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Byline from Charlie Hahn: Condominium Law Update, Legal League Quarterly | Spring 2013


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As seen in the Legal League Quarterly, Spring 2013:
Condominium Law Update
Get up to speed with Michigan's latest condo rules and regs.
By Charlie Hahn

Excerpt: It appears that the continued legal wrangling in Michigan between mortgage servicers and condominium associations may be coming to an end. Ever since a controversial trial court decision in 2005, the Condominium Bar has been promoting an interpretation of the Condominium Act that claims that an assignment of the first mortgage after the recording of an association lien results in the mortgage losing its priority, Greenbrooke vs. Hubble & Midfirst Bank, Oakland County No. 12-2005 (11-2-05).
This claim was based on the assertion that an assignment was a “conveyance” of an interest in the unit, thus triggering section 211 (MCL 559.211), which requires a fee payoff request to the association.

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Byline from Charlie Hahn: Condominium Law Update, Legal League Quarterly | Spring 2013

  1. 1. 10 Legal League Quarterly States: Michigan Condominium Law Update Get up to speed with Michigan’s latest condo rules and regs. By: Charlie Hahn, Trott & Trott It appears that the continued legal wrangling in Michigan between mortgage servicers and condominium associations may be coming to an end. Ever since a controversial trial court decision in 2005, the Condominium Bar has been promoting an interpretation of the Con- dominium Act that claims that an assignment of the first mortgage after the recording of an association lien results in the mortgage losing its priority, Greenbrooke vs. Hubble & Midfirst Bank, Oakland County No. 12-2005 (11-2-05). This claim was based on the assertion that an assignment was a “conveyance” of an interest in the unit, thus triggering section 211 (MCL 559.211), which requires a fee payoff request to the association. Those who disputed this conclu- sion pointed out that such an interpretation ignores (or at least contradicts) clearly stated language found in other relevant provisions of the act, most notably Sections 211 and 158. The intended effects of this theory were clear: to disrupt the foreclosure of the first mort- gage by causing it to fail to extinguish the junior condominium lien and subsequently subjecting the mortgagee to all past unpaid assessments, late fees, and condominium attorney fees. Unfortunately, this seemingly tenuous legal theory was given additional creditability by the decision of most title insurers to refuse to insure over the junior condominium lien when the first mortgage was foreclosed. This unresolved legal tension led to a number of trial court battles. Despite the fact that a significant majority of the decisions found in favor of the assignee of the first mortgage maintaining its priority posi- tion, the litigious back-and-forth continued. After years of debate, the issue was heard by the Court of Appeals on October 10, 2012, and a published decision was issued on Oc- tober 25, 2012, Coventry Parkhomes Condo- minium Assoc. vs. Federal National Mortgage Association, _____ Mich. App._____, No. 304188 (10-25-2012); reconsideration denied 12-18-12. The Court of Appeals did not agree with the association and upheld normal “race- notice” principles. The strongly worded deci- sion states that there is nothing in the Condo- minium Act that could/should be interpreted to change the longstanding principal that an assignee stands in the shoes of the assignor. During oral arguments, the court displayed little sympathy for the association’s arguments, going so far as to make it clear that, in the opin- ion of the court, such an idea could inject an element of chaos into the mortgage market. While this