Court rules that tax foreclosure does not extinguish obligations in the master deed and that "need not be built" units ceased to exist
The Michigan Court of Appeals decided several important issues in favor of Michigan condominium associations on December 14, 2017 in Ferry Beaubien LLC v Centurion Place on Ferry Street Condominium Association, unpublished opinion of the Court of Appeals, issued December 14, 2017 (Docket No. 335571). Specifically, the court of appeals made the following rulings:
- The master deed and condominium bylaws of a condominium constitute a restrictive covenant and the obligations contained in the master deed cannot be extinguished by a tax foreclosure sale.
- The Court applied MCL 559.167, as amended by 2002 PA 283, to determine that the automatic elimination of “need not be built” units that occurred prior to September 21, 2016 remains intact, notwithstanding the 2016 amendment to MCL 559.167.
The Master Deed establishing the Centurion Place on Ferry Street Condominium (“Condominium”) was recorded with the Wayne County Register of Deeds on July 26, 2006. The condominium subdivision plan depicted 10 units. However, only eight units were ever constructed, with Units 9 and 10 remaining undeveloped and identified as “Need not be Built” on the condominium subdivision plan. The Master Deed provided the following in the event the developer did not construct all 10 units:
7.1 Limit of Unit Contraction. The project established by this master deed consists of Ten (10) units and may, at the election of the developer, be contracted to a minimum of six (6) units. …
7.2 Withdrawal of Units. The number of units in the project may, at the option of the developer within a period ending not later than six years after the recording of the master deed, be decreased by the withdrawal of a portion of the lands described … provided, that no unit that has been sold or that is the subject of a binding purchase agreement may be withdrawn without the consent of the co-owner, purchaser, and/or mortgagee of such unit. …
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7.4 Amendment(s) to Master Deed. A withdrawal of lands from this project by the developer will be given effect by an appropriate amendment(s) to the master deed, which amendment(s) will not require the consent or approval of any co-owner, mortgagee, or other interested person. …
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7.6 Withdrawal of Property. If the development and construction of all improvements to the project has not been completed within a period ending 10 years after the date on which contraction, or convertibility were last exercised, whichever first occurs, the developer shall have the right to withdraw all remaining undeveloped portions of the project without the consent of any co-owner, mortgagee, or other party in interest. Any undeveloped portions not so withdrawn before the expiration of the time periods, shall remain as general common elements of the project, and all rights to construct units on such lands shall cease.
On July 13, 2011, the developer filed an amendment of the Master Deed, which indicated that Units 9 and 10 “may be built, but have not been built as of the date of this amendment.” Thereafter, the developer stopped paying property taxes on Units 9 and 10 and the units were subject to foreclosure and tax sale. Kostakos Woodward LLC (Kostakos) purchased Units 9 and 10 at the tax sale. The Wayne County Treasurer transferred the units by quit claim deed to Kostakos on October 30, 2015. Kostakos then transferred the two units to Ferry Beaubien LLC, whose sole member is Alexandra Lipera. In May 2016, Lipera secured a building permit from the city of Detroit to construct an urban garden on Units 9 and 10. Once construction began, the Association contacted the city of Detroit, asserting that the building permit should be revoked as Ferry Beaubien did not own units that no longer existed that automatically ceased to exist after the date of the foreclosure sale. On June 8, 2016, the city of Detroit revoked the building permit as it was issued to a party that did not have title.
On July 8, 2016, Ferry Beaubien filed a complaint asserting that it held absolute title to the disputed property in fee simple, derived from the deeds executed by the Wayne County Treasurer following the tax sale. Kostakos sought a declaratory ruling from the trial court to establish its rights to the vacant land comprising Units 9 and 10.
A Master Deed is a private deed restriction that is not extinguished in a tax foreclosure sale
Ferry Beaubien argued that the tax foreclosure sale eliminated the restrictions contained in the Master Deed with respect to units 9 and 10. The trial court and court of appeals rejected this argument and held that MCL 211.78k(5)(e) of the Michigan General Property Tax Act governs the interests in real property that remain following a tax sale and provides:
(e) That all existing recorded and unrecorded interests in that property are extinguished, except a visible or recorded easement or right-of-way, private deed restrictions, interests of a lessee or an assignee of an interest of a lessee under a recorded oil or gas lease, interests in oil or gas in that property that are owned by a person other than the owner of the surface that have been preserved…
Ferry Beaubien argued that since MCL 559.108 of the Michigan Condominium Act had a specific statutory definition of a “Master Deed” that the Master Deed was not a “private deed restriction” for the purposes of MCL 211.78k(5)(e). The court held that the Master Deed was a restrictive covenant that constitutes a “private deed restriction” under MCL 211.78k(5)(e). The court reasoned that Black’s Law Dictionary (10th ed) defines “restrictive covenant,” as the term pertains to real property, as “[a] private agreement, usu. in a deed or lease, that restricts the use or occupancy of real property, esp. by specifying lot sizes, building lines, architectural styles, and the uses to which the property may be put.” The court reasoned that the Master Deed was met this definition as it specifies the “units that may be developed in the project, including the number, boundaries, dimensions, and area of each unit.” Accordingly, the court held that the mere fact that Ferry Beaubien acquired Units 9 and 10 after a tax sale does not extinguish the restrictions imposed by the Master Deed.
