BizLawBuz …. The Power of Know

The Michigan Construction Lien Recovery Fund, in effect for nearly 30 years, was recently dissolved by the Michigan Legislature. The Fund was initially established to protect homeowners who pay a residential building contractor and are left holding the bag when that contractor fails to pay the subcontractors and suppliers who provide labor or material on a project. Before the Fund was established, if the contractor was uncollectible the subcontractors and suppliers had no recourse but to go after the homeowner for payment. The end result was that unlucky homeowners sometimes ended up paying twice for the same work.

Large number of claims
The Fund was intended to remedy that problem, providing a resource from which subcontractors’ and suppliers’ claims could be settled in those cases where they were unable to collect from the contractor. Sadly, the Fund has been exhausted due to the large number of claims made against it in recent years.

Homeowners at increased risk
The elimination of the Fund leaves subcontractors and suppliers at increased risk of not getting paid for their labor or materials, which in turn places homeowners at increased risk of being drawn into litigation with subcontractors and suppliers. Homeowners will be able to avoid paying twice if they can prove that they paid the contractor in full, but subcontractors and suppliers will no longer have an alternative source of payment available to them (particularly if the contractor has absconded or is otherwise uncollectible).

8 Protection recommendations
In light of the dissolution of the Fund, we recommend that homeowners, subcontractors and suppliers consider taking the following steps to protect themselves:

1. carefully assess the financial strength of the general contractor;
2. insist on a written contract, either prepared or reviewed by your attorney;
3. maintain receipts for all materials provided;
4. preserve proof of all payments made;
5. if you are a subcontractor, exchange a waiver of lien directly for a check;
6. if you are a homeowner, obtain waivers of lien from the general contractor and all subcontractors at the time of payment;
7. require that checks be joint; and
8. insist on a construction escrow fund to be held by a third party.

Lee Flaherty

Since the economic meltdown of 2008, commercial loans for small businesses have been harder to find than a four-leaf clover. Would-be borrowers need every bit of luck available to find cash from traditional sources, despite the fact that many lenders enjoy surplus liquidity. I have personally worked with a number of clients who have been both surprised and frustrated by the difficulty in getting loan approval for profitable businesses. Manufacturers, professional practice groups, pharmaceutical companies: no one is exempt from the onerous new rules and new world of commercial lending. Fortunately, some welcome assistance may be on the way.

In a recent newsletter, the State Bar of Michigan’s Business Law Section reported that recent changes in federal legislation will ease the qualification requirements for companies seeking Small Business Administration (SBA) financing. As part of the Small Business Jobs Act of 2010, Congress modified the definition of a “small business company” to allow previously ineligible businesses to qualify. Businesses with a tangible net worth of $15 million or less, as well as annual profits of $5 million or less, now meet the size requirements of a would-be SBA borrower. This change significantly expands the pool of businesses eligible for SBA funding.

Before you get too excited, keep in mind that the SBA loan approval process has itself become painfully slow, in part due to the flood of new applicants. The change in eligibility requirements will likely exacerbate the delay. That said, any change that promises to increase the working capital available to smaller businesses is a welcome change given the stand-offish attitude of most private lenders. If your organization needs to borrow, or if it has recently tried unsuccessfully to obtain a loan, you should ask your lender or CPA about potential options under this recent piece of legislation. For more information, do not hesitate to give me a call.

Dirk A. Beamer

Recently, a business client contacted our office because he received a request from someone claiming to have Power of Attorney over one of his customers (let’s call her Jane). This individual was looking for copies of Jane’s personal records and prior purchase information. Jane is an elderly woman, who had been a long-time customer of the Business. To the best of the Business Owner’s knowledge, Jane did not have any close family or friends in the area.

Requests for personal information
The individual, a male, who contacted the Business “on Jane’s behalf” was forceful, discourteous, and seemed to suggest that the Business had sold goods to Jane for an amount greater than the actual value. This raised red flags for the Business, so we were contacted for advice on whether the Business should comply with the request for Jane’s personal information.

Use caution
These requests are not unusual, and many of you may receive similar requests at some point. If you are contacted by someone seeking another individual’s personal information, use caution. Always request a copy of the Power of Attorney document and ensure that the person to whom you are talking is the person nominated as Power of Attorney in the document. The following steps would also be prudent:

• Request a copy of the person’s driver’s license or other identification. Don’t assume that the person requesting information is who they say they are.
• Ask an attorney to review the Power of Attorney to ensure that the person claiming to have power of attorney is authorized under the document to accomplish the task he or she is attempting.
• Ask an attorney to prepare a short affidavit for the individual to sign, certifying that:
  • The person is who they say they are;
  • The person has personal knowledge that the other individual is not deceased (powers of attorney are only valid if the individual is alive);
  • The Power of Attorney is effective;
  • The person has no knowledge that the Power of Attorney has been revoked or is otherwise invalid.

Protecting yourself
While you might not be in a position to contest the validity of the Power of Attorney, you can protect yourself in the event someone later questions your decision to provide confidential information to a third party. Taking the above actions, and keeping a record of those actions, will show that you acted prudently before disclosing the confidential information.

Julie Pfitzenmaier