Broker Lien Act changes

February 12, 2011
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Michigan's Commercial Real Estate Broker's Lien Act became law on Oct.5, 2010. The law permits a commercial broker, entitled to a commission under a written agreement, to record a claim of lien against the brokered property to secure payment of their commission. Following is a Q&A outlining key aspects of the law.

Question: Who can record a Broker's Lien? 

Answer: You must be an individual licensed as a real estate broker. A lien cannot be recorded by an employee, agent, sub-agent, or independent contractor of a licensed real estate broker. 

Question: If a broker finds a tenant and acts as the listing agent's sub-agent, may the sub-agent broker record a lien?

Answer: No. A broker who finds the tenant would need a written commission agreement with either the landlord or the tenant, to record a lien.

Question: When does a broker's lien become effective?

Answer: In most circumstances, the lien becomes effective (it "attaches") if (a) the broker has a written commission agreement; (b) the broker is entitled to a commission under that written agreement; and (c) the broker records a lien before the real estate is conveyed.

Question: Can the lien ever be recorded after conveyance of the property?

Answer: Yes. For example, a lien can be recorded after the conveyance: (a) if the commission is due in one or more installments (the lien applies to payments due after the lien is recorded); (b) for lease transactions, the lien must be recorded within 60 days after the lease is signed; and (c) a buyer's broker may record a lien after the buyer purchases or accepts the property.

Question: What happens if the lien is recorded more than 60 days after the lease is signed?

Answer: The lien is invalid.

Question: Does the act apply to subleases, lease assignments and lease modifications?

Answer: Yes.

Question: Is there any special form or content for a lien?

Answer: Yes. The Act states all of the information a lien must contain, and you must attach the legal description and the written commission agreement. The act also includes a sample lien form. Question: Once I record a lien, what happens?

Answer: Within 10 days after recording the lien, you must provide a copy to the owner of record and to the party who signed the written commission agreement, by mailing a copy by registered or certified mail with return receipt requested to the address of the real estate that is the subject of the lien, or by personal service.

Question: How do you provide notice of recording a lien if the property is raw land, without a street address?

Answer: If the property does not have an address, then you must provide notice by personal service. If you cannot provide notice as required by the act, then provide notice to the address set forth in the written commission agreement, to any address set forth in local, county and state public records, and to all other known or reasonably ascertainable addresses. If challenged, it is best to establish that you took all reasonable steps to provide the required notice.

Question: Is substantial compliance good enough?

Answer: Maybe, maybe not. The Act says, "a lien not recorded in compliance with this section is void and unenforceable."

Question:  What happens if I record a lien and the parties refuse to pay my commission at closing?

Answer: The Act says that the parties "shall" establish an escrow account from the transaction proceeds in an amount sufficient to satisfy the lien. A buyer or seller "shall not refuse to close the transaction" because of the requirement of establishing an escrow account. The money shall remain in escrow until your rights have been determined by a written agreement of the parties, judgment or court order, or any other method agreeable to the parties.

Question: Are the parties always required to establish an escrow account to satisfy a recorded lien?

Answer: An escrow account is not required if alternate procedures are available that will allow the transaction to close and that are acceptable to all of the parties, or if the proceeds from the transaction are insufficient to satisfy all liens against the real estate (i.e., a short sale, where proceeds of sale are less than the amount of the mortgage debt).

Question: What happens if I record a lien and the responsible party still refuses to pay my commission? 

Answer: You must commence a lawsuit within one year after the date your lien attaches, in the Circuit Court for the County where the real estate is located. Otherwise, the lien is extinguished.

Question: What is the deadline to file a lawsuit, if my commission is based on a future expansion or extension of leased space that may never happen? 

Answer: You must commence a lawsuit within one year after the lien attaches. There is a difference between "recording" and "attachment." Recording is the date the lien is recorded with the local Register of Deeds. Attachment is the date the recorded lien becomes effective. The one-year period to file a lawsuit commences, not upon the date the lien is recorded but, upon the date the extension or modification is signed.

Question: Can I always wait one year to file my lawsuit?

Answer: Not always. Once you record a lien, if the owner demands that you begin a lawsuit to enforce the lien, or answer a lawsuit, and you fail to do so within 30 days, then the lien is extinguished.

Question: What happens after I get paid, or if the lien is extinguished?

Answer: You must record a Release of Lien within five days after a written demand by the owner of record or the owner's agent and provide a copy of the recorded Release. The act contains a copy of a Release of Lien form.

Question: What if I only receive part of my commission? 

Answer: You must record a Partial Satisfaction and Release of Lien, within five days after written demand. The act contains a form of Partial Satisfaction and Release of Lien.

Gregg A. Nathanson is an attorney at the law firm of Couzens, Lansky in Farmington Hills.

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