licensure, the lien recording deadline may lapse and the contractor’s lien right may expire. 

It is debatable whether these amendments are necessary where the amendments to the Construction Lien Act in 2006 gave residential property owners the right to sue an unlicensed builder who records a lien on their property and recover their actual costs and attorney fees.  (MCL 570.1114a) Likewise, the Michigan Occupational Code already authorizes a prosecutor or attorney general to bring an action against an unlicensed builder for significant fines ($5,000-$25,000) and to seek civil damages and restitution. And, the Occupational Code prohibits an unlicensed builder from filing a lawsuit for payment for work performed.

House Bill 4668 has been referred to the Committee on Regulatory Reform, so stay tuned.