Does your condominium association keep track of mortgages?
Michigan condominium associations are required to keep a number of different types of records. One type of record that condominium associations are required to keep, which is often overlooked, is a record of each mortgage that is placed on any condominium unit in the condominium project. A mortgagee, which is most often a bank, is a person or corporate entity that places a mortgage on a condominium unit within the condominium project. As will be discussed below, keeping records of all mortgagees is not only legally required, but it also serves to simplify the process for amending the master deed and condominium bylaws.
Administrative Rule 559.507
While many condominium associations understand that they are governed by the Michigan Condominium Act, it is also important for condominium associations to understand that the Michigan Condominium Act has a set of administrative rules that also govern the operations of Michigan condominiums. Mich Admin Code, R 559.507 governs mortgage records and provides as follows:
The bylaws shall provide that a co-owner who mortgages his or her unit shall notify the association of co-owners of the name and address of the mortgagee, and that the association of co-owners shall maintain such information in a book entitled, “Mortgages of Units.” The association of co-owners may notify the mortgagee of unpaid assessments due from the co-owner of such unit. The association of co-owners shall furnish an individual mortgagee with complete information on all insurance carried by the association of co-owners.
Accordingly, as indicated above, a condominium association must keep a book entitled “Mortgages of Units” and it may notify the mortgagee of unpaid assessments. Pursuant to Mich Admin Code, R 559.507, a mortgagee is also entitled to review the condominium association’s insurance information as well.
Amending Condominium Documents
In addition to complying with the requirements of Mich Admin Code, R 559.507, it is also important that a condominium association has accurate records of all mortgagees in the event that it amends the master deed or condominium bylaws. MCL 559.190(2) provides in pertinent part:
Except as provided in this section, the master deed, bylaws, and condominium subdivision plan may be amended, even if the amendment will materially alter or change the rights of the co-owners or mortgagees, with the consent of not less than 2/3 of the votes of the co-owners and mortgagees. A mortgagee shall have 1 vote for each mortgage held. The 2/3 majority required in this section may not be increased by the terms of the condominium documents, and a provision in any condominium documents that requires the consent of a greater proportion of co-owners or mortgagees for the purposes described in this subsection is void and is superseded by this subsection. Mortgagees are not required to appear at any meeting of co-owners except that their approval shall be solicited through written ballots. Any mortgagee ballots not returned within 90 days of mailing shall be counted as approval for the change. (emphasis added).
MCL 559.190a(9) further defines the voting rights of mortgagees and indicates that a mortgagee vote is required in the following circumstances:
Notwithstanding any provision of the condominium documents to the contrary, first mortgagees are entitled to vote on amendments to the condominium documents only under the following circumstances:
(a) Termination of the condominium project.
(b) A change in the method or formula used to determine the percentage of value assigned to a unit subject to the mortgagee’s mortgage.
(c) A reallocation of responsibility for maintenance, repair, replacement, or decoration for a condominium unit, its appurtenant limited common elements, or the general common elements from the association of co-owners to the condominium unit subject to the mortgagee’s mortgage.
(d) Elimination of a requirement for the association of co-owners to maintain insurance on the project as a whole or a condominium unit subject to the mortgagee’s mortgage or reallocation of responsibility for obtaining or maintaining, or both, insurance from the association of co-owners to the condominium unit subject to the mortgagee’s mortgage.
(e) The modification or elimination of an easement benefiting the condominium unit subject to the mortgagee’s mortgage.
(f) The partial or complete modification, imposition, or removal of leasing restrictions for condominium units in the condominium project.
(g) Amendments requiring the consent of all affected mortgagees under section 90(4).
Similarly, other types of condominium document amendments that do not require a co-owner vote may also require mortgagee approval. By way of example, MCL 559.148 sets forth the process for relocating boundaries between adjoining condominium units and specifically states that, “A relocation of boundaries shall not occur without approval of an affected mortgagee.” Accordingly, a mortgagee book particularly useful in effectuating an amendment to the condominium documents and it can provide the basic information needed to notify mortgagees of amendments to the condominium documents. If a condominium association has never created a book of mortgagee records, or it is out of date, we recommend that a condominium association sends out a mortgagee information sheet to all of the co-owners so that it can gather the required information.
Many condominium associations are unaware that they are required to keep a book of mortgages for all mortgages in the condominium. As indicated above, Mich Admin Code, R 559.507 requires each condominium association to keep this as part of its standard books and records. In addition to being legally required, the mortgagee book of records will provide necessary information to contact mortgagees if the condominium association amends the master deed or condominium bylaws. Accordingly, if your condominium association does not keep records of mortgages, or your records are out of date, it should send out a mortgagee information sheet to all co-owners to complete in order to gather this information. When sending out the mortgagee information sheet, it is not uncommon for a condominium association to receive pushback on why mortgagee information is needed or having co-owners claims that mortgagee information is “private”. Accordingly, when requesting mortgagee information, a condominium association should also explain that it is legally required to keep information on mortgagees and that a co-owner’s failure to provide this information may result in a violation of the condominium bylaws.
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 is also a member of the Community Associations Institute’s (“CAI”) National Board of Trustees. Mr. Hirzel has been a Michigan Super Lawyer’s Rising Star in Real Estate Law from 2013-2020, an award given to only 2.5% of the attorneys in Michigan each year. Mr. Hirzel has been named a Leading Lawyer in Condominium & HOA law by Leading Lawyers Magazine from 2018-2020, an award given to less than 5% of the 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 [email protected].