In a unanimous but problematic decision issued on February 25, 2021 in Channel View East Condominium Association, Inc. v Ferguson (Docket No. 351888), a panel of the Michigan Court of Appeals held that a condominium association did not have authority to foreclose its statutory lien solely on the basis of unpaid fines.
This case arose from a co-owner's failure to complete construction of a residence upon the co-owner's unit within 12 months of obtaining title as required by the condominium documents. When the co-owners failed to timely complete construction, the association imposed fines on an escalating schedule and, after several years, recorded a lien in the amount of $137,800, which solely reflected unpaid fines in the amount of $137,800. After the fines went unpaid, the association filed a lawsuit seeking, among other things, judicial foreclosure of its lien.
The trial court held that the co-owner failed to cure the violation and therefore the fines were validly levied and could be assessed to the unit. On appeal, the Court of Appeals not only remanded the case back to the trial court to analyze the reasonableness of the fines, it also held that the association was not entitled to foreclose its statutory lien since the balance only consisted of unpaid fines.
To reach its convoluted conclusion, the Court of Appeals parsed the language of Sections 106 and 108 of the Michigan Condominium Act. Section 106, MCL 559.206, regarding a condominium association's remedies states in relevant part:
Section 108, MCL 559.208, establishes that "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…" (emphasis added). Because the Condominium Act utilizes the terms "assessments" and "fines" distinctly and because MCL 559.206 specifically references the ability to foreclose on assessments, but does not explicitly reference foreclosure of the lien for unpaid fines, the Court unfortunately interpreted Section 108 to mean that fines are only secured by the association's lien if there are concurrent unpaid assessments. The Court of Appeals ultimately held that "MCL 559.208(1) does not provide that fines and the other added categories become liens unto themselves, separate and distinct from assessment liens." Channel View East Condominium Association, Inc. v Ferguson at p. 9.
While the Court of Appeals' decision requires condominium associations to tread carefully when foreclosing for unpaid fines, it does appear that the bylaws for the association in the Channel View East Condominium Association case did not explicitly reference the ability to assess fines. Therefore, while the Court's holding may prevent associations from foreclosing based solely on unpaid fines when the bylaws are silent on the ability to fine, the result may not be the same if a condominium association's bylaws contain language that specifies fines are to be assessed to the unit and secured by the association's lien. We recommend that condominium associations review the language in their Bylaws to confirm whether there is reference to assessment of fines and collecting fines in the same manner as assessments to help ensure their fines are ultimately collectable via foreclosure of the association's lien.
As always, if you have any questions about the language in your community's documents or enforcing those documents when fines are not correcting a co-owner's behavior, please contact our attorneys at MAGWV.