Real Property Notes Blog

Requirement that lawsuit be funded by special assessment cannot be circumvented by increasing the general assessment

In another opinion dealing with provisions designed to make it difficult for associations to sue developers (or really, file any lawsuit unrelated to collecting assessments or enforcing restrictions), the Michigan Court of Appeals has held that the specific provision relating to funding litigation control over general provisions relating to financing the operation of a condominium.  The association lacked funds to meet its usual obligations only because it was spending money on litigation that it would have otherwise have used to meet its obligations.  An additional assessment levied “to raise additional funds to properly fund the lawsuit” was invalid.  In Nottingham Village C. A. v Pensom, the Court of Appeals reversed a judgment in favor of the association and remanded the case for entry of a judgment in favor of the co-owner, as well as a determination of the co-owner’s fees and costs.  

The court did state, in dicta, that the requirement that the attorney chosen for litigation list every lawsuit he’s ever been involved in was probably invalid.

I previously discussed another case dealing with these anti-litigation provisions.  It seems clear that such provisions will be upheld.

Mortgage may not be reformed or modified once it has been foreclosed

In OneWest Bank v Jaunese, the Michigan Court of Appeals held in an unpublished opinion that once a mortgagee has foreclosed a mortgage by advertisement and the redemption period has expired, that mortgage cannot be reformed.

The mortgage was intended to cover a parcel of land containing 106 acres but, due to an error in the legal description, only described a parcel containing 2.5 acres.  The mortgagors defaulted, the assignee of the mortgage foreclosed, and the redemption period expired without the property (the 2.5 acre parcel) being redeemed.  After the redemption period expired, the assignee recorded an affidavit to expunge the sheriff’s sale and filed suit seeking to reform the mortgage to correct the legal description.

The Court of Appeals held that, once the mortgage was foreclosed and the redemption period expired, the mortgagee no longer had standing to challenge the mortgage, reasoning from prior opinions of the Michigan Supreme Court that a mortgagor could not challenge a mortgage foreclosure after the redemption period expired:  if the mortgagor could not revive the mortgage after the redemption period, neither could the mortgagee.

In a footnote, the court cast strong doubt on the ability of a mortgagee to set aside a sheriff’s sale by the mere recording of an affidavit to expunge the sale, pointing out that sales can only be set aside by a court based upon fraud, mistake, or other irregularity in the sale proceedings.  However, because the redemption period had already expired when the affidavit was recorded, the court did not have to decide the issue.

Changes to the Nonprofit Corporation Act continued

In a prior post, I noted that the Nonprofit Corporation Act had been amended effective January 15, 2015, and discussed the changes regarding participation in membership meetings.  There are other changes as well:

Balloting

Ballots are now required to be written or in electronic form.  A show of hands is no longer acceptable.

Member Proposals

Members may now submit a proposal and the association must include it in a meeting notice and provide for it at the meeting, if the proposal is for a proper purpose allowed under the governing documents.

Removal of Directors by Court Action

A new provision allows either the association or 10% or more of co-owners to file an action to remove a member of the board of directors.  To remove the director, the plaintiff must prove fraud, dishonest, or illegal conduct, gross abuse of authority or discretion, or that removal is in the best interest of the association.  The court may bar the person so removed from serving again for a period prescribed by the court.

Review of Records

A new provision requires an association to respond to a request to view association records within 5 business days of receipt of the request.  It also provides that the right to inspect includes the right to make copies, subject to the requesting party paying the reasonable cost of the copies.  The inspection may be made by the member, or by the member’s agent, who is anyone the agent has designated in writing.


© Steve Sowell 2018