LANSING – The Homeowner Construction Lien Recovery Fund is out of money and, rather than try to build it back up, the Department of Energy, Labor and Economic Growth is seeking to have it repealed.

The fund was designed to protect homeowners from liens by paying subcontractors if the general contractor did not. But as the economy tanked, claims on the fund rose beyond what it could handle, said Al Schefke, director of the Bureau of Commercial Services and administrator of the fund.

“The amount of claims against the fund tripled over previous years and doubled over (the previous) highest year and stayed that way a couple of years,” Schefke said.

Repealing the fund, he said, is both a fiscal necessity and a matter of fairness.

The fund currently is fed by a $10 fee added to the licenses of all builders in the state. That is down from the $50 fee in place when the fund was first implemented in 1982, but Schefke said that original fee would still not be enough to make the fund solvent in the short term.

“It would take $2.5 million to $3 million to get the fund through this patch that we’re going through,” he said. “None of the stakeholders were willing to or could come up with that kind of money.”

Without a quick cash infusion to make the fund solvent, cases filed against it could drag on for years as the fund collected enough money to cover the claims, he said.

And he said the number of contractors causing claims on the fund, while having grown as the economy sank, is still a small percentage of those operating in the state. He said it was not fair for the builders following the law to pay for those who are not.

“One hundred percent of these cases are builder’s trust fund fraud. They did not use the money for what they should have,” Schefke said. “It’s a felony.”

And he said prosecutors are beginning to take on more of the cases.

Loss of the fund would still leave homeowners protected as long as they had paid the general contractor, Schefke said. If they show proof they had paid for the work, the subcontractor loses the right to place a lien on their property.

But Schefke said there could be room for changes to the act that would further protect homeowners from liens and collections if subcontractors are not paid.

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