There is likely to be some other cause for the tree starting to fail - its true that lichen sometimes seems to proliferate on sick trees, but depending on the symptoms, it sounds like your tree does have a problem somewhere, maybe at the root. Inspect from top to bottom, including the whole of the trunk, the branches, stems and backs of leaves, looking for anything that shouldn't be there - cracks in the bark, soft areas in the trunk, or weeping areas and so on. Plus, are you certain its actually lichen you're seeing...

Lichen is harmless and in fact can supply nutrients to trees.

Can you post a photo of the tree with a close up of what is growing on the surface.

how old is your tree?
has it been pruned recently?
when did you last 'feed' it?
What pH is your soil alkaline or acidic?

Sorry about the questions but it may help pinpoint the problem

Magnolias are very resistant to disease and pests. Some of the key requirements for healthy magnolias are: soil acidity with a PH below 6, at least 6 hours of sun daily, sufficient space. If these things check, look for root girdling - roots the encircle the main truck and cut off water and nutrients.

I agree with Seaburngirl: a picture would definitely help. Is the magnolia being shaded by a building or taller trees? Magnolias tend to have multiple trunks that prone to splitting.

Lichen more often than not is usually a sign of unpolluted air - have never heard of it damaging a tree.
Stellata is more tolerant of pH than most and can also flower well in partial shade - sorry Bathgate, it is different from most. Ours flowers well in pH6.5

The fact that there are also very few leaves suggests some sort of disease

I hope someone will be able to discover what the problem is. It might help as well as a photo if you would add your state to your profile and describe the conditions the tree is growing in.

Steragram - I was indicating optimal growing conditions for Stellata Magnolia. They perform best in full sun and with acidic soil. Yes they have a "tolerance" slightly outside these conditions but won't perform nearly as well and are more susceptible to other problems. I'll need to see a photo to be more specific.

Lichen is harmless and produces its own food because it is a fungus that contains photosynthesizing algae. Your tree is being damaged by a disease which is causing leaf loss. As leaves are lost the lichen are exposed to more sun which causes it to proliferate further on your tree so it is just taking advantage of a situation which is optimal for its growth and in no way is it causing harm. As to the real culprit, as suggested photos will help the members here zero in on this situation.

Just had another idea. Burncoose Nurseries grow a huge range of magnolias. In your position I would contact them and ask if they can give you any advice.

I suppose that can't hurt, you can also check the library, buy a stack of encyclopedias, surf the internet or take a college course. All good ideas.

Lichen grows faster on dead wood, and branches that have stopped expanding. It isn't a pest, but extensive lichen growth is sometimes an early warning--often ignored--of trouble. I would apply compost tea twice a year, and get a 1x2, and give the trunk and branches a good hiding--not enough to remove bark, but vigorous smacks. Current theory is that it releases hormones that stimulate wood growth. Also check to make sure that it hasn't been girdled at the base by the lawnmower, or that the soil level hasn't risen--the root flair should still be exposed.