SBM Real Property Law Section eNewsletter

February 2013

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Howard A. Lax, Bodman PLC

Patricia Paruch, Kemp Klein Law Firm

Mortgage Transfers and Priority

By Matthew B. Theunick, Trott & Trott PC

In a case decided late last year, the Michigan Supreme Court distinguished, for priority purposes, between voluntary mortgage transfers and involuntary transfers or those by operation of law (Kim v. JP Morgan Chase Bank, NA (Mich. No. 144690, December 21, 2012)). The decision clarified MCL 600.3204(3), which requires "a record chain of title" prior to foreclosure sale. The Court looked to Miller v. Clark 56 Mich 337, 341 (1885) and noted, "The assignments which are required to be recorded are those which are executed by the voluntary act of the party, and this does not apply to cases where the title is transferred by operation of law . . . ."

In reviewing the Michigan Court of Appeals' Kim decision, the Court noted that the initial mortgage transfer from WaMu to FDIC was by operation of law, but that the subsequent transfer from FDIC to JP Morgan was by voluntary act implicating MCL 600.3204(3) and, therefore, requiring an assignment for proper chain of title. However, in what will likely be interpreted as the key holding of Kim, the Court held that the court of appeals' interpretation of the foreclosure by advertisement sale of JP Morgan as being void ab initio under Davenport v. HSBC Bank USA, 275 Mich App 344 (2007), was contrary to established precedent and that defective foreclosures are voidable. Practice tip for lawyers advising foreclosed parties: To determine whether a defective foreclosure should be set aside, the key test is whether the borrowers are able to show prejudice, and that the borrowers would have been in a better position to preserve their interest absent the noncompliance. Establishing prejudice sufficient to warrant setting aside a completed foreclosure will likely be a heavy burden for borrowers to overcome. For further discussion of the Kim case, see my case note in the upcoming Michigan Real Property Review.

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February 7, 2013
2012-2013 Homeward Bound Series
"Nuts to Bolts—Construction for Non-Construction Lawyers From Commencement to Completion" (or Non-Completion)

April 18, 2013
"Groundbreaker" Breakfast Roundtable
Dealing with Distressed Properties, Part III- The Lawyer's Guide to Negotiating/Renegotiating Commercial Leases

Breakfast at 7:30 a.m.
Roundtables 8:00-9:30 a.m.
Detroit Athletic Club, Detroit

March 14-16, 2013
Winter Conference 2013
J.W. Marriott, New Orleans

Interested in writing a future article for the e-Newsletter?
Please contact co-editors:
Howard Lax at or Patricia Paruch at

Condominium Associations Beware—Two New COA Opinions

By H. William Freeman, Sullivan, Ward, Asher & Patton PC

Two recent Michigan Court of Appeals cases address different rights and obligations of condominium associations relating to unpaid association fees and dues. Both of these cases emphasize the importance of the attention to procedural details required in the administration of condominium association matters.

In Coventry Parkhomes Condo. Ass'n v. Federal Nat'l Mtg. Ass'n (Mich App No. 304188, October 25, 2012, published), Chase granted a mortgage to a co-owner of a unit, then subsequently assigned the mortgage to FNMA. Between the mortgage and the assignment, the condominium association recorded a lien on the unit for unpaid association fees and dues. The litigated issue was whether the association lien had priority over the assigned mortgage. Pursuant to the Condominium Act, MCL 559.208(1), a "first mortgage of record" has priority over a condominium association lien if the "first mortgage of record" was recorded before the lien. Although Chase assigned its interest in the mortgage to FNMA subsequent to the lien, the Court determined that the Chase mortgage was still the first mortgage of record.

In Gorosh v. Woodhill Condo. Ass'n (Mich App No. 306822, October 16, 2012, unpublished), a condominium co-owner claimed he did not receive adequate notice of a foreclosure by advertisement. Although the association complied with the applicable foreclosure by advertisement statute, it failed to inform the co-owner that the condominium bylaws provided that he could request a judicial hearing. The Court held that compliance with the notice provisions in the bylaws was mandatory to proceed with foreclosure even though the association complied with all of the statutory requirements.

Condominium law is a very document-intensive practice area. Attorneys advising condominium associations must pay strict attention to all of the details in the condominium documents, including the bylaws, to avoid procedural pitfalls.

The views and opinions expressed in these articles are those of the authors, and they do not reflect in any way the positions of the State Bar of Michigan or the Real Property Law Section. These columns are meant for informational purposes only and should not be construed as legal advice.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding tax-related penalties or (ii) promoting, marketing, or recommending to another person any transaction or matter addressed in this communication.