How do you determine priority of liens in Michigan?
When determining the priority of liens on real property, Michigan is a “race-notice” state. This means there are statutes stating the first instrument recorded has priority over later recorded instruments. This creates obvious problems when instruments are inadvertently (or intentionally) recorded out of order, which sometimes happens even though simultaneously-executed documents have been clearly marked as to recording sequence for the Register of Deeds.
In 2006, the Michigan Court of Appeals decision (Furnari v. Wells Fargo Bank, No. 264864, unpublished) upheld a lower court decision that such a priority does not apply when the mortgage with the recording priority was recorded first with actual knowledge of another unrecorded mortgage. In the given instance, the priority-recorded mortgage even stated its subordination to the as-yet-unrecorded mortgages. The appeals court said: “Because plaintiffs were actually aware of the other mortgages when they made the Furnari mortgage, they cannot avail themselves of the protection afforded under MCL 565.29 even though they recorded first.”
It may also be important to determine if the attorney has a right to claim a lien.
There are essentially five types of liens that you may use, depending on the situation: the retaining lien the charging lien, the security interest, the judgment lien and the equitable lien.
A retaining lien is the right to retain possession of a file or documents relating to the case
where the fee is owed, while a charging lien is the right to retain a portion of the proceeds or funds resulting from litigation on the case where the fee is owed. The attorney can assert these liens only against files or funds relating to the case on which the fee is due; the attorney cannot assert them against some other case on which he is working for the same client where the fee is not past due. Because retaining and charging liens arise as a matter of law and fit within the most common fee dispute scenario (client owes attorney fees), these are the two liens most often used. The restrictions on retaining liens make the charging lien the most popular.
A security interest, unlike the other types of liens, arises as a matter of contract. Under Michigan RPC 1.8(j), a lawyer is prohibited from acquiring a security interest against property that is the subject of the litigation.
An equitable lien arises by agreement and protects an attorney in a situation where someone
who is not a client of the attorney is being enriched as a result of the attorney’s efforts.
Judgment liens are the least used type of lien because the assets must be levied on or seized
for the lien to become operative. This necessitates the attorney suing the client for the fee. That is seldom done for many reasons, not the least of which is that under the ethics rules an attorney may not sue his or her client while representing the client on any matter even if that matter is unrelated to the matter at issue.