Real Estate Broker’s Lien

Real Estate Brokers may enforce their commission claims by recording a lien on commercial properties subject to those claims.

On October 5, 2010, the Commercial Real Estate Broker’s Lien Act (the Act) became law in Michigan.  The Act enables licensed real estate brokers to attach liens for unpaid broker fees against commercial real estate if the broker has a written commission agreement and records the lien before the property’s conveyance.

The Act only applies to written commission agreements executed after the Act’s effective date (October 5, 2010) and to “commercial real estate,” which is defined as any property that is NOT: (i) vacant property zoned for single-family use, (ii) property with 4 or fewer residential units, or (iii) property with more than 4 residential units if such units are single-family units that are sold, leased, or otherwise conveyed on a unit-by-unit basis.

A broker may record within 60 days after a lease is signed, which attaches once the tenant takes possession of the property.

If a broker’s lien would prevent a closing, the parties shall escrow an amount sufficient to satisfy the claimed lien.  A proper escrow extinguishes the lien, and the broker collects from the escrow. A buyer or seller cannot refuse to close a transaction due to the escrow account requirement. An escrow account is not required if either (i) alternative procedures are available that will allow the transaction to close and are acceptable to all of the parties to the transaction, or (ii) the proceeds from the transaction are insufficient to satisfy the claimed lien.

Any action to enforce a broker’s lien must be commenced within one year after the attachment; if not, the broker’s lien will be extinguished.  The court has the power to sell the property in the same manner as an execution on property if the lien is not satisfied.

Buyers and tenants could be forced to pay the lien to avoid loss of the property or eviction.  This will require diligence leading up to closing and written assurances that will protect the parties from broker liens.  Lambert Law can assist you in recognizing the challenges and avoiding the pitfalls presented by this new law.

Caution: This article provides general information and is not intended to be legal advice. Your personal circumstances likely vary from those discussed in this article. You should contact Lambert Law if you are seeking specific legal advice as to your contract or circumstances.

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