Blog : Real Estate

Commercial Real Estate Broker’s Lien

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.

 

Residential Home-building Exempt from Michigan Consumer Protection Act

The Michigan Supreme Court in Liss v. Lewiston-Richards, Inc. issued a very important and favorable decision for residential homebuilders in the State of Michigan. After the Court’s decision in Liss, residential homebuilders are no longer subject to a homeowner’s claim that the builder’s actions violated the Michigan Consumer Protection Act.

The Consumer Protection Act prohibits “unfair, unconscionable, or deceptive methods, acts, or practices in the conduct of trade or commerce.” Builders would inevitable be faced with a Consumers Protection Act claim, in addition to a breach of contract claim, when litigation was pursued by a homeowner, because the Consumers Protection Act would allow a homeowner to recover both actual damages and reasonable attorney’s fees from the builder.

Seven years ago in Forton v. Laszar, and again two years ago in Hartman & Eichhorn Building Company, Inc. v. Dailey, the Michigan Court of Appeals allowed for homeowner recovery of attorney fees for a successful claim against the builder under the Consumer Protection Act. However, the Consumers Protection Act includes an exemption for any “transaction or conduct specifically authorized under laws administered by a regulatory board or officer acting under statutory authority of this state.

In Liss, the builder was faced with a Consumer Protection Act claim from the homeowner for failure to complete construction on time and in a workman-like manner. Agreeing with the builder’s argument that Forton and Hartman were wrongly decided because of the above exemption, the Michigan Supreme Court held that because the Michigan Occupational Code requires residential builders be licensed and regulates the builder’s activities, any residential building activity that requires the builder to be licensed is exempt from the Consumer Protection Act.

This is an important decision for residential homebuilders because homeowners no longer have the superior position of being able to threaten the builder with the recovery of attorney’s fees upon a successful Consumers Protection Act claim.

The comments in this article are not intended to be a substitute for legal guidance or advice for a specific situation.  You should obtain informed legal counsel to assist in your decisions relating to any issues which may be raised in this article.

Show Me the Money! – Michigan Law Helps Contractors Get Paid

The Michigan Construction Lien Act (CLA) states that those who provide improvements to real property by providing services, labor, or materials have a lien against the property to secure payment for the improvements so long as the requirements of the CLA are followed.  This means that if a lien is properly placed on the property and the individual or company that provided the services, labor, or materials is not paid, the individual or company may pursue a foreclosure action against the property.  If successful in the foreclosure, the result is a forced sale of the property and payment for the improvement from the proceeds of the sale.  This can often prove to be an invaluable remedy in situations where the homeowner refuses to pay for the improvement or the general contractor has absconded with the homeowner’s payments.

The homeowner and persons with competing security interests may be unaware of other claims against the property.  Therefore, it is important to strictly adhere to the time, notice and filing requirements contained in the CLA in order to “perfect” a lien and establish priority over other creditors.  The following is a brief overview of the steps that must be taken upon entering into a contract to provide labor or materials in order to perfect a construction lien:

Prior to Performing Work or Providing Materials:

Subcontractors and suppliers who do not have a contract directly with the owner must mail a Notice of Furnishing by certified mail to the owner or lessee and the general contractor, or deliver it in person, no later than 20 days after first providing labor or materials.  The corresponding Proof of Service of Notice of Furnishing must also be sent along with the Notice of Furnishing.  If the notice is not sent out within the 20-day period, any payment from the owner to the general contractor that is earmarked for a subcontractor may reduce the subcontractor’s lien amount.

Upon Completion of Work or Provision of Materials:

A Claim of Lien must be recorded with the Office of the Register of Deeds (in the County where the property is located) within 90 days from the last day of furnishing significant labor or materials to the job.  The Claim of Lien must have attached to it a Proof of Service of Notice of Furnishing.  Additionally, within 15 days of the date of recording the Claim of Lien, the Claim of Lien must be served, personally or by certified mail, on the owner or a designee named in the Notice of Commencement along with any Proof of Service attached to the Claim of Lien. If these steps are properly followed, the Claim of Lien will be “perfected.”

Following Perfection of a Construction Lien:

If the lien claimant has not been paid after the Claim of Lien has been perfected by following the procedures above, a construction lien foreclosure lawsuit must be filed within one year from the date of recording the Claim of Lien.  The lawsuit must be filed in the Circuit Court where the property is located.  The lawsuit will foreclose on the construction lien, force the sale of the property and, with any luck, pay for the labor and materials provided from the proceeds of the sale.

