Patricia Paruch, Kemp Klein Law Firm
From the Chair
By Mark P. Krysinski, Jaffe Raitt,Heuer & Weiss PC
Welcome to the second full year of the Real Property Law Section e-Newsletter. We strive to make it current and relevant to our readership. If you have an interesting issue that has come up in a transaction or litigation, please let us know. We are always looking for new topics and new authors. We hosted an enthusiastic crowd at Crystal Mountain Resort and Spa at the Summer Conference and we are in the process of refining the planning for the Winter Conference in Washington D.C., which we anticipate will be centered on federally supported lending for the real estate industry. Most of the programs we are planning for the coming year will be related to the difficult times in which the industry finds itself; it seems we can't have too many foreclosure or workout programs. As with the e-Newsletter, if you have an idea for a seminar topic or particular speaker you would like to hear, please give us a call at (248) 644-7378 or e-mail us at firstname.lastname@example.org . We look forward to seeing you at this year's programs.
Sixth Circuit Permits Government Foreclosure of Husband's Tax Lien on Entireties Property
By Gregg A. Nathanson, Couzens Lansky Fealk Ellis Roeder & Lazar PC
The U.S. Court of Appeals recently permitted the IRS to foreclose a tax lien for debt owed by the husband alone against the marital home owned by husband and wife as entireties property. United States v. Barr (6th Cir, Aug. 4, 2010.)
Ordinarily, both spouses must consent to sell or encumber entireties property. A creditor of one spouse cannot force a sale of the property.
Here, the husband owed $300,000 in income taxes. The IRS obtained a judgment against the husband and foreclosed.
The wife asked the Court to use equitable discretion to stop the sale, complaining that the debt was solely her husband's. She also argued that since she will outlive her husband, her property interest should exceed 50%.
The Court of Appeals permitted the foreclosure, holding that equal division of the property was appropriate under Michigan law. The Court noted that since the wife helped shift properties other than the marital home out of his name into hers, she bore some responsibility for the government's inability to collect back taxes from anything other than the marital home.
This case expands upon a principle established in United States v. Craft, 535 U.S. 274 (2002), which held that a federal tax lien may attach to a taxpayer's entireties interest in real property. The Barr decision goes one step further, and upholds the government's right to foreclose a tax lien securing the debt of just one spouse against entireties property.
Lesson of the case: A transfer to a spouse or spouse's revocable trust for estate planning purposes, for example, should occur well before any IRS dispute. Once the IRS is actively pursuing a tax deficiency, it may be too late to protect the property by transferring ownership.
Lease Voided for Lack of Landlord's One Sentence DisclosureBy Richard A. Sundquist, Clark Hill PLC
1031 Lapeer LLC v. Rice (Mich. Ct. App. No. 290995, August 5, 2010, unpublished) is the first appellate decision to interpret MCL 324.20116(1), which provides that a person who has knowledge that his property is a facility shall not transfer it without written notice to the purchaser and disclosure of the general nature and extent of the contamination.
Defendant gas station owner entered into a 10-year lease of his station to plaintiffs. A year later, Plaintiffs happened to contact the MDEQ (now MDNRE) and discovered that the station was contaminated. The lease was replete with indemnities and other protective covenants, and plaintiffs incurred no response costs. Plaintiffs sued for fraud anyway, sought damages and rescission, claimed the lease was void, and expressed concern over potential clean-up liability. Refreshingly, defendant admitted that the property was a facility, he knew about it at the time of the lease, and he failed to expressly mention it to plaintiffs.
Noting that there is no specific statutory remedy for violation of MCL 324.20116(1), the court found that disclosure was mandatory and the statute prohibits a transfer without disclosure as contrary to public policy. The Court of Appeals affirmed the trial court's finding that the lease was void, indicating that courts should not enforce contracts that violate statutes or are contrary to public policy. The court emphasized that defendant's "actual" notice of the contamination and his failure to disclose was more persuasive than defendant's argument that the plaintiffs could have easily discovered the contamination themselves and that the lease language itself provided notice.
Conclusion: Provide written notice that the property is a facility in the purchase agreement or lease, describe the general nature and extent of the release, and cite MCL 324.20116, .20101, and .20126(1) for added effect.
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