Real Property Notes Blog

Short-Term Rentals Violate Restrictions to “Private Dwelling” and Prohibiting “Commercial Use"

In Eager v Peasley, a published Michigan Court of Appeals opinion, a property owner rented her house out through homeaway.com for short term rentals, consiting of periods between 2 nights and 7 nights.  Other lot owners filed suit seeking an injunction on the basis that the rentals violated covenants provideing that "[T]hat the premises shall be used for private occupancy only; that no building to be erected on said lands shall be used for purposes otherwise than as a private dwelling and that “that no commodity shall be sold or offered for sale upon said premises and no commercial use made thereof.  The trial court dismissed the case, but the Michigan Court of Appeals reversed.

After reviewing several prior cases interpreting restrictions to “private residence,” “one single private dwelling house,” and “residence purposes only,” the court held that the use here was inherently transient and violated the restrictions.  The court also found that the short term rentals violated the “no commercial use” restriction, adopting the reasoning of a previous, unpublished Court of Appeals opinion.

By a footnote, the court noted that it had not been asked to address, and did not comment on, whether long-term rentals of dwellings for private residential use would violate the “no commercial use” provision of the restrictions.

Owner Not Personally Liable for Taxes which Accrued Prior to Ownership

Public Act 189 of the Public Acts of 2017, effective November 21, 2017, adds a provision that an owner of property is not personally liable for taxes which accrued against real or personal property before the owner became the owner.  The owner may raise this defense in an action for collection regardless of whether he raised the issue before the local board of review.

PRE Exemption Not Lost By Renting Residence for More than 14 Days

In Rentschler v Twp. of Melrose, a published Michigan Court of Appeals opinion, the taxpayer claimed a principal residence exemption on property located in Boyne City.  The township issued a notice of disallowance of the exemption on the basis that the owner had rented the property out for more than 14 days in any calendar year, relying upon guidelines issued by the Michigan Department of Treasury.  The owner filed an appeal with the Michigan Tax Tribunal, which found that the owner used the property as his principal residence, that it was residential property, and that he had occupied the property for the majority of the years in question.  Nevertheless, based upon the guidelines, the Tribunal found that the owner did not qualify for the exemption based upon the guidelines.

The Court of Appeals reversed, finding that the owner met all of the requirements of the statute.  The court also found the guidelines, which do not have the force of law, to be in error.  The guidelines were based in part on federal tax laws, which allow a homeowner to deduct rental expenses against rental income if the homeowner’s principal residence is rented for more than 14 days in any calendar year.  However, the federal statute does not disqualify the home as residential; it merely creates a dual character (residential and rental use) for the property.  Because the guidelnes attempt to impose a requirement not contained in the statute, the guidelines fail and the owner was entitled to the exemption.

Wife Signs Note, Both Husband and Wife Sign Mortgage; Mortgage Valid

In Pierce v Partners for Payment Relief DE III, LLC, an unpublished Michigan Court of Appeals opinion, the wife only signed the promissory note, but both husband and wife signed a mortgage on their property.  The mortgage had stamped under husband’s signature the phrase “For the purpose of subordinating all rights and interest including dower/homestead rights.”  The wife died and no estate was opened.  The husband subsequently died; his estate was opened and the personal representative quit claimed the property to their son.  The mortgagee subsequently started foreclosure proceedings.  The son filed suit seeking to stop the foreclosure and invalidate the mortgage, on the basis that the property was held as tenants by the entirety and, since husband never signed the promissory note, the debt and mortgage were extinguished upon the wifes death.  The trial court agreed.

On appeal, the Court of Appeals reversed.  Because husband signed the mortgage subordinating all rights and interest in the property jointly with his wife, the property was properly security for the wifes debt even though the husband was not liable for the debt.

No Irregularity in Foreclosure Proceeding, No Relief

In Acoff v US Bank NA, an unpublished Michigan Court of Appeals opinion, the mortgagors challenged the foreclosure of their home.  The bank filed a motion for summary disposition under MCR 2.116(C)(8) on the basis that their complaint failed to state a claim on which relief could be granted.  The trial court granted the motion and on appeal, the decision was affirmed.

A mortgagor seeking to set aside a foreclosure sale must plead and prove (1) fraud or irregularity in the foreclosure proceedings, (2) prejudice to the mortgagor, and (3) some causal connection between the fraud or irregularity and the prejudice. 

The mortgagors’ complaint alleged that the property was not posted with the foreclosure notice as required by statute; however, their complaint did not allege either prejudice or a causal connection.  

In an interesting aside, the court noted that the mortgagors waited until after the redemption period to expire which, under Bryan v JPMorgan Chase Bank, meant they lacked standing to challenge the foreclosure.  The court noted that, although Bryan was binding precedent, at least one federal court opinion held that it had jurisdiction to hear a post-redemption claim notwithstanding Bryan.  However, because the lower court did not reach the issue, the appellate court did not have to address it, either.

Whose Postmark Matters?

In Arbor Crossings Apt LLC v Twp. of Muskegon, an unpublished Michigan Court of Appeals opinion, the Plaintiff sought to file a petition with the Michigan Tax Tribunal.  The relevant statute provides that a petition is considered filed if "The petition is postmarked by the United States postal service on or before May 31 of the year.  The petition was mailed to the Tax Tribunal.  It bore a postal machine postmark of May 31, and a USPS postmark dated June 1.  The Tax Tribunal dismissed the petition as untimely.

On appeal, the petitioner argued that the postal machine postmark should be treated as the date for purposes of the statute.  The Court of Appeals disagreed, holding that the statute unambiguously treats the word postmarked as a verb in the phrase postmarked by the United States postal service, and thus the postmark must have been applied by the United States postal service.  Because the mark applied by the United States postal service was June 1, the petition was untimely.

