Patricia Paruch, Kemp Klein Law Firm
In Jail for Blight?
By Leslie A. Butler, Law Firm of Leslie A. Butler PLLC and Ravi K. Nigam, Law Firm of Ravi K. Nigam PC"And behold, I shall be a blight upon the land, and everything I touch shall wither and die." Blight—Batman Beyond: Meltdown (#1.5) (1999)
The Michigan Legislature approved Public Acts 188-192 of 2013 (Acts) to amend the Home Rule City Act to provide additional enforcement tools to municipalities fighting blight. The Acts add new criminal and civil penalties and lower the population eligibility threshold for municipalities to utilize these tools. The Acts exempt certain government-sponsored enterprises and financial institutions that become owners after foreclosure or after taking a deed in lieu.
The Acts permit municipalities to make any property owner delinquent in paying blight fines or costs ineligible for rezoning, site approval, variances, building permits, or use and occupancy certificates.
Practitioners assisting commercial property owners owning tagged, blighted properties should consider another potential impediment to the redevelopment of certain properties. Some municipalities apparently will only remove the blight tag after the building is torn down and the slab and any parking areas are removed from the subject property. From the developer's viewpoint, it is often desirable to keep both the concrete slab and the parking lot in place to expedite or decrease the cost of redevelopment. The slab and parking lot can often either be reused or used as a staging area for heavy equipment during reconstruction. The new Acts could give municipalities more leverage in negotiations with developers when addressing these issues.
Several municipalities are reviewing and/or amending blight ordinances. Practitioners should check with their municipality for the current version and any pending changes.
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July 16-19, 2014
Cross-Collateralization Clauses and Junior Mortgage Foreclosure
By Jessica Hallmark, Banas and Associates PLLC
The merger doctrine provides that whenever the same person acquires a greater and lesser estate, the lesser estate is merged and destroyed unless the parties intend otherwise. Board of Trustees v. Ren-Cen Indoor Tennis & Racquet Club, 145 Mich App 318, 325 (1985). Applying this doctrine, the Board of Trustees court said where the holder of both a junior and senior mortgage forecloses the junior and buys it in a foreclosure sale, these actions extinguish the mortgagor's senior debt absent a contrary agreement. In Federal Deposit Ins. Co. v. Torres, Mich Ct App No. 311277, January 28, 2014, (unpublished), similar facts produced the opposite result.
Torres obtained a $1.1 million mortgage (Senior Mortgage) and a $200,000.00 line of credit (Junior Mortgage) from Warren Bank. The same property secured both. Both contained cross-collateralization clauses. Torres defaulted on both. The bank accelerated both and foreclosed the Junior Mortgage by advertisement with an appraisal of $530,000. At the foreclosure sale, the bank bid $487,113.18 and acquired title. It then obtained a deficiency judgment against Torres for the balance.
On appeal, the court said Board of Trustees was inapplicable because even if the Senior Mortgage was extinguished, the Junior Mortgage contained a cross-collateralization clause and therefore secured both debts. Also, unlike the Board of Trustees borrower, Torres owed more than the property was worth and failed to offer evidence that the bank's bid was disproportionate to the property's value. Hence, unlike the Board of Trustees lender, Warren Bank wasn't seeking double recovery by obtaining title at the second mortgage foreclosure sale for significantly less than market value and suing on the first mortgage note.
Takeaway: Borrowers should be alert for cross-collateralization clauses and understand their significance.
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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.