Michigan Court Confirms: Tax Foreclosure Sale Does Not Eliminate Obligation to Pay HOA Assessments

Michigan Court Confirms: Tax Foreclosure Sale Does Not Eliminate Obligation to Pay HOA Assessments

On May 12, 2000, the Michigan Court of Appeals issued an important decision in Lakes of the North Association v. Twiga Limited Partnership, clarifying that a Michigan tax foreclosure sale does not cancel the obligation to pay HOA assessments. This case is critical for condominium and homeowners association board members to understand, especially when dealing with delinquent accounts or foreclosed properties.

Background

In 1992, the State of Michigan acquired four lots in the Lakes of the North Association after a tax foreclosure sale. These lots were bid to the state due to unpaid property taxes and the absence of third-party buyers. After the redemption period expired, the state obtained absolute title, wiping out all prior liens, taxes, and special assessments.

Two years later, Twiga Limited Partnership purchased the lots from the state and refused to pay the HOA assessments levied by the Lakes of the North Association. Twiga argued that because the lots were acquired from the state after a tax sale—and all encumbrances had supposedly been wiped out—the association could no longer require payment of dues.

The Legal Question

The key legal issue in the case was whether HOA assessments, imposed through recorded restrictive covenants, qualify as an “encumbrance” under MCL 211.67, the statute that governs the effect of tax foreclosure sales in Michigan.

Twiga argued that since encumbrances are extinguished after a tax sale, the lots should be free of any HOA obligations.

The Court’s Ruling

The Michigan Court of Appeals disagreed with Twiga and upheld the trial court’s ruling in favor of the Lakes of the North Association.

• • HOA Assessments Survive Tax Sales: The court found that restrictive covenants requiring payment of assessments do not constitute “encumbrances” under MCL 211.67. Therefore, HOA dues still apply even after a tax foreclosure.
  • Lien vs. Obligation: While an HOA lien for unpaid assessments may be extinguished by a tax sale, the obligation to pay assessments survives. This is because the duty to pay is rooted in the contractual and recorded restrictions, not in a lien alone.
  • Public Policy Considerations: The court emphasized that deed restrictions, including HOA covenants, promote community stability and property values—important public policy objectives. These benefits outweigh the argument that properties are harder to sell due to such restrictions.

What Does this Mean for Community Association Boards?

Board members are often concerned about what happens when a unit or lot is lost in a tax foreclosure. The ruling in Lakes of the North Association v. Twiga Limited Partnership reinforces the principle that HOA assessment obligations, established through restrictive covenants, survive a tax foreclosure sale and are not considered encumbrances under MCL § 211.67. This decision confirms that even when a delinquent owner loses the property through a tax sale, the new owner still owes assessments moving forward—as long as the governing documents contain valid and enforceable assessment obligations.

In short: a tax sale clears liens, not responsibilities.

What Should Your Association Do?

1. 1. Review Your Governing Documents: Ensure your declaration or master deed includes clear language about the obligation to pay assessments, separate from lien rights.
   2. Act Quickly on Delinquencies: Associations should not delay in pursuing collection of unpaid assessments, especially when a property is at risk of foreclosure.
   3. Track Ownership Changes: When a tax sale occurs, promptly update your records and begin billing the new owner for assessments.
   4. Consult Legal Counsel: If you’re unsure how to proceed after a foreclosure, it’s essential to seek legal advice to protect the association’s financial interests.

At Hirzel Law, PLC, we routinely assist condominium and HOA boards in navigating complex collection issues, including post-foreclosure recovery. Whether it’s developing proactive collection policies or enforcing assessment obligations, our team understands how to preserve your association’s financial health while staying within the bounds of Michigan law. If your community association is dealing with delinquencies, foreclosures, or post-sale collections, contact us today to navigate your collections issues!

Sarina Saravi obtained her Bachelor of Arts degree with a specialization in Criminology and a minor in Sociology with High Distinction from the University of Toronto in 2018. She continued her academic journey at Michigan State College of Law where she pursued her Juris Doctorate (J.D.) degree and graduated Cum Laude in 2023. During her time at MSU College of Law, Ms. Saravi was a diligent student and actively engaged in various roles and responsibilities. She served as a Research Assistant, contributing to legal research that pushed the boundaries of knowledge in the field. Her commitment to academia extended to her roles as a Teaching Assistant for both Research, Writing, and Advocacy, and as an Advocacy Teaching Assistant, where she helped nurture the next generation of legal minds. Beyond her professional commitments, Ms. Saravi is deeply committed to giving back to her community. She volunteered at Expungement Fairs, organizing two events, one with Legal Services of Eastern Michigan in July 2021, and another with the MSU Law Criminal Defense Association in January 2023. Her dedication to helping individuals with legal matters demonstrates her unwavering commitment to justice. She may be reached at (248) 986-2290 or ssaravi@hirzellaw.com.