Pro dealer trumps bank in Michigan lien case

The U.S. Michigan Court of Appeals has upheld the construction lien of Stock Building Supply over AmTrust Bank in a residential foreclosure case, according to an opinion released on Aug. 2. 

Stock, along with co-plaintiff Jeddo Drywall, supplied materials for a single-family house being built in 2006 in a development called Cambridge Meadows, a community south of Detroit. Cambridge did not pay Jeddo and Stock, so both companies filed liens against the developer. Stock’s final lien eventually totaled $35,997. AmTrust Bank, which provided construction funding for Cambridge in 2005 when it was installing streets and utilities, foreclosed on the subdivision in 2008.

Jeddo and Stock were forced to sue AmTrust and others to foreclose on their construction liens. A trial court ruled in their favor because construction liens have priority as a matter of law, as long as physical improvements were made to the property before AmTrust recorded its mortgage. 

The Michigan appeals court agreed. Construction liens for labor and materials furnished for a particular residence in a subdivision have priority over a bank's mortgage covering the entire subdivision, the judges said. They also disagreed with the bank’s argument that no physical improvements had been made to the property before the mortgage was recorded. Grading, paving streets and installing utilities all counted as property improvements, the court ruled.