An unpaid material supplier raised an interesting argument in an attempt to get paid from the mortgage company in a construction lien lawsuit. In Arlington Transit Mix v MGA Homes, unpublished Michigan Court of Appeals decision dated June 26, 2012 (Docket No. 295530), a homeowner utilized a construction loan from Countrywide Home Loans to build a new house. Central Custom Homes acted as the general contractor. Central Custom Homes contracted with subcontractors and material suppliers, including Arlington Transit Mix and West Friendship Materials. Neither of the two suppliers to the job were paid by the general contractor.
The homeowner defaulted on his home loan and Countrywide initiated foreclosure proceedings and ended up with a quitclaim deed to the property. Arlington filed a construction lien foreclosure case and named other lien claimants, including West. West filed a cross-claim against Countrywide claiming that Countrywide benefitted when it foreclosed on the house knowing that West’s materials had not been paid for.
Countrywide moved for summary disposition, which was granted by the trial court. West appealed. The Michigan Court of Appeals addressed West’s claim of unjust enrichment. The Court of Appeals, while agreeing that Countrywide received the benefit of West’s materials, found that West did not confer a benefit directly to Countrywide. The Court of Appeals cited from Morris Pumps:
“In general, [a] third party is not unjustly enriched when it receives a benefit from a contract between two other parties,where the party benefited has not requested the benefit or misled the other parties…”
Thus, Countrywide ended up with property with greater value and did not have to pay the claim of the subcontractor. What was not stated in the opinion was that Countrywide likely had a first lien on the property, which left the subcontractors fighting over the remaining equity, if any, left in the property.
Subcontractors and suppliers should always attempt to obtain subordination from the construction lender to make sure that their construction liens take top priority.
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