5.3 Construction Lien Act I: Notices of Commencement & Furnishing, Sworn Statements & Waivers

Who Has a Lien

Under MCL 570.1107, each contractor, subcontractor, supplier, or laborer who provides an improvement to real property has a construction lien on the interest of the owner or lessee who contracted for it. The lien cannot exceed the claimant's contract amount minus payments received. The total of all liens cannot exceed what the owner agreed to pay the contractor, as modified by amendments, minus payments the owner properly made under sworn statements or waivers (MCL 570.1107(6)). This limit is how the Act protects an owner who follows the procedures.

A key Michigan rule, MCL 570.1114, applies to residential jobs. A contractor has no lien on a residential structure unless the improvement was provided under a written contract, any amendments are also in writing, and the contract includes a statement, in type at least as large as the body text, that residential builders and M&A contractors must be licensed under Article 24, along with the contractor's license number.

Notice of Commencement

The residential form carries a boldface "WARNING TO HOMEOWNER" that explains these duties. It names the owner's designee, who receives notices, and the general contractor. If the owner fails to provide it on request, the time for a subcontractor or supplier to serve a notice of furnishing is extended until 20 days after the notice is actually furnished, or 30 days for a laborer.

Notice of Furnishing (MCL 570.1109)

Late notice does not destroy the lien. A late notice still protects work furnished after it is served. For earlier work, the lien is reduced by any payments the owner made to the contractor under a sworn statement or waiver before the notice arrived (MCL 570.1109(5)–(6)). This is why suppliers serve early.

Sworn Statements (MCL 570.1110)

A sworn statement is a notarized list of every subcontractor and supplier the contractor used, and any laborers with unpaid wages or fringe benefits, with the contract price, amount paid, and amount owing for each.

• A contractor must provide one when payment is due or requested, and whenever the owner or lessee demands one.
• A subcontractor must provide one to the contractor when payment is due or requested, and to the owner on demand.
• On a residential job, when the owner receives a sworn statement, the owner (or designee) must notify each subcontractor, supplier, and laborer who served a notice of furnishing, or who is named on the statement, in writing, by phone, or in person. On request, the owner must give them a copy within 10 business days.
• After receiving a sworn statement, the owner may withhold enough to pay the listed parties, and must do so on the contractor's written demand. The owner may also pay them directly. Before the first direct payment, the owner gives the contractor at least 5 business days' notice.
• No sworn statement, no payment. If a contractor records a lien without first giving a sworn statement, the lien is not invalid. However, the contractor is not entitled to any payment and may not file suit to enforce the lien until the sworn statement is provided (MCL 570.1110(9)).

Penalties for a False Sworn Statement

Giving a false sworn statement with intent to defraud, in order to draw money, is a crime. The penalty grows with the amount (MCL 570.1110(11)):

In each tier the fine is the greater of the two amounts, and prior convictions can raise the tier.

Lien Waivers (MCL 570.1115)

• No advance waivers. A contract may not require a lien waiver before the work is performed. Such a waiver is invalid except to the extent payment was actually made.
• Full payment → full unconditional waiver. A lien claimant who receives full payment must give the owner a full unconditional waiver.
• Partial payment → partial unconditional waiver, on request.
• Conditional waivers (partial or full) take effect upon payment of the stated amount.
• A waiver is effective when someone pays in reliance on it, unless the payer has written notice that the payment failed.
• Residential verification. If a claimant has served a notice of furnishing, or is excused from one, the owner may not rely on a waiver delivered by someone else until the owner verifies it with the claimant in writing, by phone, or in person.
• Retainage payable only after a later event is not due when the improvement is provided.

A contractor should never sign an unconditional waiver for money not yet received. An unconditional waiver is effective once the owner relies on it, even if the check later bounces. The conditional forms exist to prevent that result.

The Owner's Safe-Payment Routine

At each payment, the owner should (1) get a sworn statement, (2) check it against notices of furnishing received, (3) get waivers from each listed party, verifying those not delivered by the claimant, and (4) pay the listed parties directly or by joint check if in doubt. When an owner follows this routine, the MCL 570.1107(6) cap generally keeps the owner from paying twice.