Cavanaugh & Quesada, PLC’s Michigan Construction Law Update posted an troubling blog post just before the end of the year concerning the Michigan Lien Recovery Fund.

In plain language, the Michigan Lien Recovery Fund is a self-sustaining fund that steps in and pays mechanics lien claims on residential properties.   A homeowner can avoid paying for work twice by dumping claimants to the fund, and claimants can recover money owed by seeking judgment against the fund (as opposed to the homeowner).

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There are some rules, restrictions and limitations, of course (such as a $75k cap per residential structure)…but in theory, the whole thing works out.

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As the turbulent 2009 comes to a close, however, there is trouble with the Michigan Lien Recovery Fund:  it’s completely out of money.

Earlier in December, the Department of Engery, Labor and Economic Growth posted this update about the status of the Fund on their website:

At the present time, the Fund has become essentially insolvent, with a declining balance and an ineffective funding source to cover pending claims. The Department is seeking to repeal the Fund through legislative action.

According to the DELEG and Michigan Construction Law Update, the lack of money is fact, and not fiction:

The Fund is currently involved in over 250 pending lawsuits involving more than 350 claims against it that total more than $18 million. In 2009, Judgments against the Fund have averaged $123,800 per month. By mid-October, there was only $524,000 remaining in Fund coffers.  (from Mich. Construction Law Update)

The Fund sought a judicial remedy to the situation, but they received an adverse ruling in court.   For the time being, everyone involved is really stuck between a rock and a hard place (homeowners are exposed, claimants don’t know where to turn, the Fund is a lame duck, etc.).

This doesn’t / won’t necessarily affect a Michigan contractor or supplier’s lien and claim rights, but it certainly implicates the method of foreclosing upon claims.  Stay tuned.