Real Property Notes Blog

Tax Foreclosure on Condo Garages Held Void

Carola Condominium was established in Wayne County by the recording of a master deed and three subsequent amendments to the master deed.  The first amendment established “garage units.”  The second and third amendments clarified that the “garage units” were limited common elements appurtenant to units in the condominium project.  All three amendments were tax-certified by the Wayne County Treasurer.

Notwithstanding, taxes were assessed separately against the “garage units” and, when the taxes went unpaid, the garage units were included in the tax foreclosure process and ultimately sold to a third party.  The association then filed a quiet title action, seeking to declare the tax sale of the garages as void.  The trial court agreed, granting summary disposition for the Association.  On appeal, the Michigan Court of Appeals affirmed, in Carola Condominium Association v Chappell, an unpublished opinion.

The case points up the difficulty some developers have in correctly identifying garages (or carports) as limited common elements, especially when there are fewer (and less often, more) garages than their are units.  It took three tries for the developer to get it right, and eventually the garages involved were properly identified as limited common elements.  However, having incorrectly listed them as “garage units,” the treasurer had issued them tax identification numbers and assessed taxes against them as units.  Those tax identification numbers were not vacated when the third amendment to master deed was recorded.

The court relied upon the treasurer’s tax certification, especially of the third amendment to master deed.  Before an amendment to a master deed may be recorded, the amendment must be certified that the taxes on the property have been paid.  By certifying that the taxes were paid for a period of time that included the taxes which were foreclosed, the treasure was in effect stating that there were no taxes on the property.

6th Circuit BAP: Rescheduling Sheriff’s Sale in Pre-petition Foreclosure Proceeding Not a Violation of Discharge Injunction

In In re Jackson, a mortgagee and a condominium association obtained a judgment of foreclosure against the unit owner.  Before sale, the condominium unit owner filed a Chapter 7 bankruptcy and received a discharge. After the discharge was entered, the condominium association re-scheduled a sheriff’s sale pursuant to the pre-bankruptcy judgment.  The debtor moved to reopen his case and hold the condominium association in contempt for violation of the discharge injunction.  After hearing, the bankruptcy court found that the association’s actions were a veiled attempt to compel the debtor to pay a discharged, pre-petition debt, because there was no equity in the condominium unit over and above the first mortgage, which was higher in priority to the condominium lien.

On appeal, the bankruptcy appellate panel of the 6th Circuit Court of Appeals reversed.  The court noted that the association’s lien was statutory and survived the bankruptcy case.  The court also noted that, although the debtor was discharged from personal liablity for the prepetition charges, the lien continued against the property.  While foreclosing a lien against property may result in a discharged debtor paying pre-petition charges in order to keep the property, that wa the nature of a lien and not a violation of the discharge injunction.

The court also held that any post-petition attorney fees became “due and payable” after the commencement of the case and were excepted from discharge pursuant to 11 USC Sec 523(a)(16).

The case presents a significant “win” for condominium associations in their effort to either maximize recovery or to stop the bleeding.

President Signs Housing Opportunity Through Modernization Act Which Changes FHA Requirements for Condominium Approval

The president signed HR 3700 into law.  Among other things, the act requires the FHA to streamline its procedures so that condominium recertifications are “substantially less burdensome” than initial certifications.  Other changes include requiring the Secretary to apply its transfer fee requirements in the same manner as it does for single family homes, allows for either direct endorsement lender approval and review or HUD review and approval for the percentage of commercial property in mixed use condominiums, and potentially changes the owner-occupancy requirements from 50% to 35%.

For most of the changes, if HUD issues regulations within 90 days, the regulations will control.  It remains to be seen if HUD will meet the deadline.

© Steve Sowell 2018