What is the bank’s obligation to pay assessments under the Michigan Condominium Act after a foreclosure?

MCL 559.169 allows for a Michigan condominium association to impose assessments against all co-owners in order to pay for the common expenses that are necessary to operate the condominium. When a co-owner fails to pay assessments, it places a strain on the condominium association’s budget for the year and unfairly results in an increased burden on the remaining co-owners as they are often forced to pay additional assessments to make up for a budget shortfall or go without services that were originally contained in the budget. Many co-owners that are unable to pay condominium assessments also default on their mortgage payment and ultimately lose their unit to a mortgage foreclosure. In many instances, a bank fails to pay condominium assessments after a sheriff’s sale occurs as well, which compounds the problem. Accordingly, the purpose of this article is to inform condominium associations if a bank has an obligation to pay for delinquent condominium assessments at the time of the foreclosure, and if the bank does not have such an obligation, to determine when a bank becomes obligated to pay condominium assessments after a foreclosure sale.

Pre-Foreclosure Assessments

MCL 559.211 provides as follows:

(1) Upon the sale or conveyance of a condominium unit, all unpaid assessments, interest, late charges, fines, costs, and attorney fees against a condominium unit shall be paid out of the sale price or by the purchaser in preference over any other assessments or charges of whatever nature except the following:

(a) Amounts due the state, or any subdivision thereof, or any municipality for taxes and special assessments due and unpaid on the condominium unit.

(b) Payments due under a first mortgage having priority thereto.

(2) A purchaser or grantee is entitled to a written statement from the association of co-owners setting forth the amount of unpaid assessments, interest, late charges, fines, costs, and attorney fees against the seller or grantor and the purchaser or grantee is not liable for, nor is the condominium unit conveyed or granted subject to a lien for any unpaid assessments, interest, late charges, fines, costs, and attorney fees against the seller or grantor in excess of the amount set forth in the written statement. Unless the purchaser or grantee requests a written statement from the association of co-owners as provided in this act, at least 5 days before sale, the purchaser or grantee shall be liable for any unpaid assessments against the condominium unit together with interest, costs, fines, late charges, and attorney fees incurred in the collection thereof.

Unless a new co-owner requests a written statement detailing the unpaid amounts owed to the condominium association, the new co-owner is typically responsible for any delinquent assessments, interest, late charges, fines, costs and attorney’s fees that were owed by the prior owner of the condominium unit.

However, the Michigan Court of Appeals has held that a mortgagee that forecloses on a first mortgage of record on a condominium unit is not obligated to pay the condominium association any delinquent assessments, interest, late charges, fines, costs and attorney’s fees that were owed by the prior co-owner, even if a written statement is not requested. Specifically, the Court of Appeals held as follows:

However, MCL 559.158 provides, in pertinent part:

If the mortgagee of a first mortgage of record or other purchaser of a condominium unit obtains title to the condominium unit as a result of foreclosure of the first mortgage, that mortgagee or purchaser and his or her successors and assigns are not liable for the assessments by the administering body chargeable to the unit that became due prior to the acquisition of title to the unit by that mortgagee or purchaser and his or her successors and assigns.

The statute does not define “successors and assigns.” When a legal term of art is left undefined, it is appropriate for this Court to consult a legal dictionary. Hunter v. Sisco, 300 Mich.App. 229, 239, 832 N.W.2d 753 (2013). Black’s Law Dictionary (9th ed.) defines “successor” as “one who replaces or follows a predecessor,” and “successor in interest” as “[o]ne who follows another *266 in ownership or control of property.” Further, ” assign” is defined by way of “assignee” as “[o]ne to whom property rights or powers are transferred by another.” Id.

Neither party disputes that RBS Citizens Bank acquired the sheriff’s deed to the condominium as the result of a purchase pursuant to a foreclosure sale on March 1, 2011. Further, neither party disputes that Fannie Mae obtained its interest in the condominium as a result of a quitclaim deed granted by RBS Citizens Bank. Therefore, RBS Citizens Bank can properly be described as the “purchaser” and Fannie Mae can properly be described as its “successor and assign.” Accordingly, pursuant to MCL 559.158, both RBS Citizens Bank and Fannie Mae were not liable for any assessments and fees that had accrued on the condominium before RBS Citizens Bank’s purchase on March 1, 2011.

The trial court’s reliance on MCL 559.211 in ruling that Fannie Mae was liable for all of the assessments, even those incurred before March 1, 2011, was misplaced. While there is no doubt that the quitclaim deed transfer between RBS Citizens Bank and Fannie Mae was a “sale or conveyance” under MCL 559.211 and that Fannie Mae never requested a written statement from defendant regarding the amount of unpaid assessments, it is clear that the specific provisions of MCL 559.158 govern the circumstances here.

