Michigan Court of Appeals Holds Condominium Act Imposes Successor Liability for Assessments

On May 15th, 2014, the Michigan Court of Appeals held in a real estate case that a successor in interest is liable for assessments and fees owed by its predecessor under the Michigan Condominium Act when the predecessor acquired equitable title to the condominium unit at a sherriff's sale and shortly thereafter transferred title to its successor by quitclaim deed for $1.00.

In Federal National Mortgage Assn v Lagoons Forest Condominium Assn, Docket No. 313953, the Michigan Court of Appeals addressed an appeal from the trial court's grant of defendant's motion for summary disposition.  

The Court first recited the facts of the case.

This case arises out of a foreclosure and subsequent sheriff’s sale of a condominium unit in West Bloomfield, Michigan. The owners of the condominium unit had stopped making payments and defaulted on the mortgage. Additionally, the owners also had failed to pay their condominium association fees and owed defendant $2,460.58 in delinquent association assessment fees. Defendant filed a lien against the property for the unpaid condominium assessments on January 5, 2006. 

On March 1, 2011, at the sheriff’s sale, RBS Citizens Bank purchased the unit for $162,800 and received a sheriff’s deed for the property. The sheriff’s deed stated that the statutory period for redemption by the previous owners would end on September 1, 2011, at which time the sheriff’s deed would become fully operative. On April 7, 2011, RBS Citizens Bank transferred the property to Fannie Mae by quitclaim deed in exchange for $1. 

On September 9, 2011, defendant filed an amendment to the existing lien against the condominium at issue. The amendment provided that the unpaid sum was $13,144.27 and that the owner of the condominium unit was Fannie Mae. On the same day, attorneys for defendant sent a letter to Fannie Mae claiming that because Fannie Mae never requested a written statement from the condominium association of the amount of unpaid assessments owed, pursuant to MCL 559.211(2), it owed defendant for all of the unpaid assessments, including those accrued before and after the foreclosure sale. 

On March 29, 2012, Fannie Mae filed its complaint against defendant in this case. The complaint requested that the court grant declaratory relief in the form of an order releasing Fannie Mae from defendant’s condominium lien. The complaint further alleged common law slander of title, statutory slander of title, and recording of documents with the intent to harass or intimidate. Defendant filed a counter-complaint, alleging that Fannie Mae owed it $21,619.27 for unpaid assessments, late charges, and legal fees pursuant to the condominium act, MCL 559.101 et seq . . .

The Court's analysis of the specific provisions of the Michigan Condominium Act followed.

Fannie Mae first contends that the trial court erred in ruling that it was liable for association assessments because the court’s application of MCL 559.211 to the instant case was improper. We agree, in part. 

MCL 559.211 provides, in pertinent part: 

['](1) Upon the sale or conveyance of a condominium unit, all unpaid assessments, interest, late charges, fines, costs, and attorney fees against a condominium unit shall be paid out of the sale price or by the purchaser in preference over any other assessments or charges of whatever nature . . . . 

(2) . . . Unless the purchaser or grantee requests a written statement from the association of co-owners as provided in this act, at least 5 days before sale, the purchaser or grantee shall be liable for any unpaid assessments against the condominium unit together with interest, costs, fines, late charges, and attorney fees incurred in the collection thereof.[']

[']Association of co-owners['] is defined as [']the person designated in the condominium documents to administer the condominium project,['] MCL 559.103(4), which is in this case, defendant. However, MCL 559.158 provides, in pertinent part: 

If the mortgagee of a first mortgage of record or other purchaser of a condominium unit obtains title to the condominium unit as a result of foreclosure of the first mortgage, that mortgagee or purchaser and his or her successors and assigns are not liable for the assessments by the administering body chargeable to the unit that became due prior to the acquisition of title to the unit by that mortgagee or purchaser and his or her successors and assigns. 

The statute does not define [']successors and assigns.['] When a legal term of art is left undefined, it is appropriate for this Court to consult a legal dictionary. Hunter v Sisco, 300 Mich App 229, 239; 832 NW2d 753 (2013). Black’s Law Dictionary (9th ed) defines [']successor['] as [']one who replaces or follows a predecessor,['] and [']successor in interest['] as ['][o]ne who follows another in ownership or control of property.['] Further, [']assign['] is defined by way of [']assignee['] as ['][o]ne to whom property rights or powers are transferred by another.['] Id

Neither party disputes that RBS Citizens Bank acquired the sheriff’s deed to the condominium as the result of a purchase pursuant to a foreclosure sale on March 1, 2011. Further, neither party disputes that Fannie Mae obtained its interest in the condominium as a result of a quitclaim deed granted by RBS Citizens Bank. Therefore, RBS Citizens Bank can properly be described as the [']purchaser['] and Fannie Mae can properly be described as its [']successor and assign.['] Accordingly, pursuant to MCL 559.158, both RBS Citizens Bank and Fannie Mae were not liable for any assessments and fees that had accrued on the condominium before RBS Citizens Bank’s purchase on March 1, 2011.

