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Michigan Court of Appeals Rules that HOA Developer is Subject to the Michigan Consumer Protection Act

In Liss v. Lewiston–Richard Inc, 478 Mich. 203; 732 NW2d 514 (2007), the Michigan Supreme Court held that a residential home builder was exempt from compliance with the Michigan Consumer Protection Act, MCL 445.901 et seq.  The Michigan Supreme Court reasoned that MCL 445.904(1)(a) exempted homebuilders from compliance with the Act as they were specifically authorized to build homes under the Michigan Occupational Code, MCL 339.101 et seq. The Supreme Court reasoned that homebuilders were not subject to the Act as they held professional licenses and were regulated by the Michigan Residential Builders’ and Maintenance and Alteration Contractors’ Board, which oversees licensing and handles complaints filed against residential builders in disputes involving the construction of homes.

In Pedinelli v Turnberry Park Estates Inc, Michigan Court of Appeals Docket No. 324331 (January 28, 2016) (Unpublished Opinion), the Michigan Court of Appeals provided clarification as to the application of Liss.  Specifically, the Plaintiffs sued the developer of a subdivision for violating the Michigan Consumer Protection Act after the developer, and its officers, misrepresented the enforceability of an amendment to the declaration of restrictions and the amount of assessments that Plaintiffs would be required to pay.  The Court of Appeals upheld the trial court’s ruling that the developer of the subdivision, and its officers, violated the Michigan Consumer Protection Act.  The Court of Appeals held that a developer of a subdivision, which was also a licensed builder, was subject to the Michigan Consumer Protection Act as the developer did not enter into an agreement to construct a home for the Plaintiffs.  Specifically, the Court of Appeals held that the developer entered into an agreement to sell property to the Plaintiffs, and then in a separate capacity, agreed to serve as the construction manager for the Plaintiffs’ home.  The Court of Appeals determined that the Plaintiffs served as their own general contractor on the project.  Under these circumstances, the Court held that the fact that the developer held a builder’s license did not exempt it from compliance with the Michigan Consumer Protection Act as it was not engaged in an activity that was specifically authorized by statute, i.e. acting as a licensed builder.

The Pedinelli decision is consistent with Heritage in the Hills Homeowners Ass’n v Heritage of Auburn Hills, LLC, Docket No. 286074 (February 2, 2010)(Unpublished Opinion), in which the Michigan Court of Appeals held that a Michigan Condominium Association could bring a claim for violating the Michigan Consumer Protection Act after Liss had been decided in 2007.  While MCL 559.245 of the Michigan Condominium Act authorizes a complaint under the Michigan Consumer Protection Act, both Heritage in the Hills Homeowners Ass’n and Pedinelli stand for the proposition that a developer must also serve as the builder in order to be exempt from compliance with the Michigan Consumer Protection Act. The mere fact that a developer also holds a residential builder’s license does not suffice to exempt a developer from liability.  Accordingly, developers that create multiple shell companies to develop a condominium or subdivision risk liability under the Michigan Consumer Protection Act.  This can be a painful lesson to learn, as MCL 445.911 allows for a successful plaintiff to obtain injunctive relief, actual damages or $250.00 (whichever is greater) and reasonable attorney’s fees when a developer makes misrepresentations regarding a project.

 Kevin Hirzel is the Managing Member of Hirzel Law, PLC and concentrates his practice on commercial litigation, community association law, condominium law, Fair Housing Act compliance, homeowners association and real estate law. Mr. Hirzel is a fellow in the College of Community Association Lawyers, a prestigious designation given to less than 175 attorneys in the country.  He has been a Michigan Super Lawyer’s Rising Star in Real Estate Law from 2013-2018, an award given to only 2.5% of the attorneys in Michigan each year. Mr. Hirzel was named an Up & Coming Lawyer by Michigan Lawyer’s Weekly in 2015, an award given to only 30 attorneys in Michigan each year. He represents community associations, condominium associations, cooperatives, homeowners associations, property owners and property managers throughout Michigan. He may be reached at (248) 480-8758 or kevin@hirzellaw.com.

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kevin@hirzellaw.com

Kevin Hirzel is the Managing Member of Hirzel Law, PLC. Hirzel Law has offices in Farmington, Grand Rapids, and Traverse City and services clients throughout the State of Michigan. Mr. Hirzel focuses his practice on condominium law, homeowners association law, and real estate law. He is a fellow in the College of Community Association Lawyers (“CCAL”), a prestigious designation given to less than 175 attorneys in the country. Mr. Hirzel formerly served on the CCAL National Board of Governors and is a former member of the Community Associations Institute’s (“CAI”) Board of Trustees, an international organization with over 40,000 members worldwide that is dedicated to improving community associations. Mr. Hirzel has been recognized as a Leading Lawyer in Michigan by Leading Lawyers, a distinction earned by fewer than 5% of all lawyers licensed in Michigan. He has been named a Michigan “Rising Star” in real estate law by Super Lawyers Magazine, a designation is given to no more than 2.5% of the attorneys in Michigan each year. Mr. Hirzel was also named as a “Go-To-Lawyer” in condominium and real estate law by Michigan Lawyer’s Weekly. Hirzel Law was also voted the best law firm in Metro Detroit in the Detroit Free Press Best of the Best awards. He is the Co-Chairman of the State Bar of Michigan’s Real Property Law Section Committee for Condominiums, PUDs & Cooperatives. Mr. Hirzel has authored numerous articles on community association law for publications such as the Michigan Community Association News, Michigan Real Property Review, Macomb County Bar Briefs and the Washington Post. He is also the author of “Hirzel’s Handbook: How to operate a Michigan Condo or HOA”, which is available for purchase on amazon.com. Mr. Hirzel has been interviewed on community association legal issues by various media outlets throughout the country, such as CBS, CNBC, Common Ground Magazine, Community Association Management Insider, the Dan Abrams Show on SiriusXM Radio, the Detroit News, Dr. Drew Midday Live on KABC Radio, Fox Business News, Fox News, HOALeader.com, the Law & Crime Network, Michigan Lawyer’s Weekly, NPR, WWJ News Radio and WXYZ. Mr. Hirzel is a dynamic speaker and frequently lectures on community association law throughout Michigan, as well as nationally at the CAI National Law Seminar, and is a two-time winner of the best manuscript award at the CAI National Law Seminar.

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