Amendment to the Marketable Record Title Act puts Michigan restrictive covenants at risk
On December 31, 2018, SB 671 was enacted into law, via 2018 PA 572, in order to amend the Michigan Marketable Record Title Act. SB 671 was a lame duck bill that may have drastic consequences for Michigan condominiums and homeowners’ associations in the future. Based on the amendment to the Michigan Marketable Record Title Act, in certain circumstances, Michigan community associations may be required to file a claim of interest in the register of deeds that specifically identifies their restrictive covenants, within 2 years of the date of the amendatory act, if the restrictions are more than 40 years old. Associations that do not do so risk invalidating deed restrictions upon which the community is based.
Under the amendments to the Michigan Marketable Record Title Act, if a property owner has an unbroken chain of title of more than 40 years, that does not specifically identify the restrictive covenants, restrictive covenants may no longer be enforceable as to that owner. However, the filing of a claim of interest by a condominium or homeowners’ association, that specifically describes the property subject to the restrictions, would preserve the restrictive covenants if it is done with 2 years of the date of the amendment to the Act, if the restrictions are more than 40 years old, or prior to the expiration of the 40 year time-period if the restrictions are less than 40 years old.
What is the Marketable Record Title Act?
The Michigan Marketable Record Title Act has been in existence since 1945 and was last amended in 1997. As stated in the Michigan Senate Bill Analysis for SB 671, the purpose of the Act, MCL 565.101, eq seq., is as follows:
Under the Act, a person possesses a marketable record title to an interest in land if he or she has an unbroken chain of title to the interest for 40 years or, as provided by the 1997 amendments, 20 years for mineral interests. In other words, a document creating that person’s interest has been recorded within the 40- or 20-year period, and nothing that would conflict with or deny the person’s interest (or “purport to divest” the interest) has been recorded within that period. Subject to exceptions, the Act extinguishes a claim that may affect the person’s interest if the claim depends on an event or transaction preceding the 40- or 20-year period unless, within that period, a notice of claim has been recorded.
In short, the main purpose of the Michigan Marketable Record Title Act is to eliminate interests of land that are more than 40 years old and are not within the chain of title for a property.
Why was the Marketable Record Title Act amended?
The Michigan Land Title Association (“MLTA”) was a major proponent behind amending the Michigan Marketable Record Title Act as it claimed that existing language in deeds was too vague to specifically locate all potential restrictive covenants that may apply to a property. Specifically, the Michigan Senate Bill Analysis for SB 671, states as follows:
….there are times when an extensive investigation or litigation is necessary to determine whether there are limitations on a title or whether old restrictions remain valid. It has been suggested that this is due to a lack of clarity in the Act regarding what must be specified in a claim to preserve an interest. Evidently, it is common for deeds or purchase agreements to contain generic statements such as “subject to anything of record” or “subject to existing use restrictions, if any”….Reportedly, land title companies are reluctant to issue title insurance in these situations….
…The bill would address this situation by requiring a person who wanted to preserve an interest to refer to the recorded document creating that interest. If a person selling property wanted a less than-40-year-old land use restriction to continue, the seller would have to spell it out and identify the recorded instrument that created that restriction. For example, if a member of a neighborhood association wanted to sell his or her home subject to a restriction that use of the property was limited to residential purposes, he or she would have to include in the deed or other instrument conveying title reference to the document that created the land use restriction. In a different type of situation, if a person had an easement across someone else’s property, he or she would have to record a notice claiming that interest. The notice would have to contain specific information about the person making the claim, the interest claimed (the easement, in this example), a reference number to the document that created the interest, and the property affected by the claimed interest. These requirements would make an interest as identifiable as possible. (emphasis added).
Prior to the enactment of 2018 PA 575, many deeds simply indicated that a purchaser of property acquired the property “subject to building and use restrictions of record”, or similar language as identified above. Accordingly, no specific language other than these generic statements was required to bring a restrictive covenant within the chain of title. If a deed contained such generic language, any recorded restrictions would be deemed to be in the chain of title, whether they were specifically identified in the deed or not. However, as will be discussed below, the enactment of 2018 PA 575 seems to indicate that such language, even in existing deeds that have been recorded for years, may no longer be enough to indicate that restrictive covenants remain within the chain of title for a property.
How can Michigan Community Associations avoid the risks posed by 2018 PA 512?
MCL 565.103, as amended by 2018 PA 575, states as follows:
Sec. 3. (1) Marketable title is held by a person and is taken by his or her successors in interest free and clear of any and all interests, claims, and charges the existence of which depends in whole or in part on any act, transaction, event, or omission that occurred before the 20-year period for mineral interests, and the 40-year period for other interests, and all such interests, claims, and charges are void and of no effect at law or in equity. However, an interest, claim, or charge may be preserved and kept effective by filing for record within 2 years after the effective date of the amendatory act that added section 2(2) or during the 20-year period for mineral interests and the 40-year period for other interests, a notice in writing, verified by oath, setting forth the nature of the claim in the manner required by section 5. (emphasis added)
MCL 565.105 provides the new requirements that must be contained in a claim of interest in order to preserve restrictions. Specifically,
Sec. 5. (1) To be effective and to be entitled to record, a notice of claim under section 3 must contain an accurate and full description of all the land affected by the notice, which description must be set forth in particular terms and not by general inclusions. However, except as to mineral interests, if the claim is founded on a recorded instrument, the notice must also state the liber and page or other county-assigned unique identifying number of the recorded instrument the claim is founded on. The failure to include the liber and page or other county-assigned unique identifying number renders the recording ineffective and the claim unpreserved. The notice must contain all the following:
(a) The claimant’s name.