The trial court’s reliance on MCL 559.221 in ruling that Fannie Mae was liable for all of the assessments, even those incurred before March 1, 2011, is misplaced. While there is no doubt that the quitclaim transfer between RBS Citizens Bank and Fannie Mae was a [']sale or conveyance['] under MCL 559.211 and that Fannie Mae never requested a written statement from defendant regarding the amount of unpaid assessments, it is clear that the specific provisions of MCL 559.158 govern the circumstances here. 

It is [']well established that to discern the Legislature’s intent, statutory provisions are not to be read in isolation; rather, context matters, and thus statutory provisions are to be read as a whole.['] Robinson v City of Lansing, 486 Mich 1, 15; 782 NW2d 171 (2010). Reading the statutes as a whole, it is clear that MCL 559.158 and MCL 559.211 create a patent ambiguity, which irreconcilably conflict with each other: MCL 559.158 provides that any purchaser (along with any successors or assigns) who acquires title as a result of a foreclosure sale [']are not liable['] for any assessments that became due before the purchaser obtained title; but MCL 559.211 provides that if any [']purchaser or grantee['] does not request a written accounting of the property’s assessments, then that purchaser or grantee [']shall be liable for any unpaid assessments.[']Thus, given the ambiguity, judicial construction is permissible. Whitman, 493 Mich at 312. 

When confronted with two conflicting statutory provisions, specific statutory provisions prevail over more general ones. Ter Beek v City of Wyoming, 495 Mich 1, 22; ___ NW2d ___ (2014). It is abundantly clear that MCL 559.158 acts to eliminate all preexisting association assessments and corresponding fees and costs once a condominium is foreclosed upon, unless the original owner reclaims the property during the redemption period. The specific circumstance described in MCL 559.158 involving [']foreclosure['] sales prevails over the general circumstance described in MCL 559.221 involving generic [']sale[s] or conveyance[s].['] See id. Thus, because RBS Citizens Bank took title as a result of a sheriff’s sale after a foreclosure, and because Fannie Mae was a successor in interest, the foreclosure acted to eliminate all preexisting association assessments. MCL 559.158. Furthermore, even though Fannie Mae did not comply with MCL 559.211(2) by requesting a written statement from defendant before it obtained title from RBS Citizens Bank, this fact does not restore the association assessments that were eliminated by the foreclosure. 

Therefore, the next issue before us is to determine the applicable date from which Fannie Mae is liable for any outstanding association assessments. Pursuant to MCL 559.158, if a party obtains [']title['] to a condominium unit as a result of foreclosure, that party is not liable for assessments [']that became due prior to the acquisition of title to the unit.['] (Emphasis added.) Therefore, as RBS Citizens Bank’s successor, Fannie Mae is only liable for the assessments that accrued after RBS Citizens Bank acquired [']title['] to the condominium unit. 

Fannie Mae argues that because a sheriff’s deed does not vest [']full title['] to its holder until after the statutory redemption period passes, it is not liable for any assessments that became due prior to the end of the statutory redemption period, which is September 1, 2011. In support of this contention, Fannie Mae cites caselaw holding that a sheriff’s deed grants the holder an equitable interest in the foreclosed property, which vests or ripens into absolute title only if the sheriff’s deed is not defeated by redemption during the statutory period. See, e.g., Gerasimos v Continental Bank, 237 Mich 513, 519-520; 212 NW 71 (1927); Dunitz v Woodford Apartments Co, 236 Mich 45, 49; 209 NW 809 (1926); Ruby & Assoc, PC v Shore Fin Servs, 276 Mich App 110, 117-118; 741 NW2d 72 (2007), vacated in part on other grounds 480 Mich 1107 (2008). However, this argument ignores those very cases, which state that a sheriff’s deed grants [']equitable title,['] Gerasimos, 237 Mich at 520 (emphasis added); Ruby & Assoc, PC, 276 Mich App at 118 (emphasis added), or “an interest or title, equitable in character,” Dunitz, 236 Mich at 49 (emphasis added). While there is no doubt that a sheriff’s deed does not grant absolute title, that characteristic is not dispositive. As this Court has recently held, ['][MCL 559.158] does not require that the purchaser have ‘absolute title,’ just a ‘title,’ and an equitable title is a form of title.['] Wells Fargo Bank v Country Place Condo Ass’n, ___ Mich App ___; ___ NW2d ___ (Docket No. 312733, decided March 18, 2014), slip op, pp 6-7. 

Therefore, on this basis, we hold that RBS Citizens Bank took title, albeit title limited by the statutory redemption period, on the date of the sheriff’s sale, March 1, 2011. The statute, MCL 559.158, does not specify the type of [']title['] a purchaser must acquire after which assessments can accrue, and the equitable title possessed by RBS Citizens Bank as a result of the sheriff’s deed and then transferred to Fannie Mae was sufficient. Id. Therefore, Fannie Mae properly owes all association fees and assessments from March 1, 2011, onward.