Fed Nat Mortg Ass’n v Lagoons Forest Condo Ass’n, 305 Mich App 258, 265–68; 852 NW2d 217, 221–22 (2014)

Accordingly, condominium associations cannot collect delinquent assessments, interest, late charges, fines, costs and attorney’s fees that were owed by the prior co-owner from a mortgagee that forecloses on a first mortgage of record, even though they would be able to collect the same from any other new co-owner that failed to obtain a written statement from the condominium association as required by MCL 559.211. It is important to note that MCL 559.211 would still apply in a circumstance if a second mortgage or other lien was foreclosed upon though.

Assessments that accrue in the Redemption Period and Post Foreclosure

While a mortgagee of a first mortgage of record is not responsible for the payment of delinquent assessments, interest, late charges, fines, costs and attorney’s fees that were owed by the prior co-owner, it would be responsible for assessments from the date of the sheriff’s sale forward. Specifically, the Michigan Court of Appeals has held as follows:

The entirety of MCL 559.158 reads:

If the mortgagee of a first mortgage of record or other purchaser of a condominium unit obtains title to the condominium unit as a result of foreclosure of the first mortgage, that mortgagee or purchaser and his or her successors and assigns are not liable for the assessments by the administering body chargeable to the unit that became due *591 prior to the acquisition of title to the unit by that mortgagee or purchaser and his or her successors and assigns. [Emphasis added.]

The circuit court correctly observed that neither MCL 559.158, nor any other section of the Condominium Act, MCL 559.101 et seq., defines the phrase “acquisition of title” to the unit. Nor, as the trial court noted, is there any case law examining the meaning of that phrase.

Because there is no statutory definition of the phrase “acquisition of title” under MCL 559.158, the circuit court properly resorted to a dictionary, Johnson v. Pastoriza, 491 Mich. 417, 436, 818 N.W.2d 279 (2012), which defines “acquire” as “to come into possession or ownership of; get as one’s own.” Random House Webster’s College Dictionary (1996). “Title” has a particular legal meaning and is defined in Black’s Law Dictionary (7th ed.) as “[t]he union of all elements (as ownership, possession, and custody) constituting the legal right to control and dispose of property; the legal link between a person who owns property and the property itself….” It is also defined as the “[l]egal evidence of a person’s ownership rights in property; an instrument (such as a deed) that constitutes such evidence.” Id. The circuit court concluded that plaintiff had come “into possession or control of the unit” on March 8, 2011, when it obtained a sheriff’s deed to the unit at the foreclosure sale. It was correct.

The circuit court’s analysis and conclusion were consistent with the plain language of the statute, MCL 559.158, and case law from our Supreme Court that explains the nature of the title obtained at a sheriff’s sale. First, the statute. As noted in the preceding paragraph, “acquire” means coming into possession or control of something, while “title” means the legal evidence of a person’s ownership of a certain parcel of land, usually denoted by a deed. Therefore, as a result of the sale, plaintiff did come into “possession or control of” title to the unit, for it obtained and recorded a deed to the property that afforded it an ownership interest in that property.

Wells Fargo Bank v Country Place Condo Ass’n, 304 Mich App 582, 590–92; 848 NW2d 425, 430–31 (2014).

Accordingly, Michigan condominium associations do not need to wait for the redemption period to expire in order to begin collecting assessments after a mortgage foreclosure sale. Rather, the purchaser at the sale, whether it is a third-party purchaser or a mortgagee that submits a credit bid, is obligated to pay assessments from the date of the foreclosure sale forward.

Conclusion

Assessments are the lifeblood of any condominium associations and condominium boards should be diligent in collecting delinquent assessments. While the mortgagee of a first mortgage of record is not obliged to pay any delinquent assessments that existed prior to the foreclosure, it does become obligated to pay any assessments that become due from the date of the sheriff’s sale forward. If a unit is sold or otherwise conveyed in any other fashion, or second mortgage or other lien is foreclosed on, and a written statement is not requested that details the delinquent assessments, interest, late charges, fines, costs and attorney’s fees that were owed, a condominium board should be aware that they can collect any delinquent sums from the new co-owner as a result of noncompliance with MCL 559.211.

Kevin Hirzel is a Partner and Chair of the Community Association and Real Estate Practice Group at CMDA. He concentrates his practice on commercial litigation, community association law, condominium law, construction law and real estate law. Mr. Hirzel has been a Super Lawyer’s Rising Star in Real Estate Law from 2013-2017, an award given to only 2.5% of the attorneys in Michigan each year. He was named an Up & Coming Lawyer by Michigan Lawyer’s Weekly in 2015, an award given to only 30 attorneys in Michigan each year. Mr. Hirzel represents builders, community associations, condominium associations, cooperatives, co-owners, developers, homeowner’s associations, investors, property owners and property managers throughout Michigan. He is available to represent clients out of CMDA’s Michigan offices in Clinton Township, Livonia, Grand Rapids or Traverse City. He may be reached at (734) 261-2400 or khirzel@cmda-law.com.