The Michigan lien waiver exchange process can be frightening. Mechanics liens are a powerful form of leverage to secure payment on a construction project. Since lien waivers are regulated in Michigan, the risk of waiving more than intended is reduced. However, there are still specific rules to be followed and pitfalls to avoid when exchanging waivers for payment. This Michigan lien waiver guide includes everything you need to know, including downloadable forms, to get the lien waiver exchange right.
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Lien waiver exchange process
An important cog in the mechanics lien machine is the lien waiver exchange process. Lien waivers affect nearly everyone on a construction project. If not executed properly it can cause payment delays and serious financial harm.
- Project lenders will typically require lien waivers before approving any loan disbursements.
- Developers or owners will almost always require lien waivers before releasing payment to limit the possibility of a lien and to protect against the possibility of paying twice for the same work.
- General contractors are usually responsible for collecting lien waivers on behalf of owners and lenders in order to have payment released on the project.
- Subcontractors and suppliers must provide lien waivers in exchange for payment on the project.
It’s crucial to give lien waivers the attention they deserve, to be sure that you get the next exchange for payment on a Michigan construction project right. There are many instances where a single mistake could invalidate the entire lien waiver. Which could end up causing more delays to payment, disruptions in accounting, and could negatively impact your cashflow.
For a deep dive on lien waivers in general:
Michigan lien waiver rules
Every state regulates lien waivers in their own way. However, generally speaking, they all operate in the same fashion. They simply are documents signed by a potential lien claimant in exchange for payment, stating that they waive any future mechanics lien rights on the project.
Understanding how lien waivers work in your state is crucial to a successful construction company. In the state of Michigan, lien waivers are governed under the Mich. Comp. Laws §570.1115. Let’s take a look at some of the more important aspects of Michigan lien waivers.
Michigan requires statutory lien waiver forms
The state of Michigan is one of the 12 states that provide statutory lien waiver forms. This means that the state requires that the forms provided are the only ones that may be used in order to be valid and enforceable.
The statute specifically states that the waiver must be in substantially the following format to execute waivers of construction liens. Don’t let the term “substantially” fool you, any additions or modifications can lead to the entire waiver being invalidated. States that provide statutory lien waivers attempt to simplify the process by making the choice easy.
Mechanics lien rights can’t be waived in advance
Many times, property owners and contractors attempt to skirt the issue by either requiring lien waivers in advance or including language in their contracts that attempts to eliminate the possibility of filing a lien on the property. We here at Levelset refer to these as “no-lien clauses.” Only a handful of states allow this practice or don’t mention this in their statutes, while a majority strictly prohibit these clauses.
Michigan is one of those states. The statute is very explicit about this. In fact, it is the very first sentence in the section on construction lien waivers. It states that “no person can require, as part of a contract for improvement, that the right to a construction lien be waived in advance of work performed.” Any attempt to do so will automatically be invalid. Furthermore, waivers executed in advance of work performed are also prohibited.
Michigan mechanics lien statutes do not require lien waivers to be notarized in order to be valid. In fact, there are only 3 states where notarization is required on lien waivers. Getting a lien waiver stamped in Michigan is not only a waste of time, but could lead to more serious issues.
As mentioned above, Michigan lien waivers must follow substantially the same form as those provided in the statute. So the mere addition of a notary block and stamp could potentially invalidate the entire waiver itself.
Michigan lien waiver forms
As stated above, Michigan is one of the states that provide a statutory form, it’s important to be sure that you not only choose the right form but that it’s filled out properly. Let’s break down all the details and requirements for Mississippi lien waiver form itself.
Choosing the right form
Michigan statute provides the four typical types of lien waiver forms. Although the options are limited, there can still be some confusion regarding which form to use. There are two things that need to be considered. (1) What type of payment? & (2) Has payment already been made?
What type of payment is being made?
The first issue is determining what kind of payment is being received. There are generally two types of payment on a construction project, partial (progress) and final (full) payments. If receiving payment during the project, and more partial payments are expected on a project, then the payment is a progress payment. On the other hand, if the payment is received is at the project’s close-out, and no other payments are expected under the contract; then it is the final payment.
Do you actually have payment in hand?
This is an important step in choosing the right lien waiver. As this could seriously affect your lien rights if the wrong one is chosen. If you have received payment, then an unconditional lien waiver should be used. This means actually received, i.e., the check has cleared or cash in hand. Checks can always bounce, and credit card charges can be disputed or reversed. If this happens you are left without any recourse. However, if you have yet to receive payment, then a conditional lien waiver should be used. This type of waiver is not enforceable until payment is received.
Selecting the right form based on these answers
Now that you’ve answered these 2 simple questions, you’re ready to select the proper Michigan waiver of lien form. Here’s a table along with free, downloadable templates to choose the right form:
|Final Or Partial Payment?||Payment Received?||Lien Waiver Form Download|
|Partial||Payment Not Made||Partial Conditional Waiver|
|Partial||Payment Already Made||Partial Unconditional Waiver|
|Final||Payment Not Made||Full Conditional Lien Waiver|
|Final||Payment Already Made||Full Unconditional Waiver|
Filling out a Michigan lien waiver form
Lien waivers, specifically those that require a statutory format, must be filled out properly in order to be valid. Here is a breakdown of the information you’ll need to fill out a Michigan lien waiver form correctly.
This is the name of the party looking to be paid, and who will eventually be signing the lien waiver. This section may seem obvious, but mistakes can be made. For example misspelling the company name or improperly identifying the company designation (i.e., using LLC instead of Inc.) Here are 3 Mistakes Claimants Make When Identifying Themselves.
This is the name of the party who hired the waiving party to the project. It will typically be the name of the party who is actually making payment. However, it is possible that the paying party is not the customer. Take for example a scenario where a joint check is being issued directly from the property owner.
Description of labor and materials provided
A description of labor and materials on a lien waiver doesn’t have to be a complete, itemized list of everything provided to the project. This section should provide just enough information to show what your role on the project was. On the other hand, statements such as “provided labor”, won’t cut it. When in doubt, add more detail.
This doesn’t require a full, legal property description like most mechanics lien claims require. But, the requirements on lien waivers are a bit more relaxed. A simple physical street address will be sufficient, just be sure it’s as accurate as possible.
This one is fairly straightforward. Input the amount of money for which the lien waiver is being exchanged.
This section will only appear on progress/partial payment lien waivers. Getting this section right is crucial! It is not the date the lien waiver is being signed. This means that lien rights are being waived up to, and through a certain date. Therfore, lien rights will be waived for the value of all work or materials provided prior to this date.
Be sure to keep a copy of the lien waiver for your own records, introduce a company document retention policy. This is a great way to protect your business. Documentation is of the utmost importance in the construction industry. If ever something goes wrong, the more documentation you have, the better.
Lien waivers are regularly overlooked because they are exchanged so frequently on any given project. However, waivers should be given proper attention. They can seriously affect a contractor’s ability to recover unpaid funds through a mechanics lien claim. The rules governing Michigan lien waivers, in particular, are quite specific and must be followed pretty closely. Following this guide, is an important step to ensuring you get paid what you’ve earned.