Property Tax Repayment Agreements Unenforceable?

In Lancaster and York, LLC v Oakland County Treasurer, an unpublished opinion from the Michigan Court of Appeals, a delinquent real property owner entered into a repayment plan with the Oakland County Treasurer.  Notwithstanding the agreement, the treasurer foreclosed the property for unpaid taxes.  The property owner filed suit challenging the sale on the sole basis that there was an agreement for repayment of the taxes which the county breached.  The circuit court dismissed the case and the property owner appealed.

The Michigan Court of Appeals affirmed.  Contracts must be supported by consideration:  some promise, payment, or provision of goods or services by both parties to the contract.  Under the pre-existing duty rule, a party’s promise to provide performance that he is already otherwise required to provide—be it by statute, contract, or other enforceable duty—is not valid consideration to render an agreement an enforceable contract. Because the property owner had a pre-existing statutory duty to pay his property taxes, and because he promised nothing extra and paid nothing for the agreement, no contract was formed.

This opinion should make any delinquent taxpayer wary of entering into any sort of tax repayment plan with a municipality.  Any such agreement should require new consideration from the taxpayer, as well as an explicit agreement by the municipality that it will withhold the taxes from foreclosure.

Failure to Initial Changes to Offer to Purchase; No Contract

In LV204, LLC v Gatmaitan, an unpublished Michigan Court of Appeals Opinion, a buyer made an offer to purchase property reputed to be the Fisher family’s summer home.  The seller made come changes to the offer; a provision required the Buyer to initial each change and sign the counteroffer.  The buyer signed the document, but did not initial any of the changes.  The parties continued to correspond for two years, with the buyer adding additional requirements.  Finally, the buyer sued.  The trial court dismissed the case finding that, because the buyer never initialed the changes, there was no contract formed.

This case highlights an important point of contract law:  when a contract provides a specific method of acceptance, no contract is formed unless the acceptance is unambiguous and in strict conformance with the offer.  Only if an offer (or counteroffer) does not contain a specific form of acceptance can acceptance be inferred from conduct.  Signing alone was not sufficient; the counteroffer also required he initial each change.  Failure to do so was fatal to his claim that a contract was formed.

Agreement to Allow One Co-owner Exclusive Use of General Common Elements Enforceable

In Dorfman v Pierce Martin LLC, an unpublished Michigan Court of Appeals case, a six-unit condominium project was established, with four units characterized as residential and two units characterized as commercial.  The owner of the two commercial units requested approval of the use of approximately 365 square feet of general common elements for outdoor seating in connection with a restaurant, whose final character had not yet been finalized.  After informal discussions among the owners of the four residential units, the vice-president of the association issued a letter stating that the association approved the project and had obtained all necessary approvals from co-owners.  Once it was determined that the restaurant would serve alcohol, two of the owners of residential units challenged, claiming either that the letter was not properly issued because there was no formal meeting of co-owners, or that the grant was a violation of the bylaws because it was an improper conveyance of the general common elements. The trial court ruled in favor of the owner of the commercial units.

On appeal, the court held that there was no conveyance of the unit; only a change in use.  Under a provision common in many condominium documents, the association had the power to approve alterations to the common elements.

The court also rejected the argument that the approval was void because there was no formal meeting to vote on the matter.  The court noted that the evidence in the trial court showed that the four residential owners had agreed among themselves to act informally on association matters and had done so for other matters besides this one.  The court held that to require formal approval under the circumstance would be to elevate form over substance.

Disclosure Statement states “Seller has never lived at the property”: Buyer Has No Claim

In Celano v Hofstra, an unpublished Michigan Court of Appeals Opinion, Seller originally purchased lakefront property for her granddaughter and granddaughter’s boyfriend to live in.  Seller later sold the property to buyers.  Seller visited the property only once and never lived there.  The statutory Seller’s Disclosure Statement contained lines through the first two pages, with the notation “Seller has never lived at the property.”  The buyers sent an e-mail to the granddaughter asking “Can Seller fill out the Disclosure to the best of her ability?  They must know some information about the age of the roof, etc.”  In response, the granddaughter replied that seller was unaware of the age of the roof and “it will probably need a new one shortly.”  Buyer had an inspection of the property which revealed no issues.  Buyer closed.  Within a few months, severe flooding occurred at the property.  The neighbors informed buyer that the property was known to flood and that the granddaughter and boyfriend had troubles with flooding.  Seller’s seller also informed Buyer that he had experienced flooding.  Buyer sued, claiming Fraud, Silent Fraud, Negligent Misrepresentation, Failure to Disclose, and Breach of Contract.  The trial court, on summary disposition motion filed by the Defendant, dismissed the case.

On appeal, the Court of Appeals affirmed.  Fraud and negligent misrepresentation claims require that the defendant make an “affirmative misrepresentation.”  Since Seller made no representations about the condition of the property, Seller could not be held liable.  Silent fraud requires that the Plaintiff supress the truth which he had a legal duty to disclose.  Seller had a legal duty to disclose under the Michigan Sellers Disclosure Act, but Seller indicated that she had no knowledge of the condition of the property; Buyer was unable to adduce any evidence that Seller was aware of the flooding and failed to disclose it.  Further, Buyer could not prove reliance, because Seller disclosed nothing and Buyer had the property inspected.  Finally, because the purchase agreement provided that Buyer was buying the property “as is,” and because there was no change in the condition of the property from that disclosed in the Disclosure Statement, Seller did not breach the contract.

This case reinforces the warning “caveat emptor:”  “let the buyer beware."


© Steve Sowell 2017