(b) The claimant’s mailing address.
(c) The interest claimed to be preserved.
(d) Except as to mineral interests, the liber and page or other unique identification number of the instrument creating the interest to be preserved.
(e) The legal description of the real property affected by the claimed interest.
(f) The claimant’s signature.
(g) An acknowledgment in the form required by the uniform recognition of acknowledgments act, 1969 PA 57, MCL 565.261 to 565.270, and section 27 of the Michigan notary public act, 2003 PA 238, MCL 55.287.
(h) The drafter’s name and address.
(i) An address to which the document can be returned.
(2) A notice of claim under section 3 must be filed for record in the register of deeds office of the county or counties where the land described in the notice is located. The register of deeds of each county shall accept all notices of claim under section 3 that are presented to the register of deeds that describe land located in the county in which the register of deeds serves and shall enter and record full copies of the notices in the same way that deeds and other instruments are recorded. (emphasis added).
In Michigan, “Marketable title is one of such character which should assure the vendee the quiet and peaceful enjoyment of the property, which must be free from encumbrance.” Stover v Whiting, 157 Mich App 462, 468; 403 NW2d 575, 578 (1987). Accordingly, restrictive covenants can be preserved either by specific reference in a deed, i.e. by maintaining the restrictions in the chain of title, or by recording a notice that satisfies the specific requirements the specific requirements of MCL 565.105.
In the context of condominiums, a deed for a condominium unit should contain a specific reference, by liber and page number, to the originally recorded master deed and condominium bylaws. The Michigan Condominium Act, specifically, MCL 559.164 states as follows with respect to deeds in condominium units:
Conveyances and other instruments affecting title to any condominium unit in a condominium project shall describe the same by reference to the condominium unit number of the condominium subdivision plan and the caption thereof, together with a reference to the liber and page of the county records in which the master deed is recorded. The conveyances and other instruments are recordable.
Accordingly, at the very least, the original master deed and condominium bylaws will be specifically identified in the chain of title for a condominium unit, and it is unlikely that a claim of interest would need to be recorded. Similarly, while condominiums existed under the Michigan Horizontal Real Property Act, most condominiums are less than 40 years, as the Michigan Condominium Act, MCL 559.101, et seq., was not enacted until 1978. However, it could be possible for issues to arise if there is an error in the deed, the recorded condominium documents or an amendment to the condominium documents is somehow omitted from the chain of title, so a condominium association may want to consider recording a claim of interest as a precautionary measure to avoid potential risks posed by 2018 PA 512.
In the context of platted subdivisions, many of which are governed by homeowners’ associations, there is no statutory equivalent to MCL 559.164 and many of these documents are more than 40 years old. Accordingly, as indicated in the Michigan Senate Bill Analysis for SB 671, many deeds do not specifically reference the recorded deed restrictions or covenants that may apply to a property and contain language such as “subject to anything of record” or “subject to existing use restrictions, if any” will no longer be sufficient. While arguments can be made that such language includes any recorded deed restrictions in the “chain of title”, 2018 PA 512 has created an uncertain landscape. Accordingly, homeowners’ associations may be forced to review the current deed, and chain of title for every owner, to ensure that any recorded restrictive covenants are appropriately referenced, or simply just file a claim of interest based on the existing deed restrictions to ensure that their interests are preserved.
Michigan community associations, especially those that govern platted subdivisions, should be proactive in determining whether their restrictive covenants are contained within the chain of title of their membership and if a claim of interest needs to be recorded, within the next 2 years, or some other date. While 2018 PA 512 was certainly beneficial for title insurers, it may have a negative impact on community associations, as it shifts the burden for determining whether restrictive covenants are in the chain of title from sophisticated title insurers to volunteer community association board members. It may also create situations in which deed restrictions are lifted as to certain lots in a platted subdivision, but not others, simply by a seller removing the restrictions from their deed and hoping that their unsuspecting neighbors do not notice. While it remains to be seen whether the doctrine of negative reciprocal easements will be utilized to maintain restrictions that could be eliminated by the Michigan Marketable Record Title Act, or what impact 2018 PA 512 will have on the doctrine of negative reciprocal easements, this is an issue that will likely be sorted out by the courts or the legislature at a later date. Accordingly, we urge all community associations, especially homeowners’ associations in platted subdivisions, to consult with counsel to determine whether the recording of a claim of interest is necessary and the appropriate timing of the same to avoid the potential risks posed by 2018 PA 512.
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’ associations 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) 478-1800 or firstname.lastname@example.org.