Who pays for contractor's cost miscue?

Law of the Land

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Mar. 17, 2010

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Law of the Land

Tara-Nicholle Nelson
Inman News

In the case ProBuild LLC v. Ellis, homeowners Ronald and Kimberly Jinks entered into a contract with home improvement contractor Steven Ellis for work to the Jinkses' home. The Jinkses paid slightly more than the contract price, which included labor and materials.

After the contract and the work was completed, supplier ProBuild North LLC (ProBuild) filed a mechanic's lien against the Jinkses home in an effort to recover the amount of Ellis' outstanding bill for building materials that Ellis used on the Jinkses' job.

Eventually, ProBuild sought to foreclose on the lien, collecting against the Michigan Department of Labor and Economic Growth's Homeowner Construction Lien Recovery Fund, which then sought to be repaid by the Jinkses.

The trial court found that because the Jinkses had paid Ellis the full contract price for the project, they were not liable to ProBuild for the unpaid supplies. The fund appealed the trial court's ruling.

The Michigan Court of Appeals upheld the trial court's ruling. ProBuild and the fund argued that Ellis' quote -- and the resulting contract with the Jinkses -- charged the Jinkses less than the value of the improvements they received. On appeal, ProBuild and the fund argued that the Jinkses should be required to compensate them for the value the Jinkses received above and beyond the contract amount.

However, the version of Michigan Construction Lien Act Section 570.1203 applicable at the time of the underlying events expressly provided that homeowners could not be liable under a construction lien where the owners filed an affidavit with the court stating they had: "(a) paid the contractor for the improvement to the residential structure and the amount of the payment; (b) not colluded with any person to obtain a payment from the fund; and (c) cooperated and will continue to cooperate with the department in the defense of the fund."

Ronald Jinks had filed such an affidavit with the trial court, and the trial court had found that it was materially undisputed that the Jinkses had actually paid Ellis more than the contract amount.

In response to ProBuild and the fund's argument that the Jinkses had not paid for "the improvement" because the contract amount was less than the dollar value of the improvement, the Court of Appeals cited another section of the Michigan Construction Lien Act, which "indicates that the total amount of liens cannot exceed the contract price less payments made."

Accordingly, the appellate court rejected ProBuild and the fund's appeal, and affirmed the trial court's ruling in the Jinkses' favor.

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.

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