MCL 559.167, as amended by 2016 PA 233, only has prospective application
Ferry Beaubien also argued that units 9 and 10 were not subject to the Master Deed because it amended the Master Deed and withdrew the units on July 25, 2016, less than 10 years after the Master Deed was recorded. The court held that at the time of the events giving rise to this action, MCL 559.167, as amended by 2002 PA 283, stated the following:
(1) A change in a condominium project shall be reflected in an amendment to the appropriate condominium document. An amendment to the condominium document is subject to sections 90, 90a, and 91.
(2) If a change involves a change in the boundaries of a condominium unit or the addition or elimination of condominium units, a replat of the condominium subdivision plan shall be prepared and recorded assigning a condominium unit number to each condominium unit in the amended project. The replat of the condominium subdivision plan shall be designated replat number __________ of __________ county condominium subdivision plan number __________, using the same plan number assigned to the original condominium subdivision plan.
(3) Notwithstanding section 33, if the developer has not completed development and construction of units or improvements in the condominium project that are identified as “need not be built” during a period ending 10 years after the date of commencement of construction by the developer of the project, the developer, its successors, or assigns have the right to withdraw from the project all undeveloped portions of the project not identified as “must be built” without the prior consent of any co-owners, mortgagees of units in the project, or any other party having an interest in the project. If the master deed contains provisions permitting the expansion, contraction, or rights of convertibility of units or common elements in the condominium project, then the time period is 6 years after the date the developer exercised its rights with respect to either expansion, contraction, or rights of convertibility, whichever right was exercised last. The undeveloped portions of the project withdrawn shall also automatically be granted easements for utility and access purposes through the condominium project for the benefit of the undeveloped portions of the project. If the developer does not withdraw the undeveloped portions of the project from the project before expiration of the time periods, those undeveloped lands shall remain part of the project as general common elements and all rights to construct units upon that land shall cease. In such an event, if it becomes necessary to adjust percentages of value as a result of fewer units existing, a co-owner or the association of co-owners may bring an action to require revisions to the percentages of value under section 95.
In the trial court, the condominium association demonstrated that construction on the condominium project began by, at the latest, April 18, 2006. Under former MCL 559.167(3), as of April 18, 2016, or “10 years after the date of commencement of construction by the developer of the project,” because the original developer did not withdraw Units 9 and 10 from the project before that time, Units 9 and 10 became “part of the project as general common elements” and all rights to construct units on the land ceased. Accordingly, the court held that under the version of MCL 559.167(3) in effect at the time in question, Units 9 and 10 remained as general common elements of the condominium on April 18, 2016. The court further noted that amended version of MCL 559.167(3) provides that the relevant time period is “10 years after the recording of the master deed,” but nothing in the language of amended Subsection (3) suggests that it applies retroactively. Accordingly, the court held that it is presumed that statutory amendments operate prospectively unless a contrary intent is clearly manifested in the language of the statute, although it did indicate that the issue of retroactivity was not raised in the briefing.
In addition to attempting to untimely withdraw units 9 and 10 from the condominium based on MCL 559.167, as amended by 2016 PA 233, the court held that Ferry Beaubien LLC could not do so as it was not a developer or successor developer. Specifically, the court held that Ferry Beaubien LLC was not identified as a developer in the Master Deed, and the MCA defines “successor developer” as “a person who acquires title to the lesser of 10 units or 75% of the units in a condominium project … by foreclosure ….” MCL 559.235(1). Accordingly, the court held that only a developer or successor developer had authority to withdraw units under the MCL 559.167 and the plain language of the Master Deed.
Ferry Beaubien LLC v Centurion Place on Ferry Street Condominium Association, unpublished opinion of the Court of Appeals, issued December 14, 2017 (Docket No. 335571) is certainly consistent with Cove Creek Condominium Association v Vistal Land & Home Development, L.L.C., et al., Oakland County Circuit Court Case No. 16-155706-CH (Order Granting Summary Disposition, Dated February 10, 2017), which reached a similar result as discussed in Michigan court rules in favor of condominium association in interpreting newly amended MCL 559.167 (SB 610). While Ferry Beaubien is an unpublished opinion, it further indicates that the co-owner voting “reversion” process, and the additional 60 day time period for a developer to withdraw “need not be built” units that was created by 2016 PA 233 only applies to condominiums in which the six (6) or ten (10) year statutory periods had not expired prior to September 21, 2016 or to condominiums created after September 21, 2016. Rather, thus far, the courts will respect the fact that “need not be built” units that automatically ceased to exist under MCL 559.167, as amended by 2002 PA 283, have ceased to exist and that they will not be revived by the recent amendment to MCL 559.167.
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 [email protected].