Lien Law Online eLert for 12/29/2009 - Michigan

December 29, 2009

Michigan Homeowner Construction Lien Recovery Fund Runs out of Money

In a sign of the times, the Michigan Homeowner Construction Lien Recovery Fund is broke, and there is currently no way to replenish its coffers.

The Michigan Homeowner Construction Lien Recovery Fund (Fund) was created under Part 2 of the Michigan Construction Lien Act (MCL 570.1101, et seq) to provide protection when the homeowner, has in good faith, paid their licensed contractor for materials and labor and the contractor failed to compensate materialmen, subcontractors, and/or laborers.

The funding problem for the Fund stems from PA 497 of 2006, an amendment to the Michigan Construction Lien Act, which repealed Section 201(2) of the Act effective January 3, 2007. This amendment, reportedly the product of a legislative compromise, eliminated the ability of the Fund to make a $50 special assessment when the Fund fell below $1 million. Instead, the Fund can only assess members a $10 annual renewal fee.

Beginning in 2006 and continuing through July, 2009, the Fund experienced an unprecedented increase in claims. This increase closely mirrored the collapse of the housing market. The Fund is currently involved in over 250 pending lawsuits involving more than 350 claims against it that total more than $18 million. In 2009, Judgments against the Fund have averaged $123,800 per month. By mid-October, there was only $524,000 remaining in Fund coffers.

On October 21, 2009, the Fund sought to consolidate all 250 of the pending lawsuits into one proceeding in Macomb County and proposed a pro rata distribution of the remaining money among all the lien claimants. The result would be pennies on the dollar. The Fund’s (interpleader) motion was heard by Judge James Biernat, Sr. on November 2, 2009, but denied several weeks later in a written opinion.

As things stand now, and absent legislative intervention, the Fund will run dry within a few months. This will leave unpaid subcontractors and suppliers to fight things out with Homeowners, who will find themselves stuck in the middle of dispute with their builder and at significant risk of paying twice for improvements to their home.

For more information, contact Peter Cavanaugh Contributing Author or visit his website -- www.MichiganConstructionLaw.com

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Lien Law Online eLert for 12/8/2009 - New Jersey

December 8, 2009

On December 3, 2009, New Jersey Assemblyman Patrick J. Diegnan, Jr. introduced a bill that dramatically revises the New Jersey Construction Lien Law, N.J.S.A. 2A:44A-1 et seq. in accordance with a March 2009 proposal by the New Jersey Law Revision Commission. Assemb. 4319, 213th Leg. (N.J. 2009).

Specifically, according to the bill’s Statement, the proposed legislation revises the Construction Lien Law, which was enacted in 1993, by:


• clarifying and adding certain defined terms, especially pertaining to the meaning of “residential,” to conform to actual construction industry usage;

• clarifying (and in some cases rearranging) procedures for the filing and amending of the lien claim and for the calculation, distribution and enforcement of the lien fund;

• amplifying provisions for discharging a satisfied lien claim;

• adopting court holdings regarding the concepts of contract price, lien fund and lien claim;

• further defining the arbitrator’s role in residential construction contract lien arbitrations;

• modifying and adding time limits for filing and perfecting residential construction contract lien claims;

• specifying the application of lien claims to community association property; and

• addressing certain ambiguities as to mortgage priorities with respect to lien claims.


The bill also revises some statutory language simply to make it easier for participants in the construction industry to use the law. The bill enhances application of the current statute and clarifies the procedures to be followed in order to process and perfect a construction lien claim.

While the bill may not move prior to the end of this legislative session, it is likely that it will be reintroduced in the next session and move as early as mid-January 2010. We will follow the progress of the proposed legislation and provide updates as new information becomes available.

Dennis A. Estis, Esquire Contributing Author

Steven Nudelman, Esquire Contributing Author

Greenbaum, Rowe, Smith & Davis LLP