decision resolves what has been a nagging problem for the mortgage industry—and, in the process, promises to eliminate hundreds of thousands of dollars in improper association charges— other issues continue to generate similar discussion and debate. One of the most noteworthy of these is the issue of precisely when a sheriff’s deed vests its title. While that question has been consistently answered by dozens of published opinions over the century and a half (and was recently restated in In re Receivership of 11910 South Franklin Rd. 492 Mich. 208, 821 NW2d 503 (7-30-12)), some members of the Condominium Bar continue to argue otherwise. Charles L. Hahn serves as a senior litigation attorney for Trott & Trott, P.C., one of the nation’s premier law firms conducting residential default procedures and applying foreclosure avoidance solution. Contact Hahn at 2. In a series of related cases involving sev- eral mortgages encumbering numerous invest- ment properties, a lender seized rents under the assignment of rents and leases in the mortgages. The borrowers interfered and threatened at least one tenant, so a Petition for Preliminary Injunc- tion was filed, which was granted by agreement of the parties. Despite the Injunction to which the borrowers had consented and which required that rent be turned over to the lender, the bor- rowers continued to interfere with rent flow and pocket the rent. It took two subsequent petitions (both seeking sanctions) and several evidentiary hearings for the Motions judge to issue an Order finding the borrowers in contempt of court; awarding attorneys’ fees to the lender; ordering the turnover of improperly withheld rents; and imposing a per diem interest penalty. Notwith- standing that Order, the borrowers (consistent with prior actions) did not comply. Consequently, the lender filed a fourth petition, seeking a bench warrant. Though a bench warrant was not issued, the Motions judge expressed his annoyance and dissatisfaction with the borrowers on the record at an evidentiary hearing and issued an Order giving the borrowers 30 more days to comply with his nearly nine-month-old contempt Order. Around the last day, the borrowers finally paid the monetary sanctions, but not the interest pen- alty required by the contempt Order. Addition- ally, during the course of those cases, one of the borrowers filed a Chapter 13 bankruptcy, which was frivolous. Not only did Debtor’s Schedules contain misrepresentations, but subsequent filings were not completely truthful. On the lend- er’s Rule 11/9011 motion for sanctions, relying primarily on Section 105(a) of the Bankruptcy Code, and after a hearing on the merits involving the Chapter 13 trustee, the bankruptcy judge, inter alia, barred the debtor from re-filing for six months. Though the lender had the right to also file a Petition for Appointment of Receiver, the lender opted not to do so at the time of referral. It is believed that appointment of a receiver would not have changed the borrowers’ conduct and a receiver would have experienced the same chicanery. However, a significant advantage to a receiver is that it becomes the receiver’s responsibility, not the lender/servicer’s, to handle property management. The lender/servicer would still likely have the headache of paying for a receiver and, thus, the lender/servicer should just assume the worst when authorizing a Petition for Appointment of Receiver: That even if the receivership Order directs borrowers to pay for a receiver, they are not going to comply. 