Ninety Days: The Lien That Can Land on a Just-Renovated House After You Close

The "just renovated" listings start showing up right about now. Summer rental season winds down, the cottage sits empty a few weeks, a crew gets in there, and by the first week of October there's a new kitchen in the photos and a new number on the price sheet. Every contractor I know is trying to close out exterior work before the ground turns, so September and October are also when the unpaid invoices stack up fastest.

That timing runs into a piece of Michigan law that doesn't come up much. Under the Construction Lien Act, a contractor, subcontractor, supplier or laborer has 90 days from their own last day of furnishing labor or material to record a claim of lien at the county register of deeds. That's MCL 570.1111(1), and the clock starts on the last day of work, not on the day an invoice went unpaid.

So work that wrapped in mid-September is lienable through mid-December. A house that closes October 20 still has almost two months of exposure left after you have the keys.

Priority

MCL 570.1119(3) is the part that decides whether it's your problem or the seller's. A construction lien takes priority over other interests recorded after the first actual physical improvement to the property. Your deed is an interest. If the crew started swinging hammers in August and your deed hits the record in October, a lien recorded in November relates back to August and sits ahead of you. The lien runs with the property, and it does not follow the seller to Arizona.

I want to be careful here, because I'm a Realtor and this is a statute with case law hanging off it. There are defenses and there are deadlines, and discharging a lien is a real legal fight you'd hire somebody for. But the assumption most buyers walk in with, that anything predating closing is automatically the seller's mess, is not what the priority section says.

Where the paperwork lives

Grand Traverse County's register of deeds is at 400 Boardman Ave, Suite 100, in Traverse City. Recording a document there runs a $30 flat fee. The online index reaches back to May 1966, and the grantor-grantee index generally picks up a new recording the next working day. (I've only ever timed Grand Traverse. I don't know whether Leelanau or Antrim turn theirs around as fast.)

Thirty dollars is the entire barrier to entry. It costs an unpaid drywall sub less to record a lien than to drive out to the job site and argue about it.

And you probably won't know the subs exist. A subcontractor or supplier has to send a notice of furnishing within 20 days of first providing labor or material (MCL 570.1109), but that notice goes to whoever owned the place at the time. That's the seller. Not you.

The license number in the contract

There's a defense here that applies only to houses, and a lot of people don't know it's there.

Under MCL 570.1114, a contractor gets no lien on a residential structure unless the work was done under a written contract with the owner, with any amendments in writing too. That contract has to say, in type no smaller than the body text, that residential builders and maintenance and alteration contractors are required to be licensed, and it has to print the contractor's license number.

MCL 570.1114a, added by 2016 PA 415 and effective April 4, 2017, then lets the owner or anyone affected by the lien sue to discharge a lien recorded by someone who wasn't licensed. If the court agrees, the person who filed it owes damages, costs and attorney fees.

Which makes "who did this work, and were they licensed" a better question than it sounds like. A cash handshake job is a weaker lien on paper. It's also the job most likely to have a payment dispute sitting behind it.

The fund that used to catch this is gone

Michigan ran a Homeowner Construction Lien Recovery Fund for years. A homeowner who had paid the general contractor in full could go to the fund when a sub came after the house anyway. The legislature repealed it with 2010 PA 147, immediate effect August 23, 2010. Sixteen years later I still hear people reference it like it's sitting there.

Title insurance covers less of this than you'd think

Michigan title commitments typically carry a standard exception in Schedule B for liens, or rights to a lien, for labor or materials not shown by the public records. A lien nobody has recorded yet is by definition not in the records.

Whether that exception comes off your policy, and what the title company wants in exchange for taking it off, varies by company and by file. Ask your title company in plain words whether the standard exception is being removed on your transaction and what they collected in order to do it. That one is a question for them and not for me.

What to ask before you close

So how recent is recent enough to worry about? I use one year, which is conservative on purpose, because the 90 days runs from each trade's own last day and those dates are almost never the same. The plumber can be done in June and the painter in October on the same job.

Get the seller to put in writing the names of every contractor and supplier on the job and the date work last stopped. That date is the only thing that tells you when the 90 days runs out.

Ask for full unconditional waivers from the general and from the subs. A conditional waiver is a promise that depends on a check clearing, which is a different animal.

If the last day of work falls inside 90 days of your closing, ask your title company and your closing agent about an escrow holdback. It is a normal request on a renovated property. I wouldn't close on a flip in November without one, and a seller who refuses flatly is telling you something worth hearing.

Then run the address through the county index yourself the week before closing. It's free, it takes about four minutes, and because the index updates the next business day, a lien recorded Monday shows up Tuesday. Run it again the morning of closing if the work is recent.

This lands in the same category as the survey nobody orders anymore and what a seller's disclosure really promises. Cheap to check before closing, expensive after. Renovated places move quick around Traverse City and out through Suttons Bay, and the pressure to skip the boring questions is very real when there are three offers on the table.

If you're looking at something that's been worked on recently and you want a second set of eyes on the paperwork, call me. I'd rather spend twenty minutes on it in October than watch somebody find out in December. You can also see what we have going at the moment over on our current listings page.

Taylor Brown, Realtor
Taylor@taylorbrownrealtor.com
(231) 360-1510