The Michigan Condominium Act provides that sums assessed to a co-owner’s unit constitute a lien on the unit at the time they are assessed. If condo assessments remain unpaid, condominium associations typically record a notice of lien against the subject unit to perfect the security interest and put others on record notice. At a minimum of ten days after serving the notice of lien on the co-owner(s), the condominium association can then foreclose by advertisement or judicially.
For condominium associations that have the option to foreclose on their liens, the condo association’s lien position is an important component in determining whether the condominium association wants to elect to foreclose. There are various lien interests that can appear on title, i.e., mortgages, state and federal tax liens, construction liens, mechanics liens, and attorney liens. Since Michigan is a race-notice state, the date the interest is recorded largely dictates the condominium association’s lien position. However, there are Michigan statutes and caselaw that will change the priority of certain types of liens regardless of when they were recorded.
What does the Michigan Condominium Act say about condominium lien priority?
MCL 559.208(1) of the Michigan Condominium Act addresses lien position as follows:
Sums assessed to a co-owner by the association of co-owners that are unpaid together with interest on such sums, collection and late charges, advances made by the association of co-owners for taxes or other liens to protect its lien, attorney fees, and fines in accordance with the condominium documents, constitute a lien upon the unit or units in the project owned by the co-owner at the time of the assessment before other liens except tax liens on the condominium unit in favor of any state or federal taxing authority and sums unpaid on a first mortgage of record, except that past due assessments that are evidenced by a notice of lien recorded as set forth in subsection (3) have priority over a first mortgage recorded subsequent to the recording of the notice of lien. The lien upon each condominium unit owned by the co-owner shall be in the amount assessed against the condominium unit, plus a proportionate share of the total of all other unpaid assessments attributable to condominium units no longer owned by the co-owner but which became due while the co-owner had title to the condominium units. The lien may be foreclosed by an action or by advertisement by the association of co-owners in the name of the condominium project on behalf of the other co-owners.
Mortgages are the most common interest recorded against real property. Pursuant to MCL 559.208(1), a condominium lien can have priority over a first mortgage of record if the condominium lien is recorded against the unit prior to the mortgage. Otherwise, if the first mortgage of record is recorded prior to the condominium lien, the mortgage will have priority over the condominium lien. However, this only applies to first mortgages of record. If there are two or more mortgages recorded against a unit, the condominium lien will take priority over the junior mortgage(s).
Another common interest recorded against condominium units are federal and state tax liens. As stated in MCL 559.208(1), condominium liens do not take priority over the liens of any state or federal taxing authorities. However, pursuant to Yarmouth Commons Association v. Norwood, 299 F.Supp.3d 862 (E.D. Mich. 2017), a prior recorded condominium lien has priority over a federal tax lien but only to the extent of the amount stated in the lien notice. This is somewhat incongruous with MCL 559.208(3)(iii), which states that the notice must list the amount due to the condominium association, as of the date of the notice, “exclusive of interest, costs, attorney fees, and future assessments.” As such, the notice of lien does not state the total amount due on the lien to be able to secure the full amount of the condominium association’s interest. In those cases, if the condominium association is anticipating a federal tax lien could be recorded, the condo association may want to consider amended its notice of lien with updated assessment amounts periodically.
Another potential interest condominium associations may see recorded against a unit are construction liens. In Michigan, a contractor who makes repairs or other improvements to a unit can record a construction lien against the co-owner to secure repayment of their invoices for the work performed. Pursuant to MCL 570.1119(1) of the Michigan Construction Lien Act, condominium liens recorded after a duly recorded construction lien would not have priority over the construction lien. However, this language conflicts with MCL 559.208, which would indicate that a condominium lien would have priority over all other liens. Accordingly, whether a condominium lien or a construction lien has priority is frequently a contested issue and will remain so until a published case or legislative change comes about.
As stated above, it is very important for condominium associations to review the interests recorded against title to a unit that they are considering foreclosing on. Purchasing a title commitment from a title company is recommended as it will outline the status of title, the interests recorded, and state the conditions that must be met in order for the title company to issue a title insurance policy. Condominium associations should work with a condominium attorney to review their options and ensure they understand the various alternatives that could happen with title if not foreclosing in senior lien position.
Chantelle R. Neumann is an experienced creditors’ rights attorney who leads Hirzel Law, PLC’s Collections Department. Ms. Neumann received her Bachelor of Arts degree in Psychology from the University of Michigan. She then obtained her Juris Doctor degree from Thomas M. Cooley Law School, where she graduated cum laude and served as the Comments Editor on the Board of Editors for the Thomas M. Cooley Law Review. Ms. Neumann has been named a Michigan “Rising Star” in creditor debtor rights by Super Lawyers Magazine from 2016 to 2021 – a designation given to no more than 2.5% of the attorneys in Michigan each year. She can be reached at (248) 986-2290 or cneumann@hirzellaw.com.