3. In a post-sheriff’s deed ejectment (evic- tion) case, the borrowers filed a motion to stay lockout, falsely claiming that a lockout occurred. The hearing was continued three times and, each time, the borrowers raised different theories as to why lockout should be stayed. At the third hearing, the borrowers claimed that the loan had been satisfied before sheriff’s sale by the borrow- ers’ aunt right before she had died. Despite the lender’s argument that such a claim should have been raised in the foreclosure action and not in a subsequent ejectment action, the Motions judge continued the third hearing for the borrowers to assemble and submit evidence of the payoff. At the fourth hearing, only one of the borrowers appeared and he attempted to outright avoid dis- cussing the issue of the payoff. When pressed by the Motions judge, the borrower finally conceded that there never was a payoff. Upon request of the lender’s counsel for a provision in the Court’s Order barring both borrowers from filing any further motions or petitions to postpone or stay lockout, the Motions judge initially declined from including such bar; however, the borrower con- tinued to spar verbally with the judge and never apologized for misrepresenting a material fact to him. This not only angered the Motions judge, resulting in a public on-the-record admonish- ment that the borrowers had “wasted his time,” but also caused the Motions judge to reverse his thinking, as he ended up including the re-filing bar. The Motions judge also warned the borrower on the record that any further motions or peti- tions would result in more severe sanctions. Therefore, under the right set of facts, lenders/servicers can obtain at least a verbal reprimand or, at best, sanctions (monetary or otherwise) for unlawful and/or inappropriate con- duct in a civil case. Sanctions, in particular, can require several motions or petitions and hearings (and are likely appealable in many jurisdictions). However, persistence, an aggressive ap- proach, and reliance on local counsel’s expertise as to when you should fight the good fight can result in tactical advantages, such as: » favorable court orders that serve as precedent; » heightened settlement leverage; » re-filing bars that can preclude the filing of further dilatory motions and/or petitions, which cost time and money to defend; and » a message to borrowers, judges, and the defense bar that lenders/servicers are not afraid to be vigilant and willing to enforce their rights in the face of bad conduct. In fact, the last point above is especially important, as there are individuals in the judi- ciary and defense bar who believe that lenders/ servicers will generally just turn a blind eye to misbehavior in order to minimize attorneys’ fees, court costs, and headline risks. However, by not taking any action or counteraction, lenders/ servicers arguably become enablers to bad apple borrowers and engender a culture of misbehavior. Thus, we should not be completely shocked when borrowers, with or without counsel, intentionally run afoul of the law and push the envelope to see what they can “get away with.” “Borrowers Behaving Badly” continued from page 1
  2. 2. 14 Legal League Quarterly THE MISSION OF THE LEGAL LEAGUE 100 IS TO PROVIDE A COMMUNICATION PLATFORM FOR INFORMATION EXCHANGE WHILE FACILITATING STRATEGIC BUSINESS-RELATIONSHIP DEVELOPMENT OPPORTUNITIES TO ITS MEMBERS AND THE MORTGAGE SERVICING COMMUNITY. THIS SEASON’S PREMIER ATTORNEY LINE-UP ALABAMA Dumas & McPhail, LLC Jauregui & Lindsey, LLC McCalla Raymer, LLC ARIZONA Houser & Allison, APC Law Offices of Les Zieve ARKANSAS Dyke, Henry, Goldsholl & Winzerling, LLP CALIFORNIA Barrett Daffin Frappier Treder & Weiss, LLP 626.915.5714 Jackson & Associates, Inc. Pite Duncan, LLP Rosenthal, Withem and Zeff COLORADO Aronowitz & Mecklenburg, LLP 303.813.1177 Castle Stawiarski, LLC 303.865.1400 CONNECTICUT Bendett & McHugh, P.C. Witherspoon Law Offices FLORIDA Choice Legal Group, P.A. Gilbert Garcia Group, P.A. 813.638.8920 Kahane & Associates, P.A. Van Ness Law Firm, P.A. GEORGIA Morris Hardwick Schneider Richard B. Maner, P.C. Rubin Lublin, LLC ILLINOIS Codilis & Associates, P.C. Freedman Anselmo & Lindberg, LLC Pierce & Associates, P.C. The Wirbicki Law