Michigan has some unusual priority rules for Condominium Association Liens and Dues.  Michigan’s Condominium Act (MCL 559.101, et seq.) establishes that a “first” mortgage takes priority over any Association Liens or Dues that occur after the recording of the mortgage.  Junior mortgages and other liens, except for tax liens, do not take priority over Association Liens, even if they are recorded prior to the Association Lien.  HELOC’s have always caused concern as draws after an Association Lien can be construed as a “new” lien and therefore junior to the Association Lien.  To properly foreclose out an Association Lien and/or dues owing where a lien has yet to be filed, the first mortgagee is required to give the Association a copy of the notice of the foreclosure sale by certified mail, return receipt requested within ten (10) days of the first publication of the foreclosure notice.  Failure to provide the notice does not invalidate the foreclosure, but it does leave the Association with legal recourse to still collect any outstanding dues.  This notice serves to eliminate any and all Association dues up to the date of the Sheriff’s sale.  Even though the high bidder at the Sheriff’s sale must wait until the redemption period expires to take possession of the unit, they are responsible for all Association dues from the date of the Sheriff’s sale.  It is not recommended to pay these dues until after redemption expires, as any dues advanced may not be recoverable if the Sheriff’s Deed is redeemed.

The priority of first mortgages has also been called into question in an unpublished Court opinion (Oakbrook Condominium Association vs. Janet L. Hubbell and Midwest Bank, Assignee of MLA, Inc.) where the first mortgage was assigned after an Association had placed a lien of record.  The Court ruled that the Assignment was a “conveyance” and the Assignee was not the mortgagee and that only the original mortgagee could foreclose out an Association lien.  This decision appears to be contrary to the concept that a first mortgage may foreclose out an Association lien.  It is possible that lenders will be held responsible for all unpaid dues.  The above Court decision was in Oakland County Circuit Court, so it is not binding precedence.  Future Court decisions may reach a different conclusion or “restrict” its implementation to only those liens that are of record prior to the recording of the Assignment. 

In a recent Court of Appeals case (#277746; Wexford Parkhomes Condominium Association vs. Murray Katzman and Elizabeth Goodman Katzman and Bankers Trust Company; Oakland County Circuit Court LC #2006-076532-CH) where 2 mortgages were recorded the same day, but out of order and then both subsequently assigned, the Appeals Court affirmed the Circuit Court decision that the first mortgage is based upon Michigan’s Race/Notice statue and that even though the mortgages were recorded out of order, the intended “first” mortgage, assigned to Bankers Trust had priority over the Association Lien subsequently filed and therefore the Association could not foreclose out the first mortgage of Bankers Trust.

While the Appeals Court did not specifically rule on the Assignment issue, the Wexford decision upholds industry practice and understanding in Michigan.  It is recommended that notice should still be given to Associations, even when the mortgage has been assigned after an Association Lien has been filed.  When the property is eventually sold, a status letter is needed from the Association.  If the Association tries to collect dues owing prior to the Sheriff’s sale a decision will have to be made to fight it or to pay it and close with the new buyer.  Unfortunately, on individual files, the sum in dispute is usually only a couple of thousand dollars, and the time and money that would need to be spent to fight it, make capitulating to the demands of the Association, the best business decision in most instances.

If you have any questions on this information, please contact Mr. Michael I. Rich, Esq. Michael is an associate of the Detroit office who concentrates on title work and REO closing services within the Real Estate Default Group of Weltman, Weinberg & Reis Co., L.P.A. Mike can be reached at (248) 786-3137 or via e-mail at mrich@weltman.com.

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