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SBM Real Property Law Section eNewsletter

October 2013

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Co-Editors:
Howard A. Lax, Bodman PLC

Patricia Paruch, Kemp Klein Law Firm

Priority of Purchase Money Mortgage over Vesting Deed

By Glen Zatz, Bodman PLC

In BAC Home Loans Serv., LP v. Thomas (Mich.App. No. 309601, August 13, 2013, unpublished), a Michigan Court of Appeals panel held in a quiet title action that a purchase money mortgage (PMM) signed only by Geneva Thomas had priority over a warranty deed signed the same day conveying the property to Geneva Thomas, Yolanda Thomas, and Louise Thomas, as tenants in common. The court based its holding on prior Michigan and federal cases that found "In a typical purchase money mortgage situation . . . the purchase of the land and the mortgage are seen as simultaneous events, so that the mortgagor obtains the land already encumbered by the mortgage."

Interestingly, the trial court apparently held the PMM had priority over the other parties to the deed on the basis that because of mutual mistake the deed should be reformed to be only in the name of Geneva Thomas. The appellate court, however, did not address the mutual mistake issue, instead relying on its holding that a PMM has priority over the deed. The concurring opinion agreed with the result, but not the basis for reaching it. As it noted, "[t]he deed as written gave her [Geneva Thomas] a one-third interest in the property and so the mortgage could only attach to that one-third interest." The concurring opinion instead supported the result on the basis of the reformation of the deed due to mutual mistake.

Practitioners beware: there now seems to be Michigan case law upholding the validity of a PMM as against all the new owners, even though they all did not sign it.

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October 24, 2013
"Groundbreaker" Breakfast Roundtable
Construction Lending: Back in the Saddle Again

Breakfast at 7:30 a.m.
Roundtables 8:00-9:30 a.m.
The Townsend Hotel, Birmingham
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November 5, 2013
2013-2014 Homeward Bound Series
Multi-Family & Manufactured Housing Deals: Forms, Customs, & Problems
2:00-5:00 p.m.
Inn at St. John's, Plymouth
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Save the Date
March 13-15, 2014
Winter Conference 2014
Palazzo Resort Casino Hotel, Las Vegas
Room reservation available online.
Program & registration information to come.

Interested in writing a future article for the e-Newsletter?
Please contact co-editors:
Howard Lax at HLax@bodmanlaw.com or Patricia Paruch at Pat.Paruch@kkue.com.

Landlord's Duty of Care Regarding Criminal Acts

By Lawrence Shoffner, Esq., Lawrence Shoffner & Associates

The Michigan Supreme Court has clarified the landlord's duty of care regarding third-party criminal acts. Bailey v. Schaaf, 494 Mich 595 (2013). When a landlord is put on notice of criminal acts that pose a risk of imminent and foreseeable harm to an identifiable tenant or invitee in an area under the landlord's control, the landlord owes a limited duty of care to reasonably expedite police involvement. The Court noted, however, that this duty does not extend to criminal acts occurring within the tenant's premises, because such areas are under tenant control.

In Bailey, the plaintiff attended an outdoor social gathering in the common area of an apartment complex where his brother was a tenant. The landlord's security guards were patrolling the common area in a golf cart. At one point during the event, a resident allegedly informed the security guards that an individual was brandishing a revolver and threatening to kill someone, but the security guards did not contact the local police. Subsequently, plaintiff was shot twice in his back, rendering him a paraplegic.

In clarifying the landlord's duty of care, the Michigan Supreme Court applied the same framework as an earlier decision concerning a merchant's duty, MacDonald v. PKT, Inc., 464 Mich 322 (2001). The Court reasoned that Michigan common law imposes the same relative duty of care on both landlords and merchants with respect to property areas over which they exert control. Such control is, however, limited by the inherent unpredictability of criminal conduct and, therefore, the corresponding duty of care is also limited. Practitioners advising clients who own or manage rental properties should advise accordingly.

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.