SBM Real Property Law Section eNewsletter

December 2010

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Howard A. Lax, Lipson, Neilson, Cole, Seltzer & Garin, PC

Patricia Paruch, Kemp Klein Law Firm


Judgment Lien Survives Sale; Enforceable Only Against Debtor, Not Purchaser

By John T. Gregg, Barnes & Thornburg LLP

On October 28, 2010, the Michigan Court of Appeals held in Thomas v. Dutkavich, NW2d, 2010 WL 4260094 (Mich Ct App Oct 28, 2010) that a properly recorded judgment lien under the Michigan Judgment Lien Act, MCL 600.2801, et seq. (MJLA), survives the debtor's disposition of real property to a third party with notice in the absence of full or partial satisfaction of the judgment. However, despite the survival of the lien, the court held that (i) a judgment creditor cannot enforce a lien against the third party purchaser under the MJLA, and (ii) a third party purchaser has no obligation to pay sale proceeds directly to the creditor. The court left open the potential for execution or levy of the real property under MCL 600.6018.

The decision reveals numerous deficiencies in the MJLA, which provides little, if any, recourse to a judgment creditor. First, the act provides the judgment creditor with no right of foreclosure against the debtor, let alone any purchaser. Second, the MJLA fails to provide a judgment creditor with means to ensure that sale proceeds are first applied to its lien. Third, in the event that the initial purchaser later sells, payment to a judgment creditor likely will occur only if the subsequent purchaser is uncomfortable with the lien.

This decision reinforces the need for purchasers and title companies to insert provisions in the purchase agreement allowing the purchaser or the escrow agent to pay any judgment lien creditor directly from the sale proceeds and prior to any distribution to the judgment debtor or junior lien holders.

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December 2, 2010
2:00–5:00 p.m.
Homeward Bound
Economics of Property Deals
Inn at St. John's, Plymouth

January 13, 2011
7:30–9:30 a.m.
"Groundbreaker" Breakfast Roundtable
Energy is Here to Stay

February 3, 2011
2:00–5:00 p.m.
Homeward Bound
Total Development in the World of the Land Division Act—Platted and Unplatted Property Inn at St. John's, Plymouth

March 10-12, 2011
2011 Winter Conference
Willard Intercontinental, Washington, DC

Vacant Property Ordinances: Nobody Knows the Trouble I See

By Thomas D. Esordi, Kitch Drutchas Wagner Valitutti & Sherbrook, and Mary E. Dunn, Orlans Associates, PC

Almost fifty Michigan municipalities now have ordinances requiring registration of abandoned or vacant property, with registration fees and fines for non-compliance. Property owners, their agents, and loan servicers must review ordinances in each community to insure that their properties comply. Mandatory local property registration and inspection fees vary from $0 to $500 per month. Penalties for failing to register properties can begin after 10 days of vacancy (or even immediately upon abandonment) in some communities, while other ordinances allow registration of vacant properties up to 180 days after vacancy. Example, for each day a current registration form is not on file, Woodhaven imposes a civil fine of $100 against the owner and/or the owner's agent.

The language of these ordinances varies widely. Some of these ordinances may not meet constitutional muster even though the local communities approved them to "protect the health, safety, and welfare" of their citizens, and legal challenges may be on the horizon. Many ordinances define "vacancy" and "abandoned" in a circular fashion. Local officials lean toward a broad interpretation of which properties are subject to the ordinance. For example, Woodhaven's ordinance describes evidence of vacancy as "any condition that on its own, or combined with other conditions present, would lead a reasonable person to believe that the property is vacant . . .," "Accumulation of trash," and statements by neighbors or passersby may be sufficient to declare a property vacant or abandoned.

Day to day loan servicer compliance involves determining which properties should be registered, where and how to register, and who is responsible for registering and paying fees. The lack of uniform ordinances with well defined responsibilities makes this job difficult and time consuming.