March 2011

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Co-Editors:
Howard A. Lax, Lipson, Neilson, Cole, Seltzer & Garin, PC

Patricia Paruch, Kemp Klein Law Firm

Priority of Condo Association Liens

By Charles L. Hahn, Trott & Trott, P.C.

Old real estate law doesn’t necessarily mean unimportant real estate law. In Oakwood Park Ass'n. v. Cathey (Mich. App. No. 293458, unpublished, 2010), the Association challenged the priority of a mortgage as not being the “first mortgage of record” under the Condominium Act, MCL 559.208(1). Seller had a first mortgage on a condominium unit in 1997, which was discharged when the unit was sold in 2003. New owner purchased the condo with a purchase money mortgage in 2003 and also had a second equity line mortgage, which was paid off at sale, but not discharged. In 2007 the condominium association recorded an assessment lien. When the purchase money mortgage went into foreclosure in 2008, the Association claimed its lien had priority over the buyer’s mortgage because it was not the first mortgage of record, but rather the zero-balance equity line mortgage was. This scenario is common and an important issue for both condo associations and mortgagees.

Notwithstanding the newer Condominium Act, the court agreed with the buyer’s mortgagee that the long established law under Landue v. The Detroit and Milwaukee Railroad Co. (13 Mich. 380, 397, 1865) controlled. The court held that the undischarged but fully paid equity line mortgage was a “nullity” and cannot be counted in the priority sequence. This made the 2003 mortgage the “first mortgage of record” and senior to the 2007 condo lien.

The ruling further defines “notice” and the need for further inquiry into what “sums unpaid” may or may not exist to determine the condominium lien priority. The case also highlights the pitfalls in over reliance on title commitments or reports. This ruling should have little cost impact on condo lien foreclosures and only require some additional discovery of mortgage liens not yet fully paid.

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March 10-12, 2011
2011 Winter Conference
The ABCs of Financial Regulatory Reform: A Big Change
Willard Intercontinental, Washington, DC
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March 15, 2011
9-11 a.m.
The New Detroit: Laying the Groundwork for a Revitalized and Sustainable City
Atheneum Suite Hotel, Detroit
*Co-sponsored with ICLE www.icle.org

April 14, 2011
7:30-9:30 a.m.
Groundbreaker Breakfast Roundtable
Detroit Athletic Club (DAC)
Show Me the Money: Non-Traditional Financing Alternatives
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July 20-23, 2011
2011 Summer Conference
Finding the Silver Lining: Real Estate Opportunities Arising from the Economic Crisis
Grand Traverse Resort & Spa,
near Traverse City
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Court of Appeals Addresses “Written Claims” in Condemnation

The Court of Appeals confirmed in Dep’t of Transp. v. Pavlov Properties (Mich. App. No. 286926, unpublished, 2010) that the Uniform Condemnation Procedures Act’s “written claim” requirement is no longer a trap for property owners. The UCPA previously required the owner to submit a written claim for items unaddressed in the condemning agency’s offer. Without a claim, compensation for such items was barred and owners lost compensation based on technicalities in their “claims.” See City of Novi v. Woodson (251 Mich. App. 614, 2002), and Carrier Creek Drainage Dist. v. Land One, LLC (269 Mich. App. 324 2005). A 2006 amendment revised the “written claim” provision. It still contains technicalities, but now provides that if a claim has not fully accrued when the “written claim” is due, the owner must “provide information then reasonably available.”

In Pavlov, MDOT’s taking eliminated the primary access to Pavlov’s truck equipment business. Pavlov sought business interruption damages for reconfiguring the property to accommodate the lost access. The reconfiguration was incomplete when Pavlov’s written claim was due, so Pavlov described “potential damages” and provided details later. Nevertheless, citing Woodson and Carrier Creek, MDOT moved to “bar” the claim. The Court held that the amendments rendered these cases obsolete, as the UCPA requires “only that a property owner notify the condemning agency of ‘reasonably available’ information describing” the claim’s “‘nature and substance.’”

Pavlov emphasizes that condemning agencies may no longer use the “written claim” as a trap. The Court specifically explained that the amendments eliminated an agency’s ability to avoid paying compensation when an owner’s claim “neglects to append sufficient supporting detail.” In the Court’s view, the amendments enhance an owner’s ability to obtain compensation and correct the mischief arising from Woodson and Carrier Creek.