By William J. Meier, PARMENTER O’TOOLE
On October 5, 2010, Michigan enacted the Commercial Real Estate Broker’s Lien Act giving brokers the right to file a lien as collateral for commissions owed on the sale or lease of commercial real estate. The new law only applies to commercial real estate and specifically excludes residential properties as well as vacant property zoned for single family use.
A lien recorded by a licensed real estate broker will be effective if the broker (1) has a written commission agreement; (2) has earned a commission pursuant to the agreement; and (3) the lien is recorded before the conveyance of the real estate. There is an exception to the last requirement that permits recording for up to 60 days after a lease is signed if the commission is paid in installments following the lease.
There are numerous requirements that a broker must follow in order for a lien to be effective. The Act includes a form with required information and a copy of the written commission agreement. The lien must then be delivered by mail or in person to the owner of the real estate within 10 days of recording.
The lien will be junior to prior-recorded mortgages and other liens and will also be junior to a construction lien. This may be recorded after a broker’s lien but will relate back to the work performed before the broker’s lien was filed. If the seller objects to the payment of the commission, the Act states that the parties can set up an escrow account for payment of the lien so the closing can occur. However, if funds are not sufficient to place into escrow, the parties are not required to establish an escrow account.
Similar to a construction lien, the lien holder can file suit to foreclose on the lien up to one year following the filing of the lien. As part of a foreclosure action, the Act allows the court to award the broker court costs and attorney fees. It also awards the same to the property owner if the action is deemed frivolous.
In case a broker files a lien the day before closing, parties to commercial real estate transactions need to check the status of the title to the real estate through the date of closing. The new law also leaves several questions unanswered and therefore buyers, sellers, brokers, lenders and title companies all need to be aware of the potential impact of the Act. If you have any questions regarding this, please give us a call.