Group INDIANA Doyle Legal Corporation, P.C. Unterberg & Associates, P.C. 219.736.5579 HAWAII The Mortgage Law Firm 858.740.0442 IOWA Dunakey & Klatt, P.C. KENTUCKY Christopher M. Hill & Associates, PSC Lerner, Sampson & Rothfuss Nielson & Sherry, PSC LOUISIANA Dean Morris, LLP 318.388.1440 MARYLAND Covahey, Boozer, Devan & Dore, P.A. 443.541.8600 Rosenberg & Associates, LLC The Fisher Law Group, PLLC MASSACHUSETTS Ablitt Scofield, P.C. Doonan, Graves & Longoria, LLC Guaetta & Benson, LLC Marinosci Law Group, P.C. MICHIGAN Fabrizio & Brook, P.C. Potestivo & Associates, P.C. Schneiderman & Sherman, P.C. Trott & Trott, P.C. MINNESOTA Shapiro & Zielke, LLP Wilford, Geske & Cook, P.A. MISSISSIPPI Adams & Edens, P.A. * MISSOURI Kozeny & McCubbin, L.C. Martin, Leigh, Laws & Fritzlen, P.C. Millsap & Singer, LLC South & Associates, P.C. NEBRASKA Eric H. Lindquist, P.C., LLO NEVADA The Cooper Castle Law Firm, LLP Malcolm Cisneros NEW JERSEY Fein, Such, Kahn & Shepard, P.C. Kivitz McKeever Lee, P.C. Phelan Hallinan & Diamond, P.C. Stern & Eisenberg, P. C. NEW YORK Davidson Fink LLP Kozeny, McCubbin & Katz, LLP Rosicki, Rosicki & Associates, P.C. Stein, Wiener & Roth, LLP 516.742.6161 NORTH CAROLINA Hutchens, Senter, Kellam & Pettit, P.A. Rogers Townsend & Thomas, P.C. Shapiro and Ingle, LLP The Hunoval Law Firm, PLLC OHIO Carlisle, McNellie, Rini, Kramer & Ulrich Co., LPA Laurito & Laurito, LLC The Law Offices of John D. Clunk Co., LPA Reimer,Arnovitz,Chernek&Jeffrey Co.,LPA Reisenfeld & Associates, LPA, LLC Weltman, Weinberg & Reis Co., LPA OKLAHOMA Baer, Timberlake, Coulson & Cates 405.842.7722 Lamun Mock Cunnyngham & Davis 405.840.5900 PENNSYLVANIA Kerns Pearlstine Onorato & Hladik, LLP KML Law Group, P.C. Martha E. Von Rosenstiel, PC Richard M. Squire & Associates, LLC SOUTH CAROLINA Brock & Scott, PLLC Finkel Law Firm, LLC The Hunoval Law Firm, PLLC Rogers Townsend & Thomas P.C. TENNESSEE McCurdy & Candler, LLC Shapiro & Kirsch, LLP Weiss Spicer Cash, PLLC Wilson & Associates, PLLC TEXAS Barrett Daffin Frappier Turner & Engel, LLP 972.386.5040 Butler & Hosch, P.A. Hughes, Watters & Askanase, LLP Jack O’Boyle & Associates WEST VIRGINIA Bailey, Joseph & Slotnick, PLLC WISCONSIN Bass & Moglowsky, S.C. Blommer Peterman, S.C. O’Dess and Associates, S.C. FOR MORE INFOR MATION AB OUT OUR MEMB ER S, C ALL 8 0 0.856.8 060.
  3. 3. Legal League Quarterly 15 LEGAL LEAGUE 100 ASSOCIATE MEMBERS abc legal services 633 Yesler Way Seattle, WA 98104 888.294.0408 CONTACT Reid McNair affinity consulting group 11370 66th Street North, Suite 132 Largo, FL 33773 727.544.5400 CONTACT Debbie Foster default-solutions 7723 Tylers Place Blvd., #184 West Chester, OH 45069 513.257.9948 CONTACT Elizabeth A. Potter emason 4592 Ulmerton Road, Suite 101 Clearwater, FL 33762 866.222.3370 CONTACT Stacie Hawkins Firefly legal, inc. 19150 S. 88th Ave. Mokena, IL 60448 708.326.1410 CONTACT Jennifer Dlugolecki Kmc information systems, l.c./caseaware® 101 W. Argonne Drive Suite 261 St. Louis, MO 63122 314.961.9587 CONTACT Daniel R. Cannon mortgage specialist international, llc 500 Grapevine Hwy. Hurst, TX 76054 817.345.4228 CONTACT Jack Bryant Phoenix consulting, llc 31226 North 155th Street Scottsdale, AZ 85262 480.776.9444 CONTACT William M. LeRoy Prommis solutions, llc 400 Northridge Road Suite 700 Atlanta, GA 30350 678.983.7842 CONTACTS Kath Pickering ProVest, llc 4520 Seedling Circle Tampa, FL 33614 813.877.2844, ext. 1424 CONTACT Victor Draper ndex 31440 Northwestern Hwy., Ste. 300 Farmington Hills, MI 48334 248.432.9005 CONTACT Scott Goldstein us real estate services (usres) 25520 Commercentre Drive, 2nd Floor Lake Forest, CA 92630 949.598.9920 CONTACT Angela Hurst
  4. 4. 1909 WOODALL RODGERS SUITE 300 DALLAS, TEXAS 75201 214.525.6700 LEGAL LEAGUE SPRING SERVICER SUMMIT APRIL 18, 2013 | THE RITZ-CARLTON, DALLAS To register contact Kelli Snowgren at or 214.525.6786 SAVE THE DATE