Patricia Paruch, Kemp Klein Law Firm
Title Insurance Revisions Reduce Construction Loan Coverage
By John D. Bartley, O'Reilly Rancilio PC
Recent endorsement changes by the national title insurance industry have dramatically reduced insurance coverage for construction lien risks. Lenders are now forced to find other avenues of risk avoidance regarding liens filed under the Michigan Construction Lien Act (MCL 570.1101 et seq.). Construction lending risks arise from liens recorded by Contractors § 103(5), Subcontractors § 106(4), Suppliers § 106(5) or Laborers § 104(6) who for whatever reason were not identified in the sworn statement provided by the General Contractor under a draw request.
Previously, the title industry issued Pending Disbursement endorsements to insure that the mortgage lien under a construction draw disbursement will remain superior to any construction liens arising from labor or materials provided prior to the date of a certain sworn statement. There was no limitation that only certain named Contractors, Subcontractors, Suppliers or Laborers were included in the scope of coverage offered under the loan policy.
The Pending Disbursement endorsement is now replaced by ALTA Endorsement Forms 32-06, 32.1-06 and 32.2-06. These new endorsements (or their Michigan filed counterparts) provide coverage over construction liens filed by claimants who provided labor and/or materials to the property, who were specifically identified on the sworn statement, and who signed a waiver of lien in exchange for receipt of payment. Lenders will find no coverage available to protect against lien claims from Contractors, Subcontractors, Suppliers or Laborers not named on the sworn statement for whatever reason. The net result is that (absent fraud) the real risks associated with construction liens have shifted to the lender without any available title insurance protection. Lender's counsel might now be forced to advise lenders to be the named "Designee" under the Notice of Commencement § 108a, to enforce Notice posting requirements § 108a(8), and consider posting the Notice on residential construction sites.
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July 10-13, 2013
Condominium Carport Craziness Creates Confusion, Consternation and Conflict
By Gregory J. Gamalski, Giarmarco Mullins & Horton PC
Two related cases are part of an escalating war over private "taxes" (i.e., association fees) and property taxes. In re Emmet Co. Treasurer v. Harbor Watch Condominium Assoc. (Mich App No. 308892, January 24, 2013, unpublished) addressed a designation of a common element carport as a separate tax parcel foreclosed for unpaid property taxes. Common elements are not subject to separate tax assessment. At issue was whether the Tax Tribunal had exclusive jurisdiction to make the factual determination of whether the carport in question was a general common element. While the circuit court may have correctly determined that under the condominium master deed the carport was a general common element, the Court of Appeals concluded that the circuit court was the wrong venue for that supposed factual determination and only the Tribunal could so decide. Despite the master deed language, the Tribunal called the carport a separate "unit." One might observe to the contrary that interpreting a condominium document (i.e., a contract) is a matter of law rather than fact and thus properly determined by the circuit court. Query: What can the county treasurer actually sell at a tax sale? Must the association recognize the sale? Can it charge dues? Who votes the "carport"? In any case, quid pro quo, soon after the ruling in In re Emmet Co., the association sued for nearly $100,000 in dues owed on other units which the county treasurer had acquired (Harbor Watch Condominium Assoc. v. Emmet Co. Treasurer, Emmet Co. Cir. Ct. No. 103747-CZ). Since all co-owners, treasurers included, must pay dues, the case looks like a winner. Motions for summary disposition are pending. Perhaps Poor Richard's aphorism must now mention another certainty besides death and taxes: association dues.
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.