Real Property Notes Blog
Bylaw Provision Confers Membership in Summer Resort Association
In McGue v Glenbrook Beach Association, an unpublished Michigan Court of Appeals opinion, a lot owner sued a summer resort association on multiple theories claiming damage to their car because of the failure of the association to maintain private roads. The defendant claimed that the lot owners did not have standing, and defended on the basis that nothing in the association documents required the association to maintain the roads to township ordinances. The trial court found that the lot owner had standing, but ruled that they had no claim. The lot owner appealed.
The Court of Appeals agreed that the lot owner had standing, because the bylaws provided that any person holding title to a lot in the subdivision was a member of the association, and because their deed to the property specifically stated that it was subject to the bylaws of the association.
However, the court agreed that nothing in the resort association documents required the association to maintain the roads to township standards, nor did the lot owner allege a particularized injury, separate and apart from that suffered by any member of the public who drove on the association roads, that would give them standing to enforce the road ordinance.
Condominium Association’s Duties Differ whether Plaintiff is a Co-owner or a Tenant
In Smith v Aberdeen Village C.A., an unpublished Michigan Court of Appeals opinion, the Plaintiff rented a room in his sister’s condominium. He slipped and fell on ice in the parking lot, fracturing his ankle. He sued the condominium association, its management company, and the condominium’s snow contractor for his damages.
The court found that both the association and the management company exercised sufficient authority over the parking lot to possess and control the common area and thus some duty of care. Co-owners would call both the board and the management company to advise about icy conditions.
The defendants claimed that the Plaintiff, as lessee, had sufficient rights in the common areas to be considered an owner, and thus MCL 554.139 did not apply, relying on Francescutti v Fox Chase Condominium Association, 312 Mich App 640; 886 NW2d 891 (2015), discussed here. The court found that the Defendants’ duties varied depending upon whether a person was an owner or a lessee of a condominium unit. Because an owner has an undivided interest in the condominium premises, MCL 554.139 does not apply according to Francescutti. However, the Plaintiff was a tenant, not an owner, and did not possess all of the rights of ownership in the common elements of the association.
The court then considered the requirement of notice and held that, because the motions for summary disposition were decided after the Michigan Supreme Court issued an opinion holding that a defendant does not need to present evidence of a reasonable inspection regime to negate a claim of notice, the court remanded the case to the trial court for briefing and argument on this issue.
Shareholder Entitled to Requested Records, but Attorney Fees Denied
In Hammoud v Advent Home Medical, Inc., an unpublished Michigan Court of Appeals opinion, a shareholder in a business corporation requested certain records from the corporation. The corporation failed to respond and the shareholder filed suit seeking an order compelling disclosure of the records. On an appeal after remand from a prior appeal, the Michigan Court of Appeals stated that the plaintiff provided sufficient proof that she was a shareholder; the defendant’s claims that the shared had been obtained by fraud or duress were irrelevant; the plaintiff was a shareholder.
The court also held, overruling the trial court, that the plaintiff had stated a “proper purpose” for review of the requested records and the trial court was wrong in denying the request to review certain of the documents. Finally, the court held that the trial court was correct in denying the plaintiff’s request for attorney fees under the exception contained in the statute that the corporation had a reasonable basis to doubt the right of the shareholder or director to inspect the records demanded.
Although this case was brought and decided under the Business Corporation Act, it is instructive for community associations governed by nonprofit corporations because the Nonprofit Corporation Act contains a substantially similar provision.
Prior Recorded Condo Lien Takes Priority Over Federal Tax Lien, But Only to Assessments, Costs, and Attorney Fees Accruing Prior to Recording of Federal Tax Lien
In Yarmouth Commons v Norwood, a case removed from Macomb County Circuit Court to the US District Court for the Eastern District of Michigan, the condominium association recorded a lien for unpaid assessments. The IRS subsequently recorded a federal tax lien against the property. The association sought judicial foreclosure of its condominium lien. The IRS removed the case to the federal district court. On cross motions for summary judgment, the court ruled that the Association’s lien was a perfected security interest in the condominium unit at the time of recording of the tax lien and thus was entitled to priority under 26 USC §6323(a), but only as to the amount stated in the recorded notice of lien.
The interesting thing about the opinion is that it discussedand rejected MCL §559.208, which provides that a condominium lien has priority over other liens "except tax liens on the condominium unit in favor of any state or federal taxing authority.” The court rejected the argument that state law should apply to give the IRS priority, because federal law provides that federal courts apply federal law in deciding priority disputes without regard to the effect of any state law pronouncements. Because under the federal statute, the condominium lien was "protected under local law against a subsequent judgment lien arising out of an unsecured obligation” within the plain language of 26 USC §6323, the condominium lien had priority over the federal tax lien.
Legislature Passes Uniform Commercial Real Estate Receivership Act
Public Act 16 of the Public Acts of 2018 enacts a version of the Uniform Commercial Real Estate Receivership Act. The Act provides for the appointment of receivers for commercial real estate and describes the powers and duties of receivers thereunder. The act does not apply to residential properties of less than four units, unless the property was acquired in the normal course of the owner’s business for the purpose of constructing and/or renting out the units, the owner has the right to collect rents from someone not an affiiliate of the owner, of the property was acquired or used for agricultural, commercial, industrial, or mineral-extraction purposes.
The Act requires receivers to post a bond. It sets forth the powers and duties of the receiver as well as the powers and duties of the owner with respect to the receivership property. Notably, it grants the receiver the status of a lien creditor either under real property laws or under Article 9 of the Michigan Commercial Code. The appointment of a receiver operates as a stay, similar to a bankruptcy stay, for certain acts to obtain possession or control of the receivership property, or to enforce a lien in the property to the extent that the lien secures a claim tha arose prior to the appointment of the receiver. The Act also provides the grounds and method for removal of a receiver.
A companion Act, also passed, provides that appointment of a receiver under Public Act 16 does not constitute an action to recover a debt that would bar a foreclosure by advertisement.