The Michigan Court of Appeals published an opinion earlier this week further defining the scope of the definition of “residential structure” in the Construction Lien Act (“CLA”), MCL 570.1101, et seq. The case, Karaus v Bank of New York Mellon, ___ Mich App ___, ___ NW2d ___ (2013), originally issued as an unpublished opinion on December 20, 2012, was approved for publication on March 19, 2013.
A couple (the Carefs) purchased a home in Glenn, Michigan in March of 2004. Two months later, they entered into an oral agreement with the plaintiff to perform construction work on the property which, according to the opinion, continued through 2006. Plaintiff thereafter reportedly performed various repair work on the property between 2006 and 2009.
The Carefs refinanced their home in July of 2006, securing the loan with a mortgage that was recorded in June of 2007. The mortgage was thereafter assigned to the defendant, Bank of New York Mellon (“Mellon Bank”).
Plaintiff recorded a construction lien against the property in October of 2009 in the amount of $325,000 plus interest. He thereafter filed a complaint in September of 2010 seeking foreclosure of the construction lien, and asserting claims of breach of contract against the Carefs, and unjust enrichment against the Carefs, PNC Bank (which was ultimately resolved), and Mellon Bank. The trial court ultimately ruled in favor of Mellon Bank on both the plaintiff’s effort to foreclose on the construction lien, and his claim of unjust enrichment.
The trial court’s resolution of the construction lien foreclosure action involved an analysis of whether the subject property was residential. That analysis was necessary because the CLA requires that improvements to residential structures be pursuant to a written contract “between the owner or lessee and the contractor” in order for the contractor to have a right to a construction lien. The CLA defines “residential structure” as “an individual residential condominium unit or a residential building containing not more than 2 residential units, the land on which it is or will be located, and all appurtenances, in which the owner or lessee contracting for the improvement is residing or will reside upon completion of the improvement.” MCL 570.1106(3).
The court found that the subject property was indeed residential. While conflicting evidence was presented on the issue of whether the Carefs resided at the property during the relevant time frame, the trial court ultimately stated that it accepted the plaintiff’s statement that the Carefs did not occupy and use the property as a residence. However, it proceeded to find that the property was occupied and used by tenants, and that pursuant
to the case of Kitchen Suppliers v Erb Co, 176 Mich App 602; 440 NW2d 50 (1989), “the fact that lessees occupied and used the property as a residence renders the property residential for purposes of the CLA.” Since the court found that the plaintiff only had an oral contract with the Carefs, it ruled in favor of Mellon Bank on the construction lien foreclosure action.
The Michigan Court of Appeals reversed the trial court’s ruling on the construction lien foreclosure action, and remanded the case for further proceedings consistent with its opinion. It initially found that the trial court engaged in impermissible fact-finding when it concluded that the Carefs did not occupy and use the property as a residence, holding that there was a genuine issue of material fact on that issue.
More importantly, however, the Court of Appeals held that the trial court misapplied the law when it ruled that
even though the Carefs never resided on the property, it was nevertheless “occupied and used” by tenants, and that summary disposition in the bank’s favor was therefore required. The Court of Appeals explained that the Kitchen Suppliers case did not support the court’s rationale in that regard. Notably, it held that, “on the basis of the plain language of the statute and the Court’s interpretation and application of the CLA’s definition of 'residential structure,’ the determining factor in regard to whether a property constitutes a 'residential structure' or a commercial property is whether the owner or lessee contracting for the improvement intends to actually reside on the property upon completion of construction. [Cites omitted.] Thus, intent to reside in a structure is a
prerequisite to that structure being a ‘residential structure’.”
-Disclaimer-
A couple (the Carefs) purchased a home in Glenn, Michigan in March of 2004. Two months later, they entered into an oral agreement with the plaintiff to perform construction work on the property which, according to the opinion, continued through 2006. Plaintiff thereafter reportedly performed various repair work on the property between 2006 and 2009.
The Carefs refinanced their home in July of 2006, securing the loan with a mortgage that was recorded in June of 2007. The mortgage was thereafter assigned to the defendant, Bank of New York Mellon (“Mellon Bank”).
Plaintiff recorded a construction lien against the property in October of 2009 in the amount of $325,000 plus interest. He thereafter filed a complaint in September of 2010 seeking foreclosure of the construction lien, and asserting claims of breach of contract against the Carefs, and unjust enrichment against the Carefs, PNC Bank (which was ultimately resolved), and Mellon Bank. The trial court ultimately ruled in favor of Mellon Bank on both the plaintiff’s effort to foreclose on the construction lien, and his claim of unjust enrichment.
The trial court’s resolution of the construction lien foreclosure action involved an analysis of whether the subject property was residential. That analysis was necessary because the CLA requires that improvements to residential structures be pursuant to a written contract “between the owner or lessee and the contractor” in order for the contractor to have a right to a construction lien. The CLA defines “residential structure” as “an individual residential condominium unit or a residential building containing not more than 2 residential units, the land on which it is or will be located, and all appurtenances, in which the owner or lessee contracting for the improvement is residing or will reside upon completion of the improvement.” MCL 570.1106(3).
The court found that the subject property was indeed residential. While conflicting evidence was presented on the issue of whether the Carefs resided at the property during the relevant time frame, the trial court ultimately stated that it accepted the plaintiff’s statement that the Carefs did not occupy and use the property as a residence. However, it proceeded to find that the property was occupied and used by tenants, and that pursuant
to the case of Kitchen Suppliers v Erb Co, 176 Mich App 602; 440 NW2d 50 (1989), “the fact that lessees occupied and used the property as a residence renders the property residential for purposes of the CLA.” Since the court found that the plaintiff only had an oral contract with the Carefs, it ruled in favor of Mellon Bank on the construction lien foreclosure action.
The Michigan Court of Appeals reversed the trial court’s ruling on the construction lien foreclosure action, and remanded the case for further proceedings consistent with its opinion. It initially found that the trial court engaged in impermissible fact-finding when it concluded that the Carefs did not occupy and use the property as a residence, holding that there was a genuine issue of material fact on that issue.
More importantly, however, the Court of Appeals held that the trial court misapplied the law when it ruled that
even though the Carefs never resided on the property, it was nevertheless “occupied and used” by tenants, and that summary disposition in the bank’s favor was therefore required. The Court of Appeals explained that the Kitchen Suppliers case did not support the court’s rationale in that regard. Notably, it held that, “on the basis of the plain language of the statute and the Court’s interpretation and application of the CLA’s definition of 'residential structure,’ the determining factor in regard to whether a property constitutes a 'residential structure' or a commercial property is whether the owner or lessee contracting for the improvement intends to actually reside on the property upon completion of construction. [Cites omitted.] Thus, intent to reside in a structure is a
prerequisite to that structure being a ‘residential structure’.”
-Disclaimer-
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