Real Property Notes Blog
Lease with Option to Purchase Required Written Notice to Exercise Option. Written Notice Not Given; Holding Over for 14 Years Held Not Evidence of Exercise
In Horton v Gebolys, an unpublished Michigan Court of Appeals opinion, Plaintiff and Defendant entered into a lease in 2004 for a term of one year. The parties also entered into an option to purchase the property which also expired at the same time as the lease. The option was required to be exercised in writing. In 2014, Defendant quit paying rent and in 2018 Plaintiff filed an eviction case. After trial, the court found that defendant did not exercise the option to purchase, was a holdover tenant under the lease, and issued a judgment not possession. Defendant appealed.
The decision was affirmed on appeal. Defendants claim that he exercised the option was unavailing because he never presented a writing purporting to exercise the option as required by its terms. An option must be exercised strictly in accordance with its terms and defendant failed to establish that he did so. His claim that holding over for 14 years should be considered as evidence of his exercise was also unavailing given the lack of a writing.
Builder Not Entitled to Construction Lien Against Land Contract Purchaser Who Never Paid Any Part of the Purchase Price; Slander of Title Occurs When Lienholder Refuses to Discharge Invalid Lien
In Ramos v Bibi, Inc., an unpublished Michigan Court of Appeals case, Ramos entered into a land contract for the sale of property to the Wilkinsons. However, the Wilkinson’s down payment check bounced. Ramos started land contract forfeiture proceedings and obtained a judgment. During the redemption period, the Wilkinsons hired Bibi to install a driveway. Again, the Wilkinsons presented Bibi with a check that bounced. After the redemption period expired, Bibi filed a claim of lien under the Construction Lien Act. Ramos file suit to quiet title, Bibi filed a counterclaim for foreclosure of the construction lien, and the parties filed cross motions for summary disposition. The trial court ruled in favor of Ramos and against Bibi, and both appealed.
Regarding the construction lien, the Court of Appeals held that, because the Wilkinsons never paid any part of the purchase price, they never acquired an interest in the property. Thus, they never became an “owner" of the property. A construction lien claimant is entitled to a claim of lien only when it contracts with an owner or lessee of the property. Since the Wilkinsons were never an owner, Bibi was not entitled to a construction lien.
The trial court also erred in dismissing Ramos’ claim for slander of title. Ramos made two demands that Bibi release its lien, but Bibi refused. Failure to discharge an invalid lien after request is evidence of malice sufficient to support a claim for statutory slander of title.
MI Tax Foreclosure Process Ruled Unconstitutional Taking
In Rafaeli v Oakland County, the Michigan Supreme Court held that the statutory scheme of foreclosing property for unpaid taxes, where the county takes title and then sells the property to a third party while retaining the sale proceeds in excess of the amount of the taxes due, is an unconstitutional taking of the former owner’s property without just compensation as required by Article 10 Section 2 of the Michigan Constitution.
Raefeli purchased a rental property in Southfield, MI for $60,000, but failed to pay real property taxes in full. For a balance of $8.41 plus $2.26 in interest, penalties, and fees, the property was foreclosed and acquired by Oakland County, which subsequently sold it for $24,500 to a third party, but the excess proceeds were not paid over to Rafaeli. Rafaeli sued.
Relying on civil asset forfeiture cases, both the trial court and the Michigan Court of Appeals held that the statutory scheme did not violate due process and upheld the foreclosure.
While holding that Rafaeli received adequate due process in the foreclosure proceeding, the court held that retaining the surplus proceeds was an unconstitutional taking of his property without just compensation.
As a result of this decision, counties are facing an onslaught of cases claiming unconstitutional takings, as well as figuring out how to make up the lost revenue stream from surplus proceeds.
Only Personal Property, Not Real Property, can be Converted
n Tolbert v Morgan Waterfront Homes, LLC, an adversary proceeding brought in a Chapter 13 case in the Bankruptcy Court for the Eastern District of Michigan. the Debtor purchased a home and gave the seller back a mortgage for the purchase price. The seller subsequently recorded a quit claim deed purporting to be from the purchaser to the seller and brought an eviction proceeding as landlord. The purchaser disputed title and the eviction proceeding was dismissed. The seller then brought proceedings to foreclose the mortgage by advertisement and the purchaser, now debtor, filed a Chapter 13 case.
The debtor filed an adversary proceeding alleging conversion and slander of title against the seller/mortgagee. The seller filed a motion for summary disposition on all counts. After reviewing the state of Michigan state law, the court concluded that an action of conversion cannot lie for real property, only personal property, and granted the seller/mortgagee summary disposition. However, the court found that issues of fact remained whether recording the purported quit claim deed constituted slander of title.
Conditional Development Rights Expired; “Building B” Becomes Common Elements
In SLG-TC Development LLC v Peninsula Bay Resort Co-owners Association, an unpublished Michigan Court of Appeals opinion, Peninsula Bay Resort was originally formed in 2005 by the recording of the Master Deed. The original developer constructed one building, but the Developer encountered financial difficulties. In 2007, a receiver for the Developer conveyed the Developer’s rights for construction and establishment of a proposed Future Building B to another entity.
On the last date for expansion of the project, the entity recorded an amendment to the Master Deed stating that it was exercising the right to build 25 additional units on the Building B site. The amendment included floor plans for Building B; however, no construction had taken place.
in 2011, the entity and the condominium association executed a 5th Amendment to the Master Deed, agreeing that “physical construction, if any” on Building B had to commence not later than January 4, 2017. The amendment also stated that the entity had no right to withdraw any property from the project.
The entity never started construction, and its principal died. His widow sought to sell the entity’s interest, but no purchaser was found until after the deadline. When the condominium association refused to consider the matter further, the purchaser sued seeking a judgment quieting title to the unit.
After carefully considering the Master Deed and amendments in connection with the Michigan Condominium Act and common law, the court found that, although the entity had properly exercised the right to add Building B to the project, it conditioned the right to construct upon commencement of actual construction by a deadline, which was not met.
While no particular precedent was set, it does highlight the need for careful drafting and precise language in contracts and amendments, as vested rights can be bargained away.