Special Warning for Residential Construction Contracts:

A contractor has no right to a lien against a residential structure unless the improvement has been made pursuant to a written contract.  Any changes to the contract must also be in writing.  The contract is also required to have a variety of warnings to the homeowner concerning the contractor’s licensing information.  If a contractor provides an improvement to the property without having the necessary written contract, the contractor will not be permitted to foreclose on its Claim of Lien.

The CLA can be the best friend to a contractor, subcontractor or supplier who has not been paid on a construction project.  However, the CLA is a complicated act, fraught with pitfalls for the unwary contractor.  If you have not been paid on a construction project and are interested in the remedies provided by the CLA, you should contact your attorney.

* Douglas Winkle is an associate attorney with Parmenter O’Toole in Muskegon, Michigan.  Parmenter O’Toole is a full-service business and real estate law firm with extensive experience in the area of construction law.  The comments in this article are not intended to be a substitute for legal guidance or advice for a specific situation.  You should obtain informed legal counsel to assist in your decisions relating to any issues which may be raised in this article.  For additional information regarding the above topic, or any other legal issues you may have, Mr. Winkle can be reached at (231) 722-1621 or djw@parmenterlaw.com.

Can Falling Real Estate Prices Help You?

It’s that time of year again!  You should be receiving or have received your property tax assessment notice in the mail.  Your tax assessed value is based on half the value of your property.  If you do the math, you may be in the situation that the market value of your property in this depressed real estate market is less than the value used to determine your tax assessment.

So what can you do to fix this problem and take advantage of the downside of the market to save some taxes this year and going forward?

Your assessment notice should include instructions on appealing your assessment. You may loose your right to appeal the assessment if you do not follow the proper procedure.  If you believe that your assessed value is greater than 50% of the value of your residential property, you must request relief first from the assessor in some jurisdictions, and in others, the Board of Review.  Your assessment notice should state the proper procedure, and you should confirm that procedure with your local assessor’s office.

Beginning in 2007, an appearance at the local Board of Review is no longer required for most business property.  However, you should confirm this requirement with your attorney for your particular property before skipping the Board of Review.

If you go to the Board of Review to appeal your tax assessment, a written determination by the Board of Review must be provided to taxpayers.  If you have not received your determination by May for business property, or June for residential property, you may want to file an appeal with the Tax Tribunal to protect your appeal rights.  The deadline for filing a petition with the Michigan Tax Tribunal is May 31 for most business property and July 31 for agricultural and residential property.

What should you show the Board of Review to help your case for lowering your assessment?

Your recent purchase of your property at a purchase price that is below 50% of the assessed value is good evidence that the true cash value of your property has decreased.

You may also obtain an appraisal of your property which compares similar properties to show that the value of your property has decreased. Also, the State Tax Commission has issued bulletins to address single year sales studies and foreclosures in valuing real property.

Even if you do not appeal your assessed value, it may be worth looking over the property card on file with your local assessor to confirm that all the information is correct.  Mistakes on the property card, such as incorrect square footage, can affect the assessed value of your property.

* Jeff Jacobsonis an associate attorney with Parmenter O’Toole in Muskegon, Michigan.  Parmenter O’Toole is a full-service business and real estate law firm with extensive experience in the area of construction law.  The comments in this article are not intended to be a substitute for legal guidance or advice for a specific situation.  You should obtain informed legal counsel to assist in your decisions relating to any issues which may be raised in this article.  For additional information regarding the above topic, or any other legal issues you may have, Mr. Jacobson can be reached at (231) 722-1621 or jaj@parmenterlaw.com.

Seller Disclosure Requirements for Residential Property

In general, a seller of residential property must give prospective buyers a disclosure statement before the purchase agreement is signed, and the seller must disclose the presence of known lead-based paint in the house.

Seller Disclosure Act

The seller must provide the buyer with a disclosure statement in the statutorily required form, which includes disclosure of 1) the condition of all major appliances, systems and services, 2) the general condition of the property, including basement and roof leaks, 3) infestations, 4) underground storage tanks, 5) pending litigation, and 6) the seller’s length of ownership.  In addition, the seller must immediately disclose any changes to the structural, mechanical or appliance systems of the house after the date of signing the disclosure statement.

