BONDS TO DISCHARGE CONSTRUCTION LIENS IN MICHIGAN
The Michigan Court of Appeals has recently published an opinion that extends the time in which a claim may be made upon a bond to discharge a construction lien. Based upon the recent opinion of E.R. Zeiler Excavating, Inc. vs. Valenti Trobec Chandler, Inc., et al, a claimant upon a bond to discharge a construction lien may claim upon the bond at any time before the expiration of six (6) years, in contrast to a construction lien foreclosure action which must be initiated within one (1) year after the lien has been recorded. Interestingly, the Court did not express when the six (6) time period begins within which a claim may be made upon a bond to discharge a construction lien.
Even though the one (1) year statute of limitations to enforce a construction lien by foreclosure action still stands, when a contractor or owner supplies a bond to discharge a construction lien (commonly known as "bonding out the lien"), the time period within which a claimant may claim upon that bond has been extended to within six (6) years. This will also obviously extend the time within which any annual premiums must be paid by the contractor or owner for its surety bonds to discharge construction liens.
The Court in Zeiler analyzed the legislative intent of the Michigan Construction Lien Act, and determined that Michigan's legislature did not intend the one (1) year limitation period to foreclose upon construction liens to be applicable to surety bonds to discharge those liens. Indeed, a surety bond releases the real property from potential liability. The Court held that surety bonds do not bring with them the prospect of foreclosure actions that the legislature took care to see settled quickly in the interest of the public within one (1) year from its recording. Therefore, the Court determined that Plaintiff's claim upon the surety bond to discharge its construction lien was controlled by the six (6) year limitations period for breach of contract actions, and not the shorter one (1) year period applicable to construction lien foreclosure actions.
As a result of this recent holding, we would recommend that surety bonds to be supplied to discharge construction liens contain the following limiting language:
| This bond shall automatically expire unless suit is filed against the Surety within one year after the date the Claim of Lien was recorded, which was on ___________. |
We make no guarantee that this language will be enforceable, but is a far cry better than the present state of the law. We believe the Court’s analysis in Zeiler is misguided since the purpose of bonding out the lien is to simply replace the lien and the same statute as for the time for filing suit against the lien should also apply to the time for filing suit against the bond that replaces the lien.