If the seller fails to provide a disclosure statement before the buyer signs a purchase agreement, the buyer has the right to void the purchase agreement.  While a buyer’s rights under Michigan’s Seller Disclosure Act end upon closing of the property, the buyer may still have a fraud or negligence action against the seller for statements made in the disclosure.

Lead-Based Paint Disclosure

Before a buyer executes a purchase agreement, the seller must provide an EPA-approved hazard information pamphlet, disclose the presence of known lead-based paint, and give the buyer at least 10 days to conduct a risk assessment or inspection for lead-based paint.

The lead based paint disclosure requirements only apply to houses built before 1978, and a seller is not required to conduct any evaluation of lead-based paints or hazards.

While the violation of lead-based paint disclosures do not affect the validity of a sale, there are significant civil and criminal penalties if a buyer discovers that a seller knew of lead-based paint hazards and did not make a disclosure.

 

Estate Administration

To Lease or Not to Lease

With the current state of the economy and soft real estate market, many people may be tempted to supplement their income through rental property.  While a consistent tenant may provide an excellent source of additional income and a means to build equity in a home, there are many issues one must consider before he or she embarks on a landlord-tenant relationship.

Whether the tenancy is for a fixed-term or for an indefinite duration, i.e. a month-to-month tenancy, a landlord should have a written lease memorializing the relationship.  The lease may be used to resolve misunderstandings that arise during the term of the lease.  A residential lease agreement should include: (1) the name and signature of the landlord; (2) the name and signature of the tenant; (3) the rental amount to be paid, the frequency of payments and when and where it is to be paid; (4) the address of the rental property; (5) the starting and ending dates if it is a fixed-term tenancy; (6) the landlord’s mailing address; (7) the amount of the security deposit, if any; (8) the name and address of the financial institution holding the security deposit; (9) notice of the tenant’s obligation to provide a forwarding address to the landlord within 4 days of terminating the tenancy; (10) who is responsible for paying the utilities; (11) repair and maintenance responsibilities; (12) eviction procedures; (13) any other terms and conditions that the landlord and tenant agreed to; and (14) the following statement must be provided in a prominent place in the lease, in at least 12-point font size: “NOTICE: Michigan law establishes rights and obligations for parties to rental agreements.  This agreement is required to comply with the Truth in Renting Act.  If you have a question about the interpretation or legality of a provision of this agreement, you may want to seek assistance from a lawyer or other qualified person.”

If a landlord intends to collect a security deposit from the tenant, the security deposit may not exceed 1½ month’s rent.  At all times, the security deposit remains the lawful property of the tenant.  The security deposit must be deposited into a regulated financial institution (e.g. bank) OR the landlord must deposit a cash bond or surety bond, to secure the entire deposit, with the Secretary of State.  Note: If the landlord does the latter, he or she may use the money at any time for any purpose.

Within 7 days from the date the tenant moved in, the landlord should require the tenant to complete an inventory checklist noting the condition of the rental unit.  Within 14 days from move in, the landlord must provide the tenant in writing: (1) landlord’s name and address for receipt of rent and communications; (2) where the tenant’s security deposit will be held; and (3) a notice in 12 point boldface type which is at least 4 points larger than the body of the notice or lease agreement which states: “You must notify your landlord in writing within 4 days after you move of a forwarding address where you can be reached and where you will receive mail; otherwise your landlord shall be relieved of sending you an itemized list of damages and the penalties adherent to that failure.”

After the tenant moves out, the landlord should complete a termination inventory checklist, noting the condition of the rental unit.  Within 30 days of the tenant’s move out, the landlord must mail to the tenant an itemized list of damages with the following statement in 12 point boldface type which must be at least 4 points larger than the body of the notice: “You must respond to this notice by mail within 7 days after receipt of same, otherwise you will forfeit the amount claimed for damages.”  Note: only unpaid rent, unpaid utility bills and damages to the rental unit beyond reasonable wear and tear caused by the tenant may be claimed against the deposit (not cleaning fees).  Along with the notice of damages, the landlord must mail the balance of the security deposit to the tenant.  If the tenant disputes the amount of damages claimed, the landlord must, within 45 of the move out, file a lawsuit against the tenant for damages in order to be entitled to keep the disputed amount of the security deposit.  If the landlord fails to follow the foregoing procedures, the landlord may waive the damages claimed and the landlord may actually be liable to the tenant for two times the amount of the security deposit.

While rental property can be an excellent source of income, there are many issues that must be taken into consideration in a landlord-tenant relationship.  If you are considering leasing property, you should have your attorney draft a lease for you and have him or her assist you with the move-in and move-out procedures to assure compliance with the law.

* Douglas Winkle is an associate attorney with Parmenter O’Toole in Muskegon, Michigan.  Parmenter O’Toole is a full-service business and real estate law firm with extensive experience in the area of landlord/tenant law.  The comments in this article are not intended to be a substitute for legal guidance or advice for a specific situation.  You should obtain informed legal counsel to assist in your decisions relating to any issues which may be raised in this article.  For additional information regarding the above topic, or any other legal issues you may have, Mr. Winkle can be reached at (231) 722-1621 or djw@parmenterlaw.com.

Fair Housing Act Disability Access Requirements

The Federal Fair Housing Act of 1968 prohibits housing discrimination on the basis of race, color, religion, sex, disability, familial status (children under 18), and national origin.  The Fair Housing Act is most often associated with non-discrimination by landlords when renting a house or apartment, but the Act is very broad and covers almost all aspects of property transactions.

One of the most important aspects of the Fair Housing Act for builders are the disability design and modification requirements.  The Act requires a landlord to allow a person with disabilities to make reasonable structural modifications both to an individual living unit and the common areas of a building, in order to provide access.  Such reasonable modifications could include installation of a grab bar or ramp.

While the landlord is required to allow such modifications, it is the tenant’s responsibility to pay for the requested changes.  But it is the landlord’s responsibility to maintain any installations in a common area.

An excellent question and answer statement prepared by the Department of Housing and Urban Development regarding the modification requirements can be accessed at: http://www.usdoj.gov/crt/housing/fairhousing/reasonable_modifications_mar08.pdf

In addition, the Fair Housing Act requires all construction built after 1991, which will include four or more units, be designed and built according to the disability access guidelines developed by HUD.   A copy of the full text of the HUD “safe harbor” disbaility design guidelines can be accessed at:  http://www.huduser.org/publications/destech/fairhousing.html

 

Green Building Can Lead to Green In Your Pocket

“Green” buildings, i.e. energy efficient buildings, are starting to be the focus of individuals, business and the legislature.  With energy costs going through the roof, literally, people are looking for a way to save money.  In addition to all the benefits of energy efficient buildings such as helping the environment, reducing the strain on energy needs, and reducing energy bills, there are several tax incentives for both builders and their customers to choose to build green.

Generally, choosing to build green means paying some higher costs upfront in the building process.  In order to combat some of those costs and give consumers additional incentive to choose energy efficient appliances, materials, and mechanical systems the Federal government allows the following tax credits and deductions:

Federal Tax Incentives:

  • Energy Efficient Commercial Buildings Tax Deduction: This deduction is available to building owners for installation of energy efficient lighting, equipment insulation, water heaters, heat pumps, air conditioners, windows, doors, etc.  The amount of the deduction (between $.03 and $1.80 per square foot) is based on the energy efficiency, which is calculated by IRS approved software, of the items installed as opposed to less efficient items.
  • Modified Accelerated Cost Recovery System (MACRS) Classification: This deduction is available to the business owner who installs solar, wind, or geothermal systems in their commercial building.  For these items that are placed in service after 1986, MACRS classifies them as 5 year property for cost recovery through depreciation deductions.
  • Business Energy Tax Credit: This credit against tax is for businesses that purchase eligible equipment installed from January 1, 2006 to December 31, 2008.  Eligible equipment includes solar heat and electric, microturbines, and geothermal systems.  The credit is 30% of the expenditures for solar technologies, fuel cells and solar hybrid lighting; microturbines are eligible for a 10% credit during the two-year period.  The credit reduces to 10% for solar energy for equipment installed on or after January 1, 2009 and expires for fuel cells and microturbines.  The geothermal credit remains at 10%.
  • New Energy Efficient Home Tax Credit For Builders:  This credit is for comprehensive measure covering the whole building, and the amount of the credit is based on energy savings amount and type of home.  Site-built homes qualify if they are certified to reduce energy consumption by 30% for $1,000 credit and 50% for $2,000 credit, relative to the International Energy Conservation Code standard set by the Department of Energy.  Manufactured homes may also qualify if they meet certain standards.
  • Residential Energy Efficiency Tax Credit and Solar Fuel Cell Tax Credit.  The Residential Energy Efficiency Tax Credit is a personal tax credit for installation of heat pumps and energy efficient insulation materials and systems, windows, doors, sky lights, pigmented metal roofs, air conditioners, water heaters, boilers, and circulating fans.  The maximum credit is $500.00 (see IRS Form 5695). The tax credit for solar equipment is 30% of the purchase price up to $2,000.

There are other tax incentives available and many credits combine to help offset the cost of these energy saving technologies.  In addition to builders receiving some tax incentives, they may also see additional profits by selling energy efficiency to their customers.  Information regarding these and other energy efficient tax incentives is available at http://www.dsireusa.org/ or contact Jeffrey A. Jacobson at 231.722.5405.

Who Owns Your Plans?

Do you create your own house plans or blueprints?  Do you have someone (e.g. an architect) assist or create layouts and blueprints for you?   If you paid to have them drawn up, you may or may not be the owner of the plans or blueprints.  What do I mean?  You may have the right to use the plans, but copyright laws will control whether you have the right to sell the plans, stop someone else from using the plans, or alter the plans without the permission of the creator.

Copyright 101:  In the U.S., the owner of a copyright in a work is the author.  In most cases, this is an individual or a group of individuals working together to create the work.  When a group is involved, the ownership rights are shared among them and any one of the owners has the right to use the work, with some exceptions, of course.  If an artist or architect creates a work for you, your right to use the work will be based either on an assignment or an agreement.

  • An assignment can be used to transfer copyright ownership rights to you.  An assignment is merely an agreement where the creator of the work agrees to assign all of his or her rights in the work to you in return for a payment (or ongoing payments).
  • A work made for hire is owned by the hiring party, not the creator.  There are two distinct types of work that may be classified as “made for hire”: (1) a work created by an employee within the scope of employment or (2) a commissioned work created by an independent contractor (non-employee) that is the subject of a written work-for-hire agreement and that falls within a special group of categories. Drawings or architectural plans are not included in the work-for-hire categories. Therefore, assignment language must be used in a written agreement with an independent contractor.
  • A license is the right to use the artwork for a specific purpose. A license does not transfer copyright ownership and only gives you limited rights as defined by the licensor.

It is always best to have ownership rights spelled out in a written document.  Otherwise, you may be surprised to find out that you have only paid for a license to use the plans.  If the creator is the owner, he or she is free to sell them to your competitor.

* Jeffery Jacobson is an attorney with Parmenter O’Toole, PLC in Muskegon, Michigan. Parmenter O’Toole is a full-service business and real estate firm with extensive experience in the area of construction law. The comments in this article are not intended to be a substitute for legal guidance or advice for a specific situation.  You should obtain informed legal counsel to assist in your decisions relating to any issues which may be raised in this article.  For additional information regarding the above topic, or any other intellectual property issues you may have, Jeff can be reached at Jeffrey A. Jacobson or 231.722.5405.

When is a signature not really a signature?

We have all had documents shoved in front of us with the rushed command, “Just sign here.”  But how many times do we really stop and think about the effect of our signature?

As an example, a building supplier has a form credit agreement for new customers that includes individual guarantee provisions.  When a new building contractor business opens an account with the supplier, one of the supplier’s employees has the contractor scribble his signature once at the end of the form and sticks the form in a file without thinking twice about it.

It is now months later, the contracting company is behind on payments owed to the supplier and will be ceasing operations.  When the supplier informs the contractor that he is personally responsible for the bill, the contractor disagrees and claims he never individually guaranteed the debt.

Is the supplier or contractor correct?

According to the Michigan Courts, the contractor DID NOT personally guarantee the debt because “an individual officer is not liable for his corporation’s engagements unless he signs individually, and where individual responsibility is demanded the nearly universal practice is that the officer signs twice – once as an officer and again as an individual.”  Livonia Building Materials Co. v. Harrison Construction Co. (Michigan Court of Appeals, 2007).

Every time you or a customer signs a legal document, there are consequences to that action. It is important that you have an attorney specializing in business and real estate transactions review your agreements and provide advice regarding potentially